Canada's Central Bank Official Admits Interest Rates Won't Fix Housing Affordability

Carolyn Rogers, senior deputy governor of the Bank of Canada, recently spoke at an event in Victoria about the central bank's policy rate and its impact on housing affordability. According to Rogers, lower interest rates push up prices, while higher borrowing costs shut out potential buyers. However, she noted that setting a separate interest rate for housing is not feasible.

Rogers emphasized that the Bank of Canada's policy rate is a blunt tool applied across the whole economy and cannot directly address supply constraints in the housing market. She pointed out that rates cannot build homes, rezone land, or speed up permits, which are essential steps to improve housing affordability.

The Bank of Canada has acknowledged that its pandemic response, including holding interest rates low for an extended period, contributed to surging home prices. Rogers defended this decision, stating that it cushioned the economy during a critical time. However, she noted that prolonged declines in housing prices can still erode household wealth and investor confidence.

Rogers stressed that real progress towards improving housing affordability will require more than just monetary policy. She argued that addressing supply constraints, better planning, and infrastructure development are essential to making the economy less dependent on rising house prices.