Bank of Canada Admits Housing Affordability Challenges Require More Than Monetary Policy

Bank of Canada Senior Deputy Governor Carolyn Rogers acknowledged that the central bank lacks the tools to fix complex housing affordability challenges. In a speech in Victoria, B.C., she explained that efforts to address instability in the market have historically raised barriers to buying a home, even if those regulations helped maintain stability.

Rogers noted that residential investment now accounts for 8.3% of Canada's gross domestic product, compared to 4.3% in 2000, when business investment in equipment and machinery was at 8.3%. She said the central bank's key interest rate is 'too blunt' to fix housing affordability alone because lower rates fuel rising prices while higher borrowing costs box out prospective buyers.

Rogers also defended the Bank of Canada's actions during the COVID-19 pandemic against criticisms that the central bank stoked a run-up in prices over that period. She acknowledged that rock-bottom interest rates made credit cheaper and lowered the barrier to homebuying, but said strong immigration levels, tight restrictions on building new supply, and the speculative view of housing as a path to wealth also encouraged demand.