Key Takeaways
- Carolyn Rogers said housing affordability remains a major economic issue affecting both Canadians who rent and those trying to purchase homes.
- The Bank says interest rates can influence housing demand but cannot directly build homes, change zoning or accelerate construction approvals.
- Rogers said improving affordability will require more housing supply, better planning and infrastructure, resilient regulation and policies that reduce dependence on rising house prices.
Bank of Canada Says Canada Has More Work to Do on Housing Affordability
Canada has made progress on several housing and financial-stability measures, but restoring affordability will require more time and a broader policy response, Bank of Canada Senior Deputy Governor Carolyn Rogers said in an October 1 speech in Victoria, British Columbia.
Housing Affordability Remains a Major Economic Challenge
Rogers described housing affordability as one of Canada's most pressing economic issues, affecting both households trying to purchase homes and those renting.
She explained that affordability is not limited to the purchase price or monthly rent. When households spend more income on shelter, they have less money available for saving, spending and unexpected expenses. Over time, this can weigh on economic growth and resilience.
At the same time, falling home prices can create different problems. Lower prices may improve affordability for some prospective buyers, but they can also reduce household wealth, weaken spending and slow housing activity.
This creates a policy dilemma because housing has become closely connected to household wealth, credit, financial stability and economic growth.
Why Interest Rates Cannot Solve Housing Affordability Alone
Rogers said monetary policy affects housing demand because interest rates influence borrowing costs. However, she emphasized that the Bank's policy rate is designed for the broader economy rather than the housing market alone.
Higher rates can reduce housing demand, but they can also make mortgages more expensive and affect spending and investment throughout the economy. Lower rates can make borrowing easier, but where housing supply is constrained, stronger demand can contribute to higher prices.
Interest rates also cannot directly build homes, change zoning rules or accelerate building permits.
The Bank therefore considers monetary policy an important part of the economic environment, but not a direct solution to housing supply constraints.
Supply and Planning Are Central to the Affordability Debate
Rogers pointed to housing supply, population growth, zoning and infrastructure constraints as factors that have contributed to Canada's affordability challenge.
She also noted that housing has increasingly become an investment asset as well as a place to live. This has strengthened the connection between house prices, household wealth and borrowing.
The Bank's official summary says meaningful progress will require more housing supply, better planning and infrastructure, alongside measures that make the Canadian economy less dependent on rising house prices.
Financial Stability Adds Another Layer
Canada's housing market is also closely connected to the financial system. Rogers noted that residential mortgages account for about half of Canadian bank lending, while home equity represents a major part of household net worth.
That means a major housing-market correction can have consequences beyond individual buyers and sellers. It can influence household spending, credit conditions, banks and broader economic activity.
Rogers pointed to Canada's mortgage stress test as an example of a measure that strengthened financial resilience. Introduced in 2017, it required borrowers to demonstrate that they could manage mortgage payments at a higher interest rate. She said the measure helped protect borrowers and the financial system, but did not significantly improve affordability as prices continued to rise.
TwikUp's Perspective
The Bank of Canada's assessment highlights an important distinction between housing affordability and financial stability. A policy can make banks and borrowers more resilient without making homes substantially cheaper.
That distinction explains why Rogers is calling for a broader response rather than relying on interest rates alone. Affordability ultimately depends on how quickly housing supply can respond to demand, how efficiently communities can support new development and whether policy incentives reinforce or reduce pressure on prices.
The message from the Bank is therefore not that housing affordability is being ignored. Instead, the October 1 speech shows that the institution sees the problem as extending beyond the tools available to monetary policy.
What Comes Next
Rogers concluded that Canada is moving in the right direction on several aspects of the housing challenge, but still has significant work ahead.
The Bank's role remains focused on maintaining low and stable inflation. For housing affordability, Rogers said progress will require sustained action across supply, planning, infrastructure, regulation and economic policy.
The central bank's assessment makes clear that restoring affordability will not depend on a single interest-rate decision. It will require a longer-term combination of policies addressing the structural pressures that have made housing such a large part of Canada's economy.