Bank of Canada Official Admits Key Rate 'Too Blunt' for Housing Affordability

A top official at the Bank of Canada has acknowledged that its key interest rate is 'too blunt' to address housing unaffordability alone. In a recent speech, senior deputy governor Carolyn Rogers explained that lower interest rates fuel rising home prices while higher borrowing costs box out prospective buyers.

Rogers noted that residential investment now accounts for 4.3% of Canada's gross domestic product, compared to 8.3% for business investment in equipment and machinery in 2000. This shift has made housing a major contributor to household wealth and the broader economy.

The Bank of Canada has tried to incorporate a housing affordability lens into its five-year mandate review with the federal government, which is set to take place this fall. Rogers emphasized that multiple levels of government, regulators, and the private sector need to work together to strike a balance between boosting supply and reducing reliance on perpetually rising home prices.

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