Housing Affordability Challenge

Bank of Canada Governor Tiff Macklem has acknowledged that housing affordability is a major challenge for the Canadian economy. However, he emphasized that the central bank's ability to address this issue is limited due to factors such as the shortage in residential units and population growth.

In a speech scheduled to be delivered in Montreal, Macklem noted that the aggressive increase in interest rates since early 2022 has dampened housing demand. Unfortunately, these rate hikes have not yet been able to reverse the significant house-price gains experienced during the pandemic, which amounted to about 50%. This surge in prices was driven by factors such as low interest rates and high demand for larger living spaces. However, the underlying causes of this affordability problem are the persistent shortage of housing supply and robust population growth driven by immigration.

Macklem stressed that while rate policy can have a short-term impact on housing demand, it cannot address the fundamental structural issues that contribute to affordability challenges. These problems require a comprehensive approach beyond monetary policy alone.

The primary focus of Macklem's speech was to highlight the limitations of monetary policy in Canada, where the central bank's mandate is to achieve and maintain a 2% inflation target. As of January 24th, the Bank of Canada has kept its policy rate unchanged at 5%, with officials closely monitoring inflation levels. To consider rate cuts, they require sufficient evidence of easing inflationary pressures.

In conclusion, housing affordability remains a pressing concern for the Canadian economy. While the Bank of Canada recognizes its significance, addressing this issue requires a multi-faceted approach that goes beyond the scope of monetary policy alone.