Reference no: EM133082044
It political scientist recently said the following in response to a question on how to make Vancouver house in price is more affordable: "don't get me started on speculators who are nothing to a value and just artificially increase housing prices. Why we let speculators flip pre-sale condos is unimaginable"
Let's assume that Bob Jones begin construction of a 20 story condo building in 2015. . In order to help finance his project Bob pre-sell some of the condo units. A "pre-sale" is where buyers purchased a condo in 2015 even though the building will not be occupied until 2017. Let's consider two identical condo units: "A" is presold to Jane Smith, and "B" is not presold. Let's also Soum that condo "A" are you still teaching for 300,000 and that Bob ended up selling condo "B" for 50,000 in 2017.
A) what determines the price of condo "B" in 2017? Show this in a graph assuming that there is fixed supply of condo units like "A" and "B"
B) what will the price of condo "A" be in 2017? Does the fact that condo " A" was pre-sold to Jane in 2015 have any bearing on the price in 2017?
c) the condos obviously increase in value over the shears resulting in a capital gain who captured the Capital gains of each condo?
d) if Jane decides to sell the condo in 2017 rather than live in it what does this say about her total value of the condo compared to the purchasers in the market? What her sale increase social value (the sum of the seller and consumer surplus)?
e) given your answers from (a) t0 (d) just speculation increase housing prices and should we ban it as the political scientists suggests?
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