Canada Doesn’t Just Have an Affordability Crisis, it Has a Productivity Problem

As Canadians continue to battle soaring grocery bills, unaffordable housing, and a job market losing momentum, it’s tempting to believe the solution lies solely in lowering prices. But according to Bank of Canada external deputy governor Nicolas Vincent, the real fix isn’t about shrinking the cost of living it’s about growing our ability to pay for it.

And honestly, he’s right.

For years, Canada has lagged behind other advanced economies in business investment and productivity. We’ve relied heavily on consumption-driven growth, cheap borrowing, and short-term policy patches. But now, with inflation still haunting households and wages failing to keep pace, it’s clearer than ever: without a more productive economy, Canadians simply won’t see meaningful and lasting relief.

Vincent made an important point in his recent speech: “Deep down, Canada’s affordability problem is really a productivity problem.” That’s not just economic jargon it’s a diagnosis. Low productivity means businesses produce less value, which means wages grow more slowly. When incomes stagnate but prices rise, households fall behind. And that is exactly what we’re witnessing today.

Business investment has been weak for years, leaving companies less competitive, less innovative, and less capable of creating the kind of well-paying jobs Canadians need. Combined with global supply chain shocks, climate-related pressures, and post-pandemic disruptions, the cracks in our economic foundation have become impossible to ignore.

The widening income gap proves it. Statistics Canada recently reported that low-income earners are seeing almost no income growth, while top earners pull further ahead. Meanwhile, unemployment sits around seven per cent high enough to worry families, low enough to mute wage gains.

The result? Canadians are cutting holiday spending, delaying major life milestones, and dipping into savings just to stay afloat. Affordability is no longer a temporary headache it’s a long-term structural issue.

So what’s the path forward?

Vincent outlines a refreshingly practical roadmap:
• Make it easier for businesses to invest and expand by simplifying regulations and improving incentives.
• Boost competition in industries like telecommunications, transportation, and financial services to improve efficiency and create downward pressure on prices.
• Strengthen the workforce with better training, easier credential recognition, and a more flexible, future-ready labour market.

None of these are quick fixes and that’s exactly the point. Canada has spent too long searching for political soundbites instead of structural solutions.

Even the Bank of Canada admits its tools are limited. With the benchmark interest rate already cut to 2.25 per cent, Governor Tiff Macklem has acknowledged monetary policy alone can’t rebuild productivity. That responsibility now falls to governments, businesses, and institutions.

Prime Minister Mark Carney’s narrowly-passed budget filled with billions for mining, energy, infrastructure, and port expansion is an attempt to kick-start long-term growth. Whether these projects become engines of productivity or symbols of government overspending remains a point of fierce debate, especially with Pierre Poilievre warning of a “credit-card budget.”

But at least the conversation is shifting toward the right question: not how to lower prices today, but how to raise incomes tomorrow.

If Canada wants an economy where young people can afford homes, families can save, and seniors can retire with dignity, then productivity must be at the centre of the national agenda. It isn’t glamorous. It doesn’t offer instant political wins. But it’s the only way to build lasting affordability.

Vincent said it best: even if the challenge seems daunting, improving productivity is “worth the effort” not just for this generation, but for the ones that follow.

And if we’re serious about solving Canada’s affordability crisis, it’s time we start treating productivity not as an abstract economic term, but as the foundation of a stronger, fairer, and more prosperous future.