Bank of Canada's Carolyn Rogers says supply is the key to solving housing problem

Carolyn Rogers, a policymaker at the Bank of Canada, said that the only thing that will moderate prices is more houses.

Rogers said this week in an interview that she has to fix the supply problem. We have a strong economy and immigration coming in.

During Rogers' time as British Columbia's financial services regulator, the average home price in the city soared above $1 million, even as the provincial government taxed foreign buyers and added a tax on under-utilized properties. Rogers left B.C. to join the OSFI, where she helped develop a stress test for banks.

We have a culture where housing is a part of it. Rogers said it was a sign of success because housing doesn't have the same position as the economy. In Canada, you get married, buy a house and have kids. Everyone wants a house.

We have a culture, where housing is sort of this rite of passage. It’s a sign of success ... Everybody wants a house

Carolyn Rogers

Rogers acknowledged that it will take time to increase the housing supply.

Canada Mortgage and Housing Corp. came to a similar conclusion in its first report in a series looking to assess how the country's housing shortage is affecting affordability. According to the report, housing starts have been falling behind population growth in Canada's largest cities since at least 2003 The situation in Toronto, where the average home price is more than $1 million, has worsened in recent years.

Canada's elevated housing prices aren't entirely a supply phenomenon. Rogers pinpointed the main driver as a decade of low interest rates. Some of the exuberance is being pulled out of the market now that interest rates are rising. In Toronto, home sales and prices fell in April and the average price of a home fell in March.

Rogers told an audience after a speech in Toronto on May 3 that housing price growth in Canada is unsustainably strong.

Macklem indicated during testimony at the House finance committee last month that he probably will lift the overnight target another half point when policymakers conclude their next round of deliberations on June 1. The Bank of Canada's benchmark rate pulls mortgage rates up with each hike. The Financial Post estimated that home owners could be seeing their variable rate mortgages pull up to 2.35 per cent after these rate hikes, meaning they would have to pay $2,613 a month on a $500,000 mortgage.

The best thing we can do — even for people who have high levels of debt — is just get inflation down

Carolyn Rogers

Rogers said in the interview that she hopes the money that has been pouring into housing will move towards other segments of the economy, generating investment that will create more productive growth. As the economy recovers, the pressure on Canadians to keep up with their mortgage payments could be a drag on the goods and services sector.

Rogers said that she and her colleagues at the central bank will be watching the mortgage pressures Canadians are taking on, their ability to service debts, and the risks these pressures represent for the broader financial system. She said that the central bank has a good idea of the issues because of its partnership with OSFI.

Rogers said there are pockets of Canadians that are really stretched. They are going to be sensitive to interest rates because of their high debt levels.

Canadians will have a buffer on their debt levels due to excess savings amassed during the Pandemic. The Royal Bank of Canada believes the buffer is $300 billion.

Rogers said that the Bank of Canada must adjust interest rates for the broader economy, not just the housing market.

Rogers said that interest rates will hurt borrowers, but inflation is hurting everyone.

Canada has been dealing with the housing dragon for years, not just during the Pandemic, which brought a period of low interest rates and a surge in housing demand. Rogers called it an intransigent problem.

It wouldn't be with us 15 years if it was easy to solve.

Email: shughes@postmedia.com