Interest rates not a fix for housing affordability, says economist

It's a sentiment echoed by BoC governor Tiff Macklem

Interest rates not a fix for housing affordability, says economist

Conference Board of Canada chief economist Pedro Antunes has emphasized the need for the Bank of Canada to maintain its independence in setting monetary policy amidst criticisms over its high-interest rate policy.

Speaking to BNN Bloomberg, Antunes highlighted that while monetary policy is a powerful tool, it falls short when tasked with addressing specific issues like housing affordability or reducing inequality.

This statement aligns with comments made by Bank of Canada (BoC) governor Tiff Macklem, who recently pointed out the limitations of using interest rates to solve affordability issues in the housing market. Macklem reflected on the bank's pandemic response, noting that an earlier withdrawal of stimulus might not have significantly altered the trajectory of post-pandemic inflation.

“When the economy reopened, people wanted to catch up on what they’d missed, but supply could not keep up. This put immediate upward pressure on prices,” Macklem said.

Read next: Scotiabank: BoC could be 'nowhere close to easing' monetary policy

Diving deeper, Macklem pointed to the Bank’s 2020 policy rate cuts as a catalyst for the housing demand surge that significantly outpaced supply growth, sending prices through the roof by over 50% in two years.

Antunes suggested the BoC did not fully anticipate the impact of increased credit and savings pouring into the limited housing stock during that period. He argued that the real issue was not merely supply and demand dynamics but also the significant amount of financial resources chasing a finite number of homes.

Ultimately, Antunes believes that improving housing affordability hinges on boosting supply.

"Supply and demand, and certainly supply, is really the way to solve the problem going forward in terms of affordability. It's going to take time," Antunes said.

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