CREA wants parents to assist children with home purchase with their RRSPs
Rapid home price increases have resulted in many parents already gifting down payment money to children
The federal government should allow parents who want to help their offspring with the purchase of a home to tap into their retirement savings, says The Canadian Real Estate Association, which also wants the maximum withdrawal limit bumped up by $10,000.
Extending the Home Buyers' Plan to allow for "intergenerational RRSP loans" would ease the financial burden that many young Canadians face when trying to purchase a home for the first time, wrote CREA in its 2018 pre-budget submission to the House of Commons Standing Committee on Finance.
Under the current plan, first-time buyers can withdraw up to $25,000 from their RRSPs to contribute to the purchase of a home. The tax-free loan must generally be repaid within 15 years.
Allowing parents access to the plan would help many first-time buyers enter the market and ease their financial obligations, the association said.
Recent and rapid home price increases have resulted in many parents already gifting down payment money to children.
The national average price for a home sold in October was $505,937, up five per cent from a year ago, according to figures the association released earlier this month.
Two of the country's hottest housing markets have been contributing to those gains.
In October, the benchmark price of a property in Greater Vancouver hit $1,042,300, up 12.4 per cent from the previous year, according to figures from the Real Estate Board of Greater Vancouver. Meanwhile, in the Greater Toronto Area that month the average property price was $780,104, up 2.3 per cent from the previous October, according to figures from the Toronto Real Estate Board.
The Toronto agency said it is also lobbying the federal government to modernize and expand the Home Buyers' Plan, saying the HBP "effectively amounts to a zero-interest self-loan" because it allows Canadians to borrow from their own savings.
"A formalized mechanism which allows for the transfer of RRSP funds from parents to their children would help not only increase the available down payment and reduce the amount borrowed, but also limit risk to the lender," TREB said in a statement.
Nearly one-in-five first-time homebuyers have received help from a family member with a down payment, according to a Canada Mortgage and Housing Corp. online survey of 3,002 mortgage consumers completed in March.
The polling industry's professional body, the Marketing Research and Intelligence Association, says online surveys cannot be assigned a margin of error because they do not randomly sample the population.
A formalized mechanism that allows parents to transfer their RRSP savings — up to the maximum $25,000 — would help increase available down payment amounts, reduce the amount borrowed and limit risk to the lender, CREA said.
The association wants both parents to be eligible to loan funds from their RRSPs to anyone they had previously claimed as dependents on their income tax return.
While CREA's proposal is not unreasonable, there's no obvious answer to whether people should be able to dip into retirement savings — tax-free — to fund a property down payment, said Thomas Davidoff, a professor at the University of British Columbia's Sauder School of Business.
He's concerned the plan could be a risk for people who are under-saving for retirement and would be utilized more by wealthier families, amounting to a transfer from less wealthy families to better off ones.
It would also likely push up housing prices, he said.
"Part of what you do when you subsidize housing in any way is push up the price," he said, "which just helps property owners rather than buyers."
The biggest thing the federal government should be considering when it comes to their approach to real estate and taxation is how to add tax burden to real estate, he said — not subtract it. The government could, for example, limit how much of a principal residence's capital gains are tax exempt when it is sold.
In addition to expanding the home buyers' plan to include parents, CREA also suggested the government extend it to homeowners who relocate for work, decide to accommodate an elderly family member or suffer the loss of a spouse or a marital breakdown.
CREA also asked the government to increase the maximum withdrawal amount by $10,000 to help first-time buyers make larger down payments and take on less debt.