Canada is balancing on a policy tightrope when it comes to the housing market and will eventually have to make trade-offs between a stable economy and plans to help those in need, says the Bank of Canada’s second-in-command.
Speaking to a housing conference in the national capital, deputy governor Carolyn Wilkins pointed to the central bank’s decision to lower interest rates in 2015 to inject some life into a sluggish economy.
The side effect was that some people took on bigger mortgages, which led to a rise in household debt and increases in housing prices in some of Canada’s biggest markets that made them too expensive for some people.
Federal efforts to cool those markets and pump billions of dollars into new affordable housing have lowered housing costs from where they could have been, Wilkins said.
“This is a tough act, but I can say that right now, you can really see how … policies are at their best because they are working together,” she said.
But the Bank of Canada is still concerned about household debt, Wilkins said.
Indebted households have fragile finances and are vulnerable to economic trouble. A slide in the economy, which will come sooner or later, will demand some tough decisions, she said. Will the Bank of Canada cut interest rates and encourage more borrowing and higher real-estate prices again? Will the government spend more on subsidized housing? Some of both?
“You look at social objectives and financial stability and sometimes you have to trade off,” Wilkins said.
Her talk underscored the challenge the federal Liberals face with their decade-long housing plan, which is valued at $40 billion of combined federal, provincial and territorial spending.
The national housing strategy is only a few months old, with many parts of the plan having launched in April and more to roll out in the coming months.
The first details the Liberals released Thursday to coincide with “National Housing Day” show the first spending has helped keep some 14,000 households in affordable units.
The Liberals are also out promoting about $5.7 billion in social spending that the government says has helped more than 775,000 households since they came to office, but the figures include money budgeted annually for housing programs and not just dollars the Liberals set aside in their first budget in 2016.
They have yet to fulfil a promise to enshrine the strategy, its goals and its spending into law.
What the strategy aims to do is build or repair hundreds of thousands of units of affordable or rental housing. Funding agreements have been signed with three provinces — Ontario, British Columbia and New Brunswick — and Northwest Territories.
The government says it expects to sign funding agreements with remaining provinces and territories by April 1, 2019.