Governments need to be more modest in their overly broad promises – affordability is anything but a single problem with a simple solution.Kelly Clark/The Canadian Press
Serge Dupont is senior adviser and head of public policy at Bennett Jones.
Kevin Lynch is a former senior public servant and former vice-chair of BMO.
Opinion polls and pundits all agree that affordability is a top concern for Canadians. Many describe the lack of affordability as a crisis, particularly for low- and middle-income Canadians. The public is rightfully upset that too many households are unable to find housing they can afford, and demand at food banks is rising as the cost of the average grocery basket soars. Governments are being called upon to act urgently and boldly.
But successfully tackling any problem starts with clearly defining it. And affordability is an amorphous concept that means many different things to different people.
For many young adults, it means being able to afford rent and not camping out with their parents. For young families, it is about realistically aspiring to home ownership. For many consumers, it means that purchases of grocery staples should comfortably fit within a budget. For households, it means that paying for the essentials should not mean sacrificing all non-essentials. And for many, it can evoke nostalgia for a time when middle-class life seemed more predictable, technology was not upending everything (including work), and parents had more confidence their children would have a better life.
Customers turning to frozen produce to avoid high food prices, Loblaw CEO says
Unless governments unpack affordability into the specific issues to be tackled, and communicate them with clear objectives and targeted measures, their efforts will be frustratingly futile. Affordability as a generic government objective, however noble the intent, provides no objective measures of policy success, and many subjective measures of failure.
Whether the issue is housing, food, energy, or overall household budgets, governments need to start the public discussion by clearly identifying the affordability problem they plan to tackle and rigorously understanding its root causes rather than rushing to promise quick solutions using fiscal band-aids. The durable solutions will often involve supply-side structural reforms, not demand-side price support. That’s harder to communicate in a world demanding instant responses, certainly, but it’s much more likely to succeed and maintain public confidence.
A key part of the affordability-policy architecture is keeping CPI inflation low. The Bank of Canada misread cost pressures coming out of the COVID-19 pandemic and inflation rose well above its 2-per-cent target, peaking at 8 per cent in mid-2022. This forced the Bank to raise interest rates sharply, and the higher mortgage rates in turn hurt housing affordability. Since mid-2024, with inflation again near 2 per cent, interest rates – including mortgage rates – have declined, improving housing affordability. This illustrates the importance of holding to the inflation targets by taking early policy action if inflationary pressures return – for example, a spike in global oil prices, which feeds through the economy.
More Canadians are turning to buy now, pay later as grocery costs soar
Yet, while inflation is back to its 2-per-cent target, price levels remain higher, especially for certain items like food. The Bank of Canada targets inflation, not price levels, so consumers have to adjust to today’s higher prices. Part of the affordability adjustment for households is incomes as well as prices. And the best way to get household incomes up is by creating the economic conditions for good jobs and strong productivity growth, while using targeted policy vehicles such as the GST credit to deliver transitional income support to those most in need.
More broadly, the factors affecting the various aspects of affordability are often quite different, whether it is the nature of the cost pressures, exposure to global supply chains, market dynamics, and how households can adjust. It follows that the most effective policy remedies should be different, and targeted, as well.
Income gap hit record high in first quarter, Statscan says
Energy is a good example. An oft-stated goal is that energy must be secure, sustainable and affordable. While it is hard to disagree, the challenge arises when there is conflict among the objectives, as there often is. When residential electricity prices rise above the average inflation rate of 2 per cent to pay for the costs of new capacity, such as upgraded transmission lines or cleaner sources of supply, the public screams about affordability; governments then often rush to keep prices artificially low through direct or indirect subsidies. That’s bad policy in the guise of protecting affordability.
In short, affordability is anything but a single problem in search of a simple solution. Governments need to be more modest in their overly broad promises to fix affordability, and more effective in their actions to tackle specific affordability problems.
Effective governing is about clearly defining the problem to be addressed, setting realistic targets, executing the needed policy changes, and being held accountable for the outcomes. This approach will yield the most durable results for trust in government – and, more importantly, for Canadians in their everyday lives.