Bank of Canada Says Interest Rates Are Too Blunt a Tool to Fix Housing Affordability

Bank of Canada Senior Deputy Governor Carolyn Rogers said on October 1 that Canada is not close to restoring housing affordability and that using interest rates to directly target home prices is not the answer, warning it would risk imposing costs across the broader economy. Speaking in Victoria, British Columbia, Rogers described the central bank's key rate as "too blunt" to address affordability because lower rates fuel rising home prices while higher borrowing costs lock out prospective buyers.

Rogers laid out the core dilemma: the Bank sets one interest rate for the entire economy and cannot set a separate rate for housing, nor can it directly address supply constraints by building homes, rezoning land or speeding up permits. She also cautioned that falling house prices carry their own dangers, cutting household wealth, weakening consumer spending and slowing both sales and construction.

On inflation measurement, Rogers argued against removing mortgage costs from the Consumer Price Index, saying that would strip out a real cost that many households are actually paying. She also outlined how the Bank of Canada is attempting to incorporate a housing affordability lens into its five-year mandate review with the federal government, which is scheduled for this fall.