RBC President and Chief Executive Officer Dave McKay says Canada’s housing crisis presents a longer-term risk to the overall economy.
In an interview with BNN Bloomberg, McKay said many people are experiencing difficulty finding shelter within the country. He says high housing costs are one of the top issues the country faces and worries it could drive people away and impact the overall talent available in the Canadian economy.
“If we don't solve it, we put our entire economy at risk, in that it's too expensive to live here, we don't attract the talent, we don't retain the next generation,” McKay said.
He said the real estate sector currently faces a “catch-22” as higher interest rates deter development needed to increase supply.
“There's a huge demand for housing,” he said. “As we know it’s stabilizing house prices in what would normally be a down market. But we can't satisfy that pent-up demand with more supply because rates are too high.”
McKay also highlighted that the permitting process takes too long and needs to move at a faster pace.
“It's been a challenge for our country from business to construction. It takes too long to get permits to move forward,” he said adding that the slow process results in losing out on business to the U.S.
‘Soft landing’
In the near term, McKay said elevated interest rates are working to bring inflation down, although the process is “a little slower than we would like.”
“Overall, we appear to be fully on a path to engineer a soft landing for the Canadian economy,” he said.
Previous moves by the Bank of Canada to tighten monetary policy are working to ease inflation, McKay said.
“Higher rates have led to a repricing of business loans, have led to higher interest rates for mortgages, which has been difficult. That takes cash flow (out) of the economy and therefore the economy is slowing from a demand perspective as rates are working,” he said.
Despite the easing of inflationary pressures, he added the impact has been “offset a little bit” due to government deficits and “a million new Canadians coming in from abroad.” Those two factors, he said, add slightly to inflationary pressures.
“Still, we're on track for rate cuts this summer and into the fall. I think that relief will be welcomed by Canadians and will help bring down mortgage rates and bring down overall costs of servicing a mortgage for Canadians,” McKay said.
However, even if interest rates are reduced, they are likely to still be high enough to weigh on the overall economy, he highlighted.
“Don't forget, even if rates come down by 100 basis points or 50 basis points, that’s still tightening. A four per cent rate in the economy is still not an expansionary rate, it’s a tightening rate. And therefore that still will have an effect on the economy going forward,” McKay said.