Premier Eby voices opposition to more Bank of Canada interest rate hikes

Premier David Eby voices opposition to more Bank of Canada interest rate hikes

BC Premier David Eby (Government of BC)

In a rare move, the premier of British Columbia has formally commented on the Bank of Canada’s monetary policy, voicing his opposition to any further policy interest rate hikes over concerns that it will further worsen living cost conditions.

Premier David Eby’s letter to Bank of Canada Governor Tiff Macklem last week comes ahead of the Bank’s scheduled rate announcement tomorrow, September 6.

“Disturbingly, I understand that the bank is seriously considering yet another interest rate hike this September,” wrote Eby, with such a scenario pushing the rate beyond 5% following July 2023’s increase of 0.5%.

“People in BC are already hurting. In your role as governor, I urge you to consider the full human impact of rate increases and not further increase rates at this time.”

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Eby says BC residents and small business owners are being “pushed to the brink” with loan payments or lines of credit. Residential and commercial landlords will be pressured to offset their costs with more rental income as fixed mortgages are renewed, with the higher costs passed on to the tenants.

“The impacts of the rate hikes implemented by the Bank of Canada to date are at their earliest stages; many challenges are yet to come,” he continued, citing a May 2023 forecast by the International Monetary Fund that warned Canada is at the greatest risk amongst the Organisation for Economic Co-operation and Development (OECD) — a group of 38 mostly advanced economies — of mortgage defaults and foreclosures.

With monthly costs on loan financing increasing by hundreds of dollars, Eby says, many residents in his jurisdiction are now “moving from financial security into financial insecurity.”

“The increased financial strain, poverty, and homelessness will lead to significant economic and social damage to our province and the country that will take years to repair.”

The premier suggested the Bank needs to exercise alternative measures to tackle inflation, with Statistics Canada recently noting the largest contributor to inflation centres on mortgage rates. He says another rate increase in September is likely to lead to even higher mortgage rates, which will in turn lead to more inflation.

Eby also painted a picture of the provincial government taking steps to improve housing affordability, only for the gains to be neutralized by the bank’s rate increases.

New housing supply is at risk as these projects are increasingly financially unfeasible amidst the ever-increasing challenging market for construction financing.

To mitigate delays or even cancellations of projects, the federal and provincial governments have been providing low-cost construction financing to get affordable housing projects over the line into the realm of feasibility. This entails providing repayable, low-interest construction financing for rental housing for not only very low incomes but also middle incomes and working households.

“We need to build more housing to bring costs down. While our provincial government is removing barriers to new housing construction, opening vacant units for rent through policy changes, and heavily subsidizing affordable housing construction, our efforts to increase supply and bring down costs are being overshadowed by these historic interest rate increases,” continued the premier.

“Because of the impacts of rate increases from the Bank on homebuilder lines of credit used by builders to finance new housing construction, new private rental housing projects, and new home construction that could take pressure off of rents are being put on pause. This quiet but devastating impact of rate increases will result in even higher housing costs, feeding inflation further.”

Later this week, the provincial government is also expected to announce the maximum housing rent increase for the calendar year of 2024, starting in January.

The 2023 cap is expected to be higher than previous years due to inflation and the challenge that property owners face with escalating mortgages, and following consecutive years of low or no increases, with a 2.5% rent increase permitted in 2019, 0% in 2020 (but 2.6% before March 18, 2020), 0% in 2021, and 1.5% in 2022.

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