Surprise! Realtors want you to be able to raid your RRSP to buy your kid a house

This ‘remarkably stupid’ idea would drive home prices further out of reach, experts warn

From afar, Calgary real estate may be looking like a good buy

Photo: The Canadian Press

The real estate industry knows buying a home in major cities is becoming prohibitively expensive for many Canadians. So it’s proposing to help. The Canadian Real Estate Association is lobbying the federal government to allow parents to dip into their registered retirement savings accounts to fund their children’s home-ownership dreams.

CREA, which represents more than 100,000 agents, brokers and salespeople, has made a 2018 pre-budget submission proposing changes to the Home Buyers’ Plan (HBP). That program allows a first-time buyer to withdraw up to $25,000 from an RRSP account to purchase or build a home. The realtors’ association suggests expanding the program so that parents can withdraw from their own RRSPs for their children to purchase of a home. Both parents would be eligible to take funds from their accounts, subject to a maximum amount. “Extending the HBP is a compassionate and fiscally responsible way to help modern Canadian families finance the purchase of a home, and also help close the gap for young Canadians,” according to CREA’s submission.

Family already plays a big role in financing first-time buyers. A survey conducted this year by Genworth Canada, a mortgage insurer, found that 22 per cent of first-time buyers received a gift from a family member and 12 per cent received a loan, up from nine per cent in 2015. “As many parents are already ‘loaning’ their savings to their children, a formalized mechanism which allows for the transfer of RRSP savings would help not only increase the available down payment and reduce the amount borrowed, but also limit risk to the lender,” CREA contends.

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Some observers are not convinced. “This is a remarkably stupid idea,” says Josh Gordon, an assistant professor at Simon Fraser University’s School of Public Policy. “One of the dumbest ideas I’ve heard in the housing debate.” The policy change would only fuel demand for real estate, he says. With more access to funds, buyers are able to pay more for homes, driving up prices and exacerbating the very problem CREA purports to address. “You’re just allowing people to take on more debt, meaning they can bid more for the same house,” Gordon says.

John Pasalis, president of Realosophy Realty, agrees. “It’s a terrible policy,” he says, adding that it’s typical for real estate groups to propose ideas that stimulate demand in response to affordability issues. “They’re going to recommend things that drive real estate sales, independent of whether it’s good policy,” he says.

Home ownership can be beneficial, says David Madani, an economist at Capital Economics in Toronto. Homes operate like a forced savings mechanism as owners pay down the mortgage and build equity. But now is the wrong time to implement CREA’s policy suggestion, he says, given Canada is grappling with record high household debt and overvaluation in large markets such as Toronto. “It’s unwise to encourage potentially thousands of younger people to rush buying a house at this particular correction point in the housing cycle,” according to Madani.

Tim Syrianos, president of the Toronto Real Estate Board, which is supporting CREA’s proposals, rejects the criticism. “Why would it drive up home prices?” he asks. “The intent of CREA’s proposals is not to drive up more demand. It’s to provide the opportunity for people to own a home.” The government requires that RRSP withdrawals are paid back within 15 years, but Syrianos contends “intergenerational RRSP loans,” to use CREA’s term, do not amount to more debt for first-time buyers. “It could be paid back by the parent,” he says. (A CREA representative was not available for comment.)

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In addition to RRSP loans, the real estate association is recommending an expansion of the home buyer’s program to include those who have undergone major life events, such as a divorce or relocating for work. CREA also proposes raising the maximum withdrawal limit from $25,000 to $35,000, since the cap hasn’t increased with inflation since 2009. “Anyone knows $25,000 for a down payment doesn’t get you very far right now, so it makes sense to perhaps increase that a little bit,” Pasalis says.

Government officials, the Canada Mortgage and Housing Corporation and the Office of the Superintendent of Financial Institutions (OSFI) have all been working to temper demand for real estate, however. OSFI, the country’s banking regulator, tightened mortgage qualification criteria twice since 2016. The latest measures, which take effect in January, could affect up to 10 per cent of prospective homebuyers, according to the Bank of Canada, prompting them to purchase cheaper properties or simply delay.

CREA’s proposals, especially intergenerational RRSPs loans, appear to run counter to the aims of housing and finance authorities. But politics have trumped sound real estate policymaking in the past. The former Liberal government in B.C. introduced a down payment loan program for first-time buyers in response to eroding affordability last year, a few months ahead of an election. CMHC head Evan Siddall was a strident critic. “Programs that support demand in supply-constrained markets, like Vancouver, serve primarily to increase prices and make the affordability problem worse,” he emailed to provincial officials.

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Siddall has also used recent speeches to point out governments at all levels offer ample assistance to homebuyers. When talking about affordability in a speech this month, Siddall said it makes more sense to “restrict unhealthy demand” by keeping lending rules tight and stimulating housing supply, rather than providing more financial support to prospective homeowners.

Affordability is a real—and growing—concern in major cities, of course, but Gordon says policymakers need to target the underlying causes of soaring home prices, namely speculation and foreign investment. Although both Ontario and B.C. implemented taxes on non-resident buyers, the programs might not be adequately capturing foreign dollars. Gordon’s colleague at SFU, Rhys Kesselman, has proposed a one per cent annual tax on homes worth at least $1 million that increases with the value of the property. Importantly, the levy is deductible against income tax paid in the previous year—effectively exempting those who pay income tax in Canada while targeting those who don’t. Such a tax would be more difficult to evade, according to Gordon, even for foreign buyers who use business entities to purchase homes.

Measures like that come with an another benefit: parents can hold on to their retirement savings, guilt-free.


Surprise! Realtors want you to be able to raid your RRSP to buy your kid a house

  1. Take anything a real estate association says about affordability with a massive grain of salt. They have too much of an interest in rapidly increasing home prices to be expected to be objective. An example is the BC Real Estate Association that continuously tried to claim that non-resident buyers were having no impact in Vancouver (and surroundings) home prices. It took way too long, but finally BC (and Ontario) realized that non-resident buyers were indeed part of the problem and implemented a foreign buyer’s tax. And IMO it’s now time to give serious consideration to Kesselman’s proposed tax for the reasons given in the article.

  2. It would’ve been nice if the editor of this article didn’t use the word “kids”, but instead, maybe, “adult children”. Cuz, you know, “kids” are usually thought of as a young person and not someone who buys a house. I dunno, maybe?

  3. “The intent of CREA’s proposals is not to drive up more demand. It’s to provide the opportunity for people to own a home.” … and then he turned his underwear inside out without taking them off! It seems a specious argument that the problem of high real estate prices can be solved by finding ways to enable potential buyers to pay more. To some extent, government rules regarding down payments is playing into this idea; however, it must be noted that governments at all levels are attempting to stifle demand but it isn’t working. Perhaps governments should begin to address supply side, for example, stultifying approval processes and massive backlogs and extraordinarily costly permitting. Governments are responsible for the supply of serviced land which is a fundamental constraint on supply and constantly pursue the strategy of paying for infrastructure on the back of development fees rather than general levies stifling the business case for affordable housing. A fundamental contradiction in government policy is that they can suppress demand in contradiction to the fact that everyone needs a place to live i.e. demand is merely an artifact of population growth. But politicians persist in misconceptions such as that the cost of infrastructure development in built up areas is less than in new spaces (the so-called intensification notion) which is patently false and/or (if one listens to Toronto’s mayor) waterfront condos are affordable housing and count bachelor apartments as family housing. In many cases, permits amount to more than the cost of building material for a residential unit yet governments never admit that administrative costs are a substantial portion of real estate prices. As the old saying goes ‘to a carpenter, the solution to every problem is a nail’ – to a realtor the solution to every problem is a sale.

    • What a poorly researched article this is. The homebuyers plan has Been in place for years already and has helped many first time buyers. All CREA is asking is the existing limit of 25k be indexed to 35k. A lot of people put away into RRSP’s and that is there primary savings. When they go to purchase a home being able to access those savings tax free (if paid back) is the only way they can get into the market.
      The second part of the recommendation, is to make the existing program available for some other circumstances, like a major life change, divorce etc. As when a couple divides assests having the ability to tap into these savings can make or break there ability to buy a home versus rent. And as the article does state, a high amount of parents help there children get into there first home, and being able to access these funds with a monthly payback plan makes it a little less stressful way to do so.
      This plan has helped thousands over the years and is not new. Please research the good it has done before producing a headline making it look like it is something new and somehow nefarious.

      • As a realtor I think your take might be a bit biased. Really I think the government should get out of the market all together. No CMHC, no RRSP Home Buyer’s plan, no land transfer tax breaks, no home reno tax credits. Let the buyers and lenders bear full risk and see how fast mortgages shrink.

  4. Hanky panky mortgages at a Canadian bank as reported by Bloomberg.

    Gee, I wonder who will be on the hook?