BOC limited in addressing Housing Affordability OTTAWA—Housing affordability poses a “significant problem” for the Canadian economy, and Bank of Canada Gov. Tiff Macklem said the central bank is limited in addressing this headwind because officials have little influence over the shortage in residential units and population growth. In a speech in Montreal, Macklem said the rapid and aggressive pace of interest-rate increases since early 2022 has dampened housing demand. However, the rate increases have yet to reverse outsize house-price gains, of about 50%, recorded during the pandemic, when interest rates were near zero and there was demand for larger living spaces. This is due to years of housing supply shortages, and strong population growth fueled by immigration, Macklem said. Rate policy, he said, can influence housing demand in the short term, “but it can’t address longstanding structural problems…which are fundamental to affordability.” According to Bank of Canada indicators, housing affordability—or how much pretax income is required to finance shelter costs—is at its worst level since the early 1980s, when mortgage rates in Canada were 20%. Macklem’s remarks coincide with early data pointing to solid increases in existing-home sales in January, following a strong gain at the end of 2023. According to some economists, this could prompt Canada’s central bank to move cautiously on rate cuts for fear of stoking new upward price pressures. Shelter-price inflation has been elevated for several years and has accelerated in the past six months—helping keep headline inflation in Canada at 3.4%, or well above the central bank’s task to achieve and maintain 2% inflation. The pickup in existing-home sales activity reflects lower borrowing costs, as bond yields have retreated after peaking last October in anticipation of rate cuts this year from global central banks. Economists add housing is getting a boost from immigration-fueled population growth, up 3.2% in the fourth quarter from a year ago; a resilient labor market; and accelerating wage growth. Canadian officials have moved in recent months to increase housing supply by offering billions to cities to rewrite zoning laws to allow more density and capping the number of visas issued to foreign students. Macklem’s speech was meant to address the limits of monetary policy. The Bank of Canada left its policy rate unchanged on Jan. 24, at 5%, and said officials are focused on how long it needs to remain at that level to wrestle down stubbornly high inflation. Macklem, in the speech, largely repeated his view that officials need to see ample evidence of easing inflationary pressure before they can entertain rate cuts, and that economic growth would remain weak until mid-2024. “Monetary policy can’t do everything,” he said. “We need to avoid the temptation to overload monetary policy by expecting more of it than it can deliver. The right focus for monetary policy is on what it can do,” he added, in reference to targeting 2% inflation.