Carolyn Rogers said many policies and regulations have been introduced over the years, both in Canada and abroad, to try and address housing affordability issues. Photo by David Kawai/Bloomberg

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Housing affordability has been a top concern for Canadians for many years and won’t be solved anytime soon, said Carolyn Rogers, the Bank of Canada’s senior deputy governor, in a speech in Victoria, B.C., on Thursday.

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Rogers said the housing market is facing a dilemma. Families have less money at their disposal when the majority of their household income goes to rent or mortgage payments — which, in aggregate, can weigh on economic growth.

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Lower prices can bring some relief for homebuyers, but it can also reduce household wealth, weaken spending and slow sales activity as well as new construction.

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“This is the heart of the housing affordability dilemma and why it’s so hard to fix,” Rogers said in prepared remarks.

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“Housing and housing prices have become about far more than just the cost of shelter. They are now deeply intertwined with household wealth, the stability of our financial system and the strength of our economy.”

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Rogers said many policies and regulations have been introduced over the years, both in Canada and abroad, to try and address housing affordability issues. These include Canada’s mortgage stress test, which was established in 2017 and did little to improve affordability or curb rising home prices.

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The central bank’s low interest rate played a role in the rising prices. While it supported the economy through the COVID-19 pandemic and made mortgages cheaper, it also increased housing demand and prices followed.

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Housing supply could not keep up with demand due to population growth at the time, along with zoning and infrastructure constraints. Many also saw housing as a way to build personal wealth instead of simply as a place to live.

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There are no simple fixes and any changes to the Bank of Canada’s monetary policy would come with trade-offs, Rogers said.

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If the central bank raises its overnight rate and credit becomes more expensive, it could take some pressure off housing prices by reducing demand. But it would also slow spending and investment across the economy.

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Rate cuts could improve housing affordability by making credit more accessible and reducing borrowing costs, but a constrained housing supply and stronger demand could push prices higher. Lower rates would also boost demand more broadly, which could add to inflationary pressure.

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Similarly, it is difficult to capture housing costs in inflation measures. The Consumer Price Index measures housing as the cost of shelter over time. This is more straightforward for renters since rental costs can be easily tracked and measured. It’s more complicated for homeowners because they have ongoing costs like property taxes, insurance, maintenance and mortgage interest. The purchase price of a home is also treated differently, since a home is considered an asset.