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The Bank of Canada recently raised interest rates, which may lead to increased housing costs and hinder the creation of new housing supply. The housing sector is highly sensitive to interest rate adjustments, and the central bank's hawkish stance could exacerbate the already critical housing supply and affordability challenges faced by many regions in Canada, including the Greater Toronto Area (GTA). Even though the GTA has seen some cooling in prices and an increase in supply since the peak of the market in 2022, federal policies continue to drive housing demand, while rising interest rates discourage pre-construction sales that finance new homebuilding, especially in the highrise and multi-family sectors.
To address these issues, the federal government should employ several tools at its disposal. These measures include waiving or deferring the Harmonized Sales Tax (HST) on purpose-built rental housing, indexing the price thresholds for the GST/HST new housing rebate (a promise unfulfilled since 1991), and providing support for housing-supportive infrastructure projects at the municipal and provincial levels. Taking action to spur the addition of housing supply and improve affordability is essential, as the country's immigration policy aims to increase the population by 1.5 million people in the next three years, and newcomers play a vital role in Canada's economic and social well-being.
Delaying the necessary task of adding more housing supply would worsen the ongoing housing supply and affordability crisis. Therefore, the federal government should act promptly to ensure that monetary policy does not hinder the construction of the homes needed by Canadians. Balancing inflation targets with housing needs becomes crucial in supporting the country's growth and well-being.
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