Bank of Canada Says Interest Rates Are Too Blunt to Fix Housing Affordability
- Canada is facing persistent housing challenges as senior Bank of Canada officials warn that the window for affordable housing in Canada is closing, though restoring balance will require...
- Speaking to a business audience in Victoria, British Columbia, Senior Deputy Governor Carolyn Rogers stated on Thursday that Canada is on the right track to addressing the issue...
- Rogers explained that the central bank sets a single interest rate for the entire economy and cannot tailor different rates for the housing sector versus other industries.
Canada is facing persistent housing challenges as senior Bank of Canada officials warn that the window for affordable housing in Canada is closing, though restoring balance will require more time and a broader mix of policies rather than monetary adjustments alone.
Speaking to a business audience in Victoria, British Columbia, Senior Deputy Governor Carolyn Rogers stated on Thursday that Canada is on the right track to addressing the issue of housing affordability but still has a way to go and needs more time. Rogers emphasized that monetary policy is too blunt a tool to fix housing unaffordability on its own.
Interest Rates Cannot Target Housing Sector Specifically
Rogers explained that the central bank sets a single interest rate for the entire economy and cannot tailor different rates for the housing sector versus other industries. Lowering rates fuels rising demand and pushes prices up, while higher borrowing costs box out prospective buyers and can slow down the pace of new construction. Because home prices simultaneously affect household wealth and rental costs, Rogers described the situation by stating, It feels a bit like a trap.
The central bank’s second in command also noted that interest rates cannot directly address supply constraints, build homes, rezone land, or speed up permits. Targeting house prices directly with interest rates would risk imposing costs across the broader economy, prompting the bank to maintain that housing should remain an input rather than a direct target of rate decisions.
Path Forward and Upcoming Decisions
Restoring affordability will require increased supply, better planning and infrastructure, regulations that protect resilience, and incentives that do not add demand to an already constrained market. Rogers noted that achieving this balance demands patience and coordination among multiple levels of government, regulators, and the private sector.
The Bank of Canada’s policy rate currently sits at 2.25%, following a correction of about 20% in home prices since their peak during the COVID-19 pandemic. The central bank is next scheduled to set interest rates on October 28.