Bank of Canada Governor Tiff Macklem says the central bank can’t solve the housing crisis with interest rates because the root cause is a shortage of supply.
Macklem faced multiple questions about housing affordability during an appearance before the Finance Committee on Thursday – another week after the bank. maintained its key overnight interest rate at 5 percent.
“Tensions in certain sectors of the economy”, notably in the housing sector, he told MEPs in his opening speech, “continue to dampen inflation”.
But, he added, housing inflation has been high both in times of low and high interest rates.
He says the government should focus on increasing the supply of housing to improve affordability, and warns that policies that increase demand will only make this situation worse.
“Spending that actually stimulates demand – at a time when we are trying to let supply catch up with demand and ease inflationary pressures – would be particularly problematic,” he said during question period.
“If you look at the actual construction of homes, completion times have increased,” in part because of regulations and industry practices, he later added.
Last week, the Bank of Canada continued to hold its key interest rate at 5 percent – it hasn’t changed since July – and indicated it was starting to consider the timing of rate cuts.
A rate cut would provide some relief to homeowners with adjustable-rate mortgages. Macklem said previously that, despite rising rents and mortgage interest, persistent inflation prevents it from reducing short-term interest rates.
Macklem reiterated Thursday that central bank discussions are “moving from whether monetary policy is tight enough to how long to maintain the current restrictive stance” of 5 percent.
The bank also pointed to rapidly rising housing costs as the main reason why inflation is still above the 2 percent target.