Demand-driven policies are not the answer
Ahead of the upcoming federal budget, Bank of Canada Governor Tiff Macklem issued a cautionary message on Wednesday regarding the potential impact of demand-driven policies on the nation’s pressing housing challenges.
Speaking after the decision to maintain the key overnight interest rate at 5%, Macklem emphasized the need for a focus on increasing housing supply rather than stimulating demand. He made it clear that fluctuations in borrowing costs alone would not address Canada’s housing issues: “Our message really is that high rates, low rates—if we don’t grow supply, we’re not going to solve the housing problem.”
He also pointed out that with shelter costs significantly driving inflation, which stood at 2.9% in January, solutions that predominantly amplify demand could be counterproductive.
The conversation around housing policies is particularly relevant as Prime Minister Justin Trudeau’s administration prepares its next budget, with Finance Minister Chrystia Freeland signalling a strong emphasis on home construction.
“Our economic plan is about building more homes, faster, making life more affordable, and creating more good jobs,” Freeland shared, highlighting the budget’s focus on housing slated for release on April 16.
Read next: How does the federal government plan to fix Canada’s housing crisis?
Responding to a proposal by the Canadian Home Builders Association advocating for extended 30-year insured mortgages for first-time buyers of new homes, Macklem refrained from discussing specific policy recommendations.
Instead, he underscored the central bank’s broader stance on supply issues—”We’re not the experts in increasing supply in housing”—while reiterating the importance of not enacting measures that would further drive demand in an already strong market.
Macklem also reflected on the dynamics between interest rate adjustments and housing prices, noting the price increases that followed the pause in rate hikes last year and the subsequent decline when rates were elevated. He cautioned that a premature rush into the market driven by lower rates could restrict the BoC’s ability to cut interest rates in the future.
“We really need policies that are focused more on the supply side and I will say I think governments are acutely aware of this,” Macklem said.
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