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You’re probably going to see more spending on things that people use credit for. Housing would be high on that list
Bank of Canada Governor Tiff Macklem
Everyone knew ultra-low interest rates risked distorting some prices and igniting a dangerous surge in mortgage lending. The central bank could have snuffed that out by raising its benchmark rate, but not without hurting the rest of the economy and adding to deflationary pressures.
Politicians were the only ones who had the power to restrict mortgage lending, and they were loath to give it up to the central bank. The late Jim Flaherty, who served as finance minister under former prime minister Stephen Harper, in 2009 decided that oversight of the financial system would rest with him.
Bill Morneau, who was Prime Minister Justin Trudeau’s first finance minister, made the same decision, declaring he would decide when to deploy “macroprudential policy,” a fancy name for targeted measures intended to deflate asset-price bubbles, such as the minimum down payment needed to qualify for a mortgage insured by the federal government.
“At the end of the day, I am ultimately responsible for supporting financial security, and the stability of our financial system,” Morneau, who retired earlier this year, told an audience in Toronto in 2016.
Flaherty and Morneau both struggled to stay ahead of the housing problem, partly because politics kept getting in the way. The real-estate lobby is powerful, as are homeowners themselves when viewed as a voting bloc.
I once heard Morneau tell an audience in Montreal that voters were counting on him, as finance minister, to “ensure their home keeps its value.” Politicians will always need an extra incentive to approve something that might make it harder for us to buy property. During the first experiment with low-for-long interest rates, that usually meant overwhelming evidence that the country was on the verge of a housing meltdown. The result is a herky-jerky approach to regulation that creates unnecessary volatility.
