One chief economist said the lack of affordability in Canada’s housing market could potentially weigh on future consumer spending as households allocate more of their income to shelter. 

Charles St. Arnaud, the chief economist at Alberta Central and a former economist at the Bank of Canada, said in an interview with BNN Bloomberg Monday that over the next few years, there will likely be increased pressure on housing prices. St. Arnaud said mounting pressure will also impact the rental market and stems from weak housing starts coupled with strong immigration. 

“That will have some very important implications for household finances because suddenly, while we always say households shouldn't pay more than 30 per cent of their income in shelter costs, at some point that might have to be thrown out the window,” he said. 

“That will mean that the average household has to spend more for shelter and that means they need to reduce spending on other parts of the economy…you will see underperformance in consumer spending.” 


Today, St. Arnaud said Canada’s housing market is experiencing a “tug of war” between two key fundamentals. 

On the supply side, he said the market is being impacted by scarce inventory, while housing demand is being constrained by high-interest rates and declines in affordability. 

“Last year, we saw the impact of higher interest rates, the big decline in affordability that was linked to that and to higher prices,” St. Arnaud said, adding that those constraints are limiting the housing market and restricting demand. 

“On the flip side, what we're seeing in recent months, and it was really quite easy to see in March is that there is barely any inventory in the market. New listings in Canada are currently at their lowest [level] since 2004.” 

Simultaneous weakness on both the supply and demand side of the nation’s housing market creates a “very interesting dynamic,” St. Arnaud said. 

In a note, St. Arnaud highlighted that a correction has occurred in Canada’s housing market, as prices fell for a 12th consecutive month in February. During that time period, prices declined by 15.8 per cent, according to St. Arnaud.