Policy rates cannot fix housing affordability, Rogers says
Bank of Canada Senior Deputy Governor Carolyn Rogers stated that monetary policy cannot fix Canada’s housing affordability crisis. Speaking in Victoria, Rogers emphasized that interest rates are too blunt to target shelter costs and cannot resolve persistent structural supply constraints.
The limits of a blunt instrument
Rogers noted that Canada’s central bank recently reviewed its monetary policy framework to examine whether policy rates should lean against rising home prices.
She concluded that interest rates cannot target house prices without generating broader economic distortions.
While rate increases cool demand, they immediately lift mortgage interest expenses in headline CPI and squeeze debt-laden households.
Conversely, rate cuts ease immediate borrowing costs but risk fueling price escalation when housing supply is constrained.
With residential mortgages comprising roughly half of total Canadian bank lending, Rogers stressed that housing has become deeply intertwined with financial stability.
Capital shifted from tools to homes
Drawing on her experience at OSFI and the Basel Committee, Rogers highlighted how prudential tools like the 2017 mortgage stress test protected bank solvency through rate hikes.
However, regulation alone failed to arrest affordability declines, with Canadian home prices rising roughly 50 percent over two years.
Rogers pointed out that residential investment, which stood at 4.3 percent of GDP in 2000 compared to 8.3 percent for business machinery and tech investment, now exceeds business spending.
Honest limits, cold comfort
Rogers offers an overdue reality check on the limits of monetary policy in housing.
By highlighting how rate changes distort shelter metrics and asset values, the central bank firmly pushes the problem back to fiscal and municipal authorities.
This stance preserves institutional credibility but provides zero relief to priced-out buyers.
Source: Canada’s housing affordability dilemma
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