{"id":253816,"date":"2025-11-01T04:46:08","date_gmt":"2025-11-01T04:46:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/253816\/"},"modified":"2025-11-01T04:46:08","modified_gmt":"2025-11-01T04:46:08","slug":"time-to-fix-the-inflation-indicator-hobbling-a-generation-of-homebuyers","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/253816\/","title":{"rendered":"Time to fix the inflation indicator hobbling a generation of homebuyers"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

Sean Kilpatrick\/The Canadian Press<\/p>\n

Now that the Bank of Canada has cut interest rates for the ninth time since June, 2024<\/a>, Canada\u2019s housing plan must expand beyond building more homes to fix a flaw that has long fuelled unaffordability: Statistics Canada\u2019s underestimation of housing inflation.<\/p>\n

Many young Canadians have been shut out of home ownership partly because Statistics Canada failed to sound the alarm<\/a> as prices began to soar. Its Consumer Price Index<\/a> (CPI) shapes how we understand inflation and guides the Bank of Canada\u2019s rate decisions. When the CPI reads low, the bank keeps rates low, making it easier to borrow more and pay more for homes.<\/p>\n

If the system worked properly, CPI would flag rising home prices fast enough for the central bank to raise rates before inflation spreads. But it doesn\u2019t, because of how CPI measures \u201cowned accommodation.\u201d<\/p>\n

Instead of tracking rising home prices, Statscan monitors what existing owners spend on upkeep and mortgage interest. Ironically, when rates fall, CPI signals improved affordability because owners pay less on their mortgages \u2013 even if average prices climb. <\/p>\n

That downplays the real burden for first-time buyers: the purchase price and size of the loan needed to enter the market. The result has been years of cheaper credit that helped inflate home values faster than wages, leaving younger Canadians paying the price.<\/p>\n

Even with BoC\u2019s rate cut, Canadian homebuyers expected to remain on sidelines<\/a><\/p>\n

Ottawa should seize the chance to fix this broken feedback loop as part of its housing plan. Just as the federal government recently asked Statscan to add \u201cquality of life\u201d indicators to supplement its focus on GDP, it can now request a complementary measure of housing inflation. <\/p>\n

The goal isn\u2019t to alter the data but to give the Bank of Canada the right tool for its job. This requires no new spending or bureaucracy \u2013 only better use of existing data, the kind of reform suited to an era of fiscal restraint.<\/p>\n

The CPI\u2019s design isn\u2019t accidental. Statscan explicitly aims \u201cto produce a CPI that is relatively stable,\u201d balancing two objectives: indexing benefits and tax brackets on the one hand and guiding monetary policy on the other. Stability may make sense for indexing Old Age Security or tax thresholds, where sudden jumps would cause disruption. But for monetary policy \u2013 which must respond quickly to shifts in the major costs of living \u2013 stability at the expense of accuracy is dangerous.<\/p>\n

Since 2000, average home prices have climbed about 319 per cent, based on my calculations of Canadian Real Estate Association data, while the CPI has risen only 69 per cent. For most of that time, according to Statscan, inflation appeared comfortably below the Bank of Canada\u2019s 2-per-cent target, discouraging rate hikes even as housing values exploded.<\/p>\n

The Bank of Canada\u2019s five-year review of its monetary policy framework is under way, and Governor Tiff Macklem has flagged the need to assess how housing inflation is captured<\/a>. After all the rate cuts since mid-2024, policymakers must prevent renewed housing inflation as borrowing costs fall.<\/p>\n

Fortunately, Statscan has already developed the solution. In a recent report<\/a>, the agency tested an \u201cacquisition approach\u201d that tracks housing inflation the way younger buyers experience it: by measuring the actual cost of acquiring a home, including the land it sits on.<\/p>\n

Statscan\u2019s own analysts concluded that this method is \u201cuseful for measuring price inflation for the purpose of monitoring central bank monetary policy, because [it] instantly encompass[es] the effect of house price increases.\u201d <\/p>\n

The study\u2019s charts reveal that using the acquisition approach over the past two decades would have shown inflation exceeding the Bank of Canada\u2019s 2-per-cent target many more times than the current CPI approach ever did. That insight might have prompted earlier, modest rate increases, tempering the surge that has since spread housing unaffordability across the country.<\/p>\n

Ten charts that explain Canada\u2019s messy and complicated housing markets<\/a><\/p>\n

The fix is straightforward and essentially free. Industry Canada, which oversees Statistics Canada, should direct the agency to publish two CPI series: the existing one for indexing benefits and tax rates, and a second using the acquisition approach to guide monetary policy. This added reporting would give the Bank of Canada a clearer view of housing inflation \u2013 one designed for its mandate, not the government\u2019s need for stability in indexation.<\/p>\n

For younger Canadians, the payoff would be enormous. Repairing the feedback loop between data and policy would stop the CPI from fuelling inflation it\u2019s meant to control. It would be a transformational win, fixing a problem that has done much harm over the past quarter-century and preventing it from repeating in the next.<\/p>\n

Dr. Paul Kershaw is a policy professor at UBC and founder of Generation Squeeze<\/a>, Canada\u2019s leading voice for generational fairness. You can follow Gen Squeeze on X<\/a>, Facebook<\/a>, Bluesky<\/a>, and Instagram<\/a>, as well as subscribe to Paul\u2019s Hard Truths podcast.<\/a><\/p>\n