Have the Liberals Improved the Home Buyers Plan Proposal, or is it Political Posturing?
The Liberal Party in Canada has made a bold proposal that could open up more real estate purchasing opportunities. Currently, Canadian law per the Home Buyers’ Plan only allows first-time buyers to borrow RRSP funds to buy a home. Liberal leader Justin Trudeau has proposed a loosening of those restrictions so that people who have unexpected challenges or circumstances can also access those funds.
The Liberal Party’s housing policy proposal includes several different types of circumstances that could loosen up the RRSP funds. A forced relocation for work, the passing of a spouse, the end of a marriage or the choice to house an elderly member of the family would all qualify as events that would allow people to gain access to the Home Buyers’ Plan and use their Registered Retirement Savings Plan funds to purchase a house without having to pay any tax penalty.
The Liberal plan still caps the RRSP withdrawal at $25,000. Some have observed that the cap should rise, if not go away altogether, as that cap has only gone up 25 percent since 1992. During that time period, the average purchase price of a home has gone up over 200%. This is why the Conservative Party has pledged to raise that cap to $35,000. The Liberals should match that pledge — and perhaps raise it to $40,000 or $50,000.
For now, this proposal is just a campaign promise (just like the Conservative pledge to raise the cap). but it makes sense as a policy proposal. When people purchase homes through the Home Buyers’ Plan, the result is ancillary spending — and the creation of jobs. Even without the changes, home purchases that go through the Home Buyers’ Plan are projected to create over 19,900 jobs and cause more than $2.8 billion in spending.
Given the fact that home prices are going up, more and more people need access to other funding sources to come up with a down payment that satisfies conventional lenders’ requirements. People who are going through a difficult time in their life but, thanks to their RRSP funds, can still afford to move from renting to owning a home, would benefit greatly from this proposal. It’s time for the government to loosen its grip on RRSP funds a bit. The housing market is, slowly but surely, beginning to find its footing again after its long slumber going back to the collapse in 2007 an 2008. This could be the next step in bringing the Canadian economy back to full strength.