Business

Liberal government silent on pledge to let more homebuyers dip into their RRSPs

Experts believe we've heard nothing more about the election promise because it's a dangerous idea in an overheated housing market.

Experts believe a too-hot housing market has killed a popular election promise

Justin Trudeau at a Toronto campaign stop last year where he pledged to expand the rules for who could dip into their RRSPs to buy a home. (CBC)

It was an election promise that made headlines and got people excited. The Liberal Party pledged to make housing more affordable by widening the rules on who could raid their RRSPs to buy a home.

"My first reaction was that that was fantastic news," says Barrie, Ont., mortgage broker Darick Battaglia.

But nine months after winning the election, Ottawa is silent on the pledge. And some experts predict it will continue to remain mum.

They believe the Liberal government concluded it had no choice but to shut down an election promise that would only help further ignite Toronto and Vancouver's already overheated housing markets.

"It sounds great: let's go help out homebuyers," says broker Justin Blacklock with Averbach Mortgages in Vancouver. However, he believes that somewhere down the road, the government "freaked out about the market" and reconsidered its pledge. 

The best-laid plans

The Liberals made affordable housing a big part of their election platform.

To help Canadians scrounge up a down payment, the party vowed to widen the rules so Canadians could dip into their RRSPs to buy a home if they had to move for work, suddenly became single or were taking in an elderly relative.

Currently, only Canadians who qualify as first-time homebuyers or have a disability can cash out up to $25,000 of their RRSPs to buy a home. They generally have up to 15 years to pay it back with no interest or penalties. 

"The reality is that too many Canadians cannot afford to buy a house," Justin Trudeau said at a Toronto campaign stop last year where he unveiled the expanded RRSP plan.

But since coming to power, the Liberal government has said nothing more about it. Instead, it has tightened mortgage rules, making it harder for Canadians to buy homes over $500,000.

Is there no plan?

CBC News asked the Department of Finance for an update on the RRSP promise. Spokeswoman Annie Donolo responded in an email that the government has made "significant investments in affordable housing" and that it will continue to help families buying homes.

But she would not address the pledge to expand RRSP rules for homebuyers.

When asked if this means there's no plan, Donolo said she had nothing more to add.

Carleton University business professor Ian Lee says the election promise was foolish considering Vancouver and Toronto home prices and Canadian debt levels are both getting out of control.
Experts believe the Liberals had to nix an election promise that would only help further ignite already overheated housing markets in Toronto and Vancouver. (David Donnelly/CBC)

Lee believes finance department officials must have told Minister Bill Morneau to nix an election pledge that would make it easier for more Canadians to buy houses.

"I'm sure he didn't get one single expert advisor saying, 'Go for it.' I'm sure every one of them said, 'Run away from that promise as fast as you can.'"

Lee adds that the government also can't appear to be encouraging more people to dip into their RRSPs when there's growing concern Canadians aren't saving enough for retirement.

"The optics would have looked terrible," he says.

Why we worry

Canadian household debt levels are hovering near a record high and more than 70 per cent of that debt is money owed on mortgages.

The Bank of Canada has long expressed concern about the mounting debt levels and likely unsustainable housing prices.

So instead of widening the RRSP rules, in February, Morneau tightened mortgage regulations. The minimum down payment for insured mortgages has now doubled to 10 per cent for the portion of a home's price between $500,000 and $1 million. 

Even Battaglia with Dominion Lending Centres, who was initially excited about the RRSP expansion plan, understands why we've heard nothing more about it.

"It's probably not a good idea to add more fuel to that fire," he concedes.  

About the Author

Sophia Harris

Business reporter

Sophia Harris has worked as a CBC video journalist across the country, covering everything from the start of the annual lobster fishery in Yarmouth, N.S., to farming in Saskatchewan. She now has found a good home at the business unit in Toronto. Contact: sophia.harris@cbc.ca

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