Quote:
Originally Posted by #-3
In general the two problems I can see with this theory are how renters fit into the mix, when you have home owners with fixed mortgages costs, and an escalating rent market because of rising interest rates, you could actually end up cycling more money through the economy in the short term.
Second wage responses. Mortgages and Rents are such sticky payments, that people are more willing to risk demanding wage increases, or move to higher paying jobs than to lose their house, which it the actual cycle the BOC was worried about. It's one thing to see the CPI up for a period of time, but spiraling wage increase, cause that to continue in a way that is hard to stop, and because people benchmark price expectations over ~18 months, if you can't slow inflation for a period of ~18 months before an election, the chances of turning over a sitting government are much much higher.
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To add to this. The concept of a "renter" has changed in Canada. In the major cities there are now a large group of lifetime renters. Families and individuals that will never own a home. This has been common in Europe but is only now occurring in large rates in North America.