OTTAWA – The Bank of Canada upcoming monetary policy framework review in 2026 is expected to place unprecedented emphasis on housing affordability considerations, as persistent structural challenges in Canada’s housing market increasingly complicate the central bank’s traditional inflation-targeting mandate.
The review is currently underway, and the framework will be renewed in 2026 for a five-year period, marking what could be the most significant evolution of Canadian monetary policy since the adoption of inflation targeting three decades ago. Senior bank officials and external economists are increasingly acknowledging that Canada structural supply challenge in its housing market, where supply has not kept up with demand for years, has implications for monetary policy that may put more upward pressure on inflation.
Housing Affordability Takes Center Stage
The integration of housing considerations into monetary policy represents a fundamental shift in how Canada’s central bank approaches its dual mandate of price stability and maximum sustainable employment. While home ownership in Canada has become the most affordable it’s been in three years, with RBC’s aggregate affordability measure falling to 55.1% in Q1 2025 from 60.7% a year earlier, prices remain significantly elevated compared to pre-pandemic levels.
The challenge for policymakers lies in balancing traditional monetary policy tools with the unique dynamics of Canada’s housing market. Lower borrowing costs are already boosting activity in the housing market as well as consumer spending on big-ticket items like automobiles, demonstrating the direct transmission mechanism between interest rates and housing demand.
Structural Supply Challenges Drive Policy Evolution
The Canada Mortgage and Housing Corporation (CMHC) has updated its housing supply estimates, calling for around 430,000 to 480,000 new homes per year by 2035, highlighting the scale of the supply shortage that monetary policy alone cannot address. This reality is forcing the Bank of Canada to consider how housing market dynamics should influence its policy framework going forward.
The OECD has noted that housing affordability has been declining over recent years, with policies to boost housing supply, such as allowing higher density housing and