Rogers rejects targeting housing prices with monetary policy
Bank of Canada Senior Deputy Governor Carolyn Rogers rejected using interest rates to address housing affordability during remarks in Victoria on October 1. She emphasized that monetary policy is too blunt an instrument to tackle structural housing supply shortages.
The limits of a blunt instrument
In a five-year review of the Bank of Canada's monetary policy framework, officials examined whether interest rates should lean against rapidly rising property prices.
Rogers explained that raising rates to curb valuations raises debt service costs for existing borrowers and slows broader economic activity, while rate cuts risk driving demand higher without addressing underlying supply shortages.
Residential mortgages account for approximately half of all Canadian bank lending.
Moreover, residential investment now exceeds business spending on machinery, equipment and innovation, reversing the 2000 share of 4.3 percent versus 8.3 percent of GDP.
Prudential buffers prove insufficient
Rogers traced Canada's affordability challenge across her previous regulatory roles at the British Columbia Financial Institutions Commission, OSFI and the Basel Committee.
The 2017 mortgage stress test successfully bolstered bank resilience during recent rate increases, yet average home prices still climbed roughly 50 percent in two years following the pandemic.
Rogers also noted that including mortgage interest costs in CPI temporarily raises headline inflation when rates rise.
Clear mandate, no magic wand
The Bank of Canada rightly resists calls to fix structural housing shortages with interest rate policy.
By setting clear boundaries around its mandate, the central bank places responsibility back on fiscal and municipal authorities who control zoning and construction.
Price stability remains its only effective contribution.
Source: Canada’s housing affordability dilemma
IN: