The Bank of Canada is facing pressure to help with housing affordability, but adjusting mortgage rules won’t fix the issue. The real problem is a lack of housing supply, so focusing on supply solutions is key.
**Click here for the full speech by Carolyn Rogers from BoC**
Bank of Canada’s Stance on Mortgage Rules and Housing
Carolyn Rogers, the senior deputy governor of the Bank of Canada, recently spoke about this at the Economic Club of Canada in Toronto. She warned against changing mortgage rules to make homes more affordable.
She said, “We need to resist the temptation to try to solve the housing affordability challenge by tinkering too much with the mortgage market.”
Why Adjusting Mortgage Rules Isn’t the Solution
Rogers pointed out that making mortgage rules easier only helps with short-term affordability. This can have long-term effects on household finances and the economy.
The federal government recently made a change to help first-time buyers. It increased the maximum amortization period from 25 years to 30 years. This change lowers monthly mortgage payments by around $200. But, it also means paying an extra $50,000 in interest over the life of the loan.
Understanding the Balance Between Supply and Demand in Housing
Rogers stressed that housing affordability needs a balance between supply and demand. This balance takes time to achieve.
Using short-term fixes like changing mortgage rules can lead to higher risks for households. It could also affect the market and economy in negative ways.
Long-Term Impacts of Easing Mortgage Terms
While easier mortgage terms may seem like a good idea now, they can create bigger problems later. Households might face higher interest costs and struggle to manage their budgets over time.
Rogers said the Bank of Canada expects households to adjust their spending and saving to handle higher mortgage payments. But, there is still a risk that some households could struggle more than expected.
The Federal Government’s Recent Changes and Their Implications
The government’s decision to extend the amortization period was meant to help young people enter the housing market. But Rogers pointed out that while this change makes monthly payments lower, it also increases the total interest cost.
These measures don’t solve the main issue of housing affordability because they don’t address the supply problem.
A Sustainable Approach to Housing Affordability
Rogers emphasized that improving housing affordability needs a focus on increasing supply. This is the best way to balance supply and demand in the long term.
Policies should be aimed at creating more housing, not just making it easier to buy with short-term fixes.
The Role of Policy in Supporting Long-Term Housing Supply
Policymakers need to think about solutions that will work over time. This means encouraging more housing development and making sure there are enough homes to meet demand.
Leaning too much on changes in mortgage rules won’t create lasting results. It could even make things harder for future buyers and the overall market.
Conclusion: Shifting Focus from Demand Solutions to Supply Solutions
To truly improve housing affordability, the focus should be on increasing supply. Adjusting mortgage rules only addresses demand and can lead to long-term issues. By looking at policies that support more housing, Canada can work toward lasting solutions that benefit everyone.