Housing Takes Centre Stage

For the first time, the Bank of Canada (BoC) has confirmed that its upcoming 2026 monetary policy framework review will formally include an evaluation of how central bank decisions affect housing affordability.

This is a significant shift. Traditionally, the Bank’s framework review focuses on its inflation-targeting mandate, tools, and economic stability. By bringing housing into the discussion, the Bank is recognizing the growing crisis in Canadian real estate and the impact monetary policy has had on household debt, demand, and affordability.

Why This Matters

Over the past decade, low interest rates fueled one of the biggest housing booms in Canadian history. Since 2022, sharp rate hikes have cooled markets but pushed mortgage costs to record highs.

In Toronto and Vancouver, carrying costs for average homes now exceed $5,000 per month for many borrowers.
Across Canada, first-time buyers face stress test hurdles and mortgage payments that consume 60–70% of income in some markets.
Renters are struggling too, as higher borrowing costs trickle into rental demand and prices.

By explicitly addressing affordability, the Bank of Canada is acknowledging the trade-off between stabilizing inflation and worsening housing accessibility.

What the Framework Review Is

Every five years, the Bank of Canada reviews its monetary policy framework with input from the federal government, academics, and the public. The goal is to determine whether inflation targeting (currently 2%) should continue as the central mandate or be adapted.

For 2026, areas of focus include:

Inflation targeting vs. dual mandates (like inflation + employment or inflation + housing).
Whether the Bank should consider the financial stability risks of housing debt more directly.
How to balance affordability concerns with the need to control inflation.

Reactions from Experts

Economists are divided:

Supporters argue that housing affordability should be front and centre since mortgage costs are now a leading driver of CPI and household stress.
Critics warn that monetary policy is a blunt tool. Housing affordability depends more on supply, zoning, and government policy than interest rates.

One Bay Street economist told Canadian Mortgage Trends:

“It’s encouraging that the Bank is acknowledging the affordability crisis. But interest rates alone can’t solve housing. If anything, we need fiscal and supply-side policies to work alongside monetary tools.”

What It Could Mean for Borrowers

If housing is factored into policy decisions, the implications for mortgage borrowers could be significant:

Interest Rate Path: The Bank may lean toward cuts if affordability metrics deteriorate further, even if inflation is still slightly above target.
Stress Test Debate: Policymakers could revisit qualifying rules if affordability is recognized as a systemic challenge.
Market Confidence: A clear focus on housing could reassure buyers and investors that affordability is a long-term policy priority.

Year	BoC Framework Focus
2016	Renewed 2% inflation target
2021	Expanded research on employment and climate risk
2026 (Upcoming)	Housing affordability explicitly under review

The Bank of Canada’s decision to include housing affordability in its 2026 framework review marks a watershed moment in Canadian monetary policy. While it won’t solve the housing crisis overnight, it signals a willingness to address the connection between rate decisions, debt loads, and the lived reality of Canadian households.