A Rate Cut Won’t Save You (Or The Housing Market)

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Josh Sherman is a Toronto-based journalist. His work has appeared in the Globe & Mail, VICE, Toronto Life, and many others.

“If what we’re looking at is housing affordability, then… an interest-rate cut is merely going to fuel the market further still — and that’s going to be across all Canadian markets."Canadians hoping the Bank of Canada cuts interest rates soon should be careful what they wish for, experts warn, as lowering borrowing costs are likely to reignite the housing market, potentially exacerbating the country’s affordability crisis.

Lower rates may help current borrowers, but the potential for large price gains amid renewed demand are cause for concern. “We need to acknowledge that even well before the pandemic — and definitely during the pandemic — were too low when it comes to thinking about their harmful impact on the housing market,” says Kershaw. He notes there could be knock-on effects for renters, too.

“We absolutely need more supply,” Kershaw agrees. “But if supply were the only factor, then Alberta should have higher home prices on average than BC and Ontario, because they have less supply per capita there than BC and Ontario,” he says, arguing that demand-size measures are needed, too. One example could be by expanding on a national level something similar to, where more tax is applied to the portion of a value of a home above a certain threshold.

 

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