The Bank of Canada and Rising Interest Rates: The Debate and Its Impact

The Bank of Canada (BoC) is set on raising interest rates, a move that is seen as a critical step in stabilizing the economy post-pandemic. However, in the broader context, the question is more about the rationale behind the prolonged period of low interest rates and its impact, particularly on housing affordability in Canada.

Why the Prolonged Period of Low Interest Rates?

The prolonged period of low interest rates, deliberately implemented by central banks and governments around the world, including the BoC, raised significant questions about their motivations and consequences. These policies were in place to support economic recovery and growth during tough times. However, the resulting surge in housing prices made property unaffordable for many hardworking citizens.

For instance, lending at an interest rate of 1% or 2% for five years, when the after-tax and inflation-adjusted return is negative, simply does not make economic sense. The scenario where your purchasing power decreases by 10% over five years due to the low interest rate is a stark reality that many are facing.

Why Houses Cost So Much?

Many homes in Canada now cost more than 15 times the after-tax and payroll deduction median income. This means an average person must devote a significant portion of their after-tax earnings for around 15 years, just to pay down a mortgage. This situation has raised concerns about whether housing now costs twice as much as it did in the 1960s, adjusted for inflation.

Consequences and Implications

Politicians and central bankers have been accused of various motivations, ranging from financial enrichment to avoiding short-term crises. However, such measures have resulted in a significant and long-lasting issue: the rising number of unhoused and under-housed individuals. In essence, the policies designed to stimulate the economy in the short term have created a long-term problem that has an immense impact on the lives of millions.

Call for Accountability

The impact of this decision is widespread and profound. Given the significant number of individuals affected, an Auditor General's Report, Judicial Inquiry, or a Public Inquiry is necessary to address the responsible parties and the nature of their decisions. While owning a home may offer certain advantages, the broader societal impact cannot be overlooked.

Against Subsidized Housing Solutions

In conclusion, although arguments for 'free' or subsidized housing are often made, they are not the solution. Such measures would likely result in higher government debt and increased taxes, which would further burden hard-working citizens who are already facing economic challenges.

Instead, a comprehensive approach that focuses on improving financial literacy, housing policy, and sustainable economic growth are needed. Only then can we hope to address the complex issues surrounding housing affordability and interest rate adjustments effectively.