Mon. Feb 26th, 2024

Interest rates ;rêt are not responsible for the housing crisis, argues Tiff Macklem

Open in full screen mode

The governor of the Bank of Canada, Tiff Macklem, at a Finance Committee meeting Thursday in Ottawa.

The Canadian Press

Bank of Canada governor says central bank can't solve housing crisis with interest rates because ;this is above all a problem of insufficient supply.

Tiff Macklem appeared before MPs at the Commons Finance Committee on Thursday, a week after the central bank's decision to keep its benchmark rate at 5%. The governor has faced numerous questions about housing affordability.

Mr. Macklem acknowledged that high interest rates are fueling rising housing costs. However, he noted that housing price inflation has historically been high both in times of low and high interest rates.

We are not going to solve the housing problem with low interest rates or with high interest rates. We tried both. And we've had significant housing price inflation.

A quote from Tiff Macklem, Governor of the Bank of Canada

High interest rates have increased the cost of taking out or renewing mortgages and made it more expensive for developers to obtain the financing needed to build.

Conversely, low interest rates also drive up housing costs by further stimulating demand. Home prices rise as people rush to buy in an ecosystem where rates are lower.

LoadingYemen: new American strikes, new attack by the Houthis

ELSE ON NEWS: Yemen: new American strikes, new attack by the Houthis

Mr Macklem believes the Government should focus on increasing the supply of housing to increase affordability. He warns that conversely, public policies that would increase demand would only make this situation worse.

Last week, by announcing that it would keep the key rate at 5%, the Bank of Canada indicated that it was beginning to consider a timetable for possible rate reductions.

Most economists expect the central bank to start cutting interest rates around the middle of the year. However, the rate of reduction in inflation over the coming months could have an effect on this timetable.

The central bank indicated the last week that housing costs remain the biggest contributor to inflation still above the Bank of Canada's 2% target.

Canada's overall annual inflation was 3.4% in December. On the other hand, housing costs increased by 6% compared to the previous year.

Rents in Canada soared last year. #x27;last year as supply struggled to keep up with demand, leading to the lowest national vacancy rate on record since Canada Mortgage and Housing Corporation (CMHC) collected this data in 1988.

This federal agency indicated in a report on Wednesday that the vacancy rate for rental apartments in Canada had been 1.5% over the past first two weeks of October 2023, when CMHC conducted its annual survey.

This vacancy rate is down from to that of 1.9% recorded a year earlier, which at the time already represented the lowest national rate in more than twenty years.

Vacancy rates have fallen significantly in Montreal, Toronto, Calgary and Edmonton, CMHC noted on Wednesday.

In Montreal, this rate went from 2% in October 2022 to 1.5% last October. In Quebec, it went from 1.5% to 0.9%; in Trois-Rivières, from 0.9% to 0.4%; and in Montmagny, from 0.6% to 0.2%.

By admin

Related Post