The Bank of Canada raised its interest rates to 1.5%, up from 1.25%, on Wednesday, and mortgage rates soon followed suit.
These higher rates, together with the new mortgage lending rules implemented this year, make it harder for some Canadians to afford a home, said Global News.
Bank of Canada Governor acknowledged the concern and proposed that Canadians pick a “smaller and less expensive home.”
“As we said at the time, many of these issues go down to the individual level: people who don’t qualify for a mortgage on the house they wish today have multiple avenues of adjustment, one of them being to just go ahead and buy a smaller and less expensive home,” said Bank of Canada Governor Stephen Poloz during the announcement of the rate hike.
However, such insight from Poloz did not sit well with some academics. “That seems like an odd thing (to say),” Dr. Penny Gurstein, Director of the School of Community and Regional Planning at the University of British Columbia, said in an interview with Global News.
Experts pointed out that buying home smaller could only be effective in smaller markets and not in the cities where prices are unaffordable.
Citing a Royal Lepage study, Global News reported that the average home price in Vancouver is at around $400,000 and has only 1.5 bedrooms, compared to the national average of 2.7 bedrooms.
“[Poloz’s statement] doesn’t seem to be very sensitive to the particular situation that millennials and those younger are in right now given that you know most of them in large cities are not able to even buy or even think about buying places,” Gurstein added.
Mei Lan Fang, a research associate at Simon Fraser University and social scientist with MTEK, shared the same sentiment and found Poloz’s statement “brash and rather insulting.”
“This statement doesn’t take into account the social implications, one being that we’re talking about a basic necessity and not a matter of purchasing a smaller 49-inch screen vs a 60-inch flat screen for your living room,” Fang told Global News.
She emphasized that it’s a different case for families, where owning a smaller home could limit the number of children per household.
“For young Canadians who grew up here, there is little opportunity to ever own a home in Vancouver, unless it is inherited through family. For older people who don’t own their own homes, they are very much at risk of being homeless and for older people who do, many are forced to sell and downgrade because they are not able to afford the upkeep,” she said.
Following the footsteps of the central bank, RBC also raised its prime lending rate by .25%.