Bank of Canada Admits Key Rate 'Too Blunt' to Tackle Housing Unaffordability

Carolyn Rogers, Senior Deputy Governor of the Bank of Canada, said that monetary policymakers are struggling to address housing affordability challenges due to the complex interplay between housing, regulation, and the economy.

Rogers noted that in 2000, residential investment accounted for 4.3 per cent of Canada's GDP, while business investment in equipment and machinery sat at 8.3 per cent. These shares are now largely reversed.

The Bank of Canada'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 said.

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