ANALYSIS: PM's Homebuyer Plan

first-time-homebuyer.jpgAt a recent election campaign stop in Vancouver, Prime Minister Harper promised a new policy to help aspiring homeowners. Who would benefit? Those who have more than $25,000 saved in RRSPs, are looking to buy their first home – or looking to buy a home for a related person with a disability – and are willing to draw down their retirement savings to do so. 


In advance of this federal election, Gen Squeeze met with the Prime Minster’s Office, and housing affordability for Canadians in their 20s, 30s, 40s and the kids they are raising was top of mind in our conversation.

We are therefore pleased that Prime Minister Harper used the election campaign today to pledge a new housing policy adaptation: increasing from $25k to $35k the amount of tax free money that first time home buyers can withdraw from their RRSP savings. This is a minor victory for Gen Squeeze.

With an emphasis on minor, because of the limited number of people it will help and the small size of this new public investment in primarily younger Canadians -- $30 million starting in 2017/18.  $30 million is a lot for an individual.  But it is less than a rounding error in the federal budget.

Who Will Benefit  

Who will benefit: Individuals who have more than $25,000 saved in RRSPs, are looking to buy their first home – or looking to buy a home for a related person with a disability – and are willing to draw down their retirement savings to do so.

The personal savings: Basically, you’d be allowed to loan yourself more money from your RRSP to buy your first home.

The one-time savings for those able and willing to draw down their RRSP an extra $10,000 depends on the tax rate they pay on the next dollar they earn.  Those who earn around $40,000 or less per year will save two to three thousand dollars from this policy proposal.  Those who earn over $125k a year will save closer to four to five thousand. 

AND, you'd only get to keep those tax savings if you paid the full amount that you borrow from your RRSP back within 15 years. Like we said, the policy would only allow you to loan yourself more tax-free money from your RRSP.

Who won’t benefit: Many, many first-time homebuyers (think younger Canadians), who don’t have more than $25,000 saved in RRSPs and/or are unwilling to sacrifice their retirement savings to buy their first home.   

Analysis

The PM’s stated goals for the changes are praiseworthy.  However, the RRSP withdrawal limit change represents a minor tax adaptation that won’t go far in solving the housing squeeze.

Why? Because many Canadians in their 20s, 30s and early 40s don’t make much use of RRSPs.  The data are clear that around 60 per cent of RRSP tax savings each year are received by Canadians age 45-64. 

Why don’t younger Canadians use RRSPs as much as others?  Not because we are dumber about saving than people were in the past. 

We don’t use RRSPs much because we earn thousands less for full time work compared to young people in 1976 (after inflation), we go to postsecondary more and take on larger student debts for the privilege, and we pay higher rents because housing prices skyrocketed by hundreds of thousands of dollars compared to a generation ago

In sum, the Prime Minister proposes a solution to the housing squeeze for first time home buyers in a policy tool to which few Canadians in their 20s, 30s and early 40s have serious savings.  Many prospective first time buyers don’t have savings that reach the current withdrawal limit, let alone the increase the PM now recommends.

Want to know a better way to ease the housing squeeze?  Check out the Gen Squeeze housing policy recommendations that we bring to all political parties as part of our lobby with and for younger generations.  We welcome your feedback and recommended refinements.

A Second Victory

Our suit up and spread out lobby building activities paid off a second time in the Prime Minister’s announcement.  Mr. Harper announced that “Our government will commit to collecting comprehensive data on foreign buyer activity in Canada’s housing market.  We will then take action in coordination with provinces to ensure foreign investment in Canada’s housing sector supports the availability and affordability of homes for Canadians.”

This Conservative Party commitment responds directly to the call for data about the role of foreign investment in our housing market that was launched at the “Don’t Have 1 Million” Housing Affordability rally that Gen Squeeze co-hosted with local organizer Eveline Xia on May 24, 2015. Ms. Xia continued to champion the idea to collect additional data at a follow-up event in Vancouver.

Now we have the federal NDP and Conservative parties agreeing to collect this important information.  

More to Come

Early wins like these in the early days of Gen Squeeze organizing make clear that politics can work for younger Canadians.  Politicians respond to those who organize and show up.  Thanks to the hundreds who showed up at the housing affordability rally, and the more than 9,000 allies who have so far joined forces across the country to build the clout of the Gen Squeeze lobby.

As our membership grows, we will win bigger and better policy adaptations to the time, money, service and environmental squeeze. 

Stay tuned for more 2015 election campaign commentary as we analyze party announcements to answer the question:  how will the campaign promises promote a Canada that works for all generations?


 Dr. Paul Kershaw is a University of BC policy profession in the School of Population Health, and Founder of Generation Squeeze.


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  • commented 2015-08-22 19:59:53 -0700
    This is a study done on Vancouver house prices since 1960 and the bubble collapses in price that occur and why. I wouldnt bet my mortgage on a market thats overdue for a correction. In 2015 or my RRSP
    https://vreaa.wordpress.com/2013/01/

  • commented 2015-08-22 14:54:59 -0700
    There is less benefit to the RRSP loan increase or for that matter the loan as the funds absent from the fund for 15 years are really a tax and interest free home investment . Whether they are invested thru the RRSP or in the home it is going to accumulate tax free. However the difference is that the Capital Appreciation in the home is not Taxable whereas if it is invested thru the RRSP the investment when paid out would be taxable at the highest marginal rate. Ironically about all it Pays for is the Realty Association Fees, the Taxes and the legal costs. Of a home .
    For recent home buyers in Alberta, it is a lose lose situation. Those that lose their jobs may lose their homes, and all equity in them,because of falling home prices. Those who separate and divorce , the same thing happens and how many marriages last 15 years to pay it back. The final outcome may be having to pay taxes on the $.35000 residual because you can not afford to pay back one fifteenth to the RRSP that year.
    Designing programs on the basis that real estate always increases in value is ultimately destroyed by reality or Gravity. Has anyone perceived that the current Chinese market reality may require the liquidation of BC assets to cover . What was a trickle can become a waterfall the size of niagara very quickly or did you miss the crash of the New York markets Friday. Renewal of mortgages that exceed values is a quick reality and the 35000 is gone except for the tax one will have to pay. Contagion is everyone’s worst nightmare right now but none more than homeowners in BC. On the other hand those waiting to buy may never has a great a dip to buy on.
    The last world wide contagion started in The Hong Kong market in 2006. When it was finished homes in Arizona, Ohio, and Detroit and many other places were worthless . The Ontario teachers and even the CPP funds are already in full retreat seeking safe havens in Europe and the U.S. As our largest pension plans which account for 60 % of the market share a street corner in Toronto the others and Sovereign Funds are likely heading that way as well. Their assets are over 1 trillion Dollars .
    So who wins IMO the Realtors, the development Companies, the builders , and oh yes all those lawyers advising the people studying the data from monitoring off shore housing purchases. The losers generation Squeeze

    Anything that appears to encourage or subsidize new home purchases will be a temporary for those entering the market. The reality as they say is what goes up must come down and for those in China their Canabdian Assets are already worth 30% less than the were a year ago. Not such a great investment were they.

“Yes, Canadian governments need to make younger people a priority. I want a Canada that works for all generations."

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