So, hi everyone. Today is Thursday, October 1st, and welcome to our show, Answer Period. And today we have a special guest, Bank of Canada Senior Deputy Governor Carolyn Rogers, who just finished giving a speech in Victoria titled Canada's Housing Affordability Dilemma. So, Carolyn, thank you so much for being here today.
Thanks for the invitation, Mike. I'm a big fan of your podcast, so really pleased to be here.
Well, thank thanks for being here. And you did something in your speech, a couple things in a single paragraph that we absolutely love around here. One is presenting data, and two is talking about that kind of nexus between housing and productivity. So I want to give the quote for our audience here. You said in 2000, residential investment accounted for 4.3% of gross domestic product, GDP, while overall business investment on machinery, equipment, and innovation accounted for 8.3%. Today that relationship is reversed. So, you know, my question is like, on the one hand, I think I can see why this would be a problem. I think most of us can see why this would be a problem. But one of the kind of debates we have in our nerd WhatsApp chats when it comes to policy and housing, that, you know, at the same time, like the federal government's acknowledged that we have a housing shortage and that housing starts need to double. So wouldn't that suggest that in fact we need more investment in housing, not less?
Well, we probably need more investment in both, right? We need more investment in the things that improve productivity and increase our standard of living. It is, as you say, there's some logic to why housing investment has gone up. Housing has gotten more affordable. So, you have to invest more to get the same amount of housing. I think probably, if you think about housing, we have to be careful about what kind of housing we're investing in. Your show, you've talked a lot about this, making sure that the type of housing we're investing in is the type of housing that people want to buy and raise families in. But we do need to increase our business investment in Canada. That was a problem that's been with us, that's a problem we've been talking about for a long time. It's been with us for a while. So I don't think it's an either-or. I think it's both.
Yeah, I definitely agree. And I think it's, you know, not just what type of housing we invest in, but what do we consider a housing investment? You know, I know I'm talking to the Bank of Canada and not StatCan, right? But I do think there's a distinction between, you know, somebody flipping homes and, you know, paying real estate agents for that versus actually building something new.
Yeah, very, very good point. So your point is, what is that, what's inside that measure, and is it an apples-to-apples comparison when we think about investment, productive investment?
Yeah. But I certainly think we can all agree that we need more business investment. And, you know, kind of follow up on that, that, you know, I do wonder if you, you know, we see these things again being at odds with each other, but, you know, a lot of folks in my generation, you know, we bought a home young and we wanted to start a small business and we were able to do that because we could actually leverage the equity in our house. So if we can't, if small business owners, you know, don't have that equity in their homes, how are we going to kind of invest in small businesses given, you know, our financial sector hasn't historically done a really great job of that?
Yeah. I mean, your podcast is called Missing Middle. That's the missing middle in the investment industry or investment sector. We hear this all the time. Banks tell us, look, we've got capital to deploy. We're looking for good opportunities. And then we talk to small businesses and they say, "I've got an idea. I need somebody to lend me the money." In a perfect world, we wouldn't have people mortgaging their houses to start up businesses. It'd be good if we had a pool of risk capital as an alternative to that. So, yeah, I mean, it's a problem we need to solve. I was just talking with some folks about that just before the speech today, and we're out here talking to businesses tomorrow. We're talking to a group in Victoria here who have started up ocean technology businesses, a bunch of young entrepreneurs. So, it's definitely a question I'll put to them.
Yeah, absolutely. So, and I definitely agree. If I could have started my business without, you know, taking out a HELOC, I would have preferred that. No question. So, what is the role of the Bank of Canada in, you know, helping government or business owners invest more? You know, it does seem that a lot of those tools would be more kind of on the fiscal policy side than the monetary policy side.
Yeah, absolutely. I mean, we don't set policy for the types of credit and capital that are available in the market. The number one job we can do to make it easier for young people starting a business to invest and to plan ahead is to keep inflation low and stable. Planning is always easier in an environment where you can control inflation. So that's our number one job, and it's the single biggest contribution we can make to that challenge.
Well, that's a perfect segue to actually where I wanted to go because I wanted to, I'm a kind of stat nerd, so I wanted to talk about inflation, talk about the consumer price index and how it flows through policy rate decisions because, you know, if we look at this is, you know, I taught monetary policy at Ivey for almost 20 years and one of the things that would come up a lot is, you know, these measurement issues around CPI that, you know, it's a basket of goods and services that represents the average Canadian household. But the thing is like none of us are, you know, I've never met a family with 2.3 kids. Exactly. You know, none of us are the average.
Yeah. Yeah. Exactly. And none of us are. So, how do we, and I think about that a lot when it comes to housing, right? Like I look at my parents, they own a home, they don't have a mortgage. Then there's my wife and I, we own a home, but we do have a sizable mortgage. Then you have my nephew who's a renter. So, you know, changes in home prices and rents and interest rates affect all three of these households like very, very differently. So, how can the Bank of Canada take that into account when we do have this kind of single measure of inflation that we, you know, base a lot of our decisions on?
