Supply struggles to keep up with demand
Housing affordability in Canada has plummeted to its worst level in a generation, with current supply unable to meet burgeoning demand, the International Monetary Fund (IMF) has said.
While celebrating Canada's apparent economic "soft landing," the IMF raised the alarm about a housing affordability crisis that shows no sign of slowing.
“Housing affordability has reached its worst levels in a generation,” the financial agency said in a bilateral discussion with executive board members on Tuesday, highlighting a growing disparity between housing supply and the surging demand driven by Canada's ambitious immigration targets.
This housing crunch is happening against a backdrop of broader economic stability, creating a paradoxical situation where the country's overall financial health is improving while many Canadians struggle to find affordable homes.
“The Canadian economy appears to have achieved a soft landing,” the IMF wrote in its report. “Inflation has come down almost to target, while a recession has been avoided, with GDP growth cushioned by surging immigration even as per capita income has shrunk.”
The IMF projected a slight pickup in real GDP growth this year, citing factors such as monetary policy normalization, some easing of fiscal policy, continued immigration (albeit slowing), and the expansion of the Trans Mountain pipeline.
“Inflation is set to continue declining, reaching the 2% target by early 2025,” it noted.
The executive directors commended the Bank of Canada for its effective management of inflationary pressures and its decision to begin lowering policy rates in June.
They noted that further rate cuts should be carefully calibrated and data-dependent, adding the importance of continued coordination between fiscal and monetary policies to maintain economic stability.
“Directors agreed that the financial system remains resilient, with sufficient buffers to weather the repricing of low‑interest, pandemic‑era mortgages,” the IMF wrote. “They emphasized the need for continued vigilance and for efforts to address data gaps for nonbanks, including through enhanced federal‑provincial supervisory cooperation.”
The IMF recommended a somewhat tighter fiscal stance to support inflation reduction and buffer rebuilding efforts. Directors also highlighted the need for enhanced supervision of nonbank financial institutions through improved federal-provincial cooperation.
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The IMF also emphasized the need for continued efforts to boost housing supply.
“All levels of government would be needed to close the sizeable housing gap,” IMF said.
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