The Bank of Canada's strategy of keeping interest rates elevated risks permanently locking a generation of first-time buyers out of homeownership, while failing to address the root causes of unaffordability — namely, a chronic housing shortage. By focusing solely on demand destruction, policymakers may be overshooting the mark.
Even with home prices down 10%, monthly mortgage payments have risen sharply because of higher rates. For a typical first-time buyer, the minimum down payment has not changed, but the required income to qualify has jumped by about 30%. This has pushed many young Canadians out of the market entirely, forcing them to rent, which in turn drives up rental costs.
The collateral damage extends beyond buyers. Existing homeowners with variable-rate mortgages face payment increases that strain household budgets. The Bank of Canada's own surveys show many households are cutting spending to cover housing costs, slowing the broader economy. Consumer confidence is at lows not seen since the 2008 financial crisis.
Furthermore, high rates do little to increase housing supply, the fundamental driver of long-term affordability. Construction of new homes is slowing due to higher financing costs for builders. Without more supply, once rates eventually fall, prices could simply re-accelerate.
The Bank should consider pausing further hikes to assess the lagged effects of its actions. A cautious approach that balances inflation control with supporting economic growth and housing accessibility would serve Canadians better than a relentless focus on demand suppression. The goal should be a soft landing, not a crash that harms the most vulnerable.