Photo: James Bombales
Should parents be allowed to use their retirement savings to help their kids buy a home? The Canadian Real Estate Association (CREA) thinks so. The association is calling for the federal government to allow for “intergenerational RRSP loans,” to help first-time buyers with the increasingly expensive cost of homeownership. But not everyone thinks it’s a good idea.
“The federal government is busy trying to dampen housing demand, and this idea is counterproductive,” author of the popular Greater Fool finance blog Garth Turner told BuzzBuzzNews. “If you want to make housing affordable, you need to get prices down, not just give money to the kids to buy at inflated prices and drive demand up.”
Under the federal government’s current Home Buyers’ Plan, first-time buyers can withdraw up to $25,000 from their RRSPs to help buy a home. CREA wants that amount to jump by $10,000, and for parents to be able to get in on the action.
Housing Market News Alerts
Sign up now for news alerts on the Canadian housing market
The call comes as housing prices in major Canadian cities continue to climb. According to figures from the Toronto Real Estate Board, the average sold price in the GTA was $761,757 in November, and the MLS Home Price Index composite benchmark price was up 8.4 per cent year-over-year.
Given the rising prices, nearly one-in-five first-time home buyers received help from a family member with a downpayment in 2016, according to a March survey from the Canada Mortgage and Housing Corp.
“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.
But allowing parents to dip into their retirement savings could be bad news for those whose debt levels are already high. Canadians have some of the highest household debt levels in the world, with a recent report from the Organization of Economic Cooperation and Development finding that Canada’s household debt-to-GDP ratio now sits at 101 per cent, well above the United States’ 80 per cent and Germany’s 60 per cent.
“The issue with this suggestion, which I think is probably a bad idea, is rising household debt, particularly in older people,” RBC economist Robert Hogue told BuzzBuzzNews. “This kind of measure would further accelerate debt in a group that should be focused on saving its money.”
Turner has a more direct way of putting it: “This would further decimate retirement savings, which are already in dire shape,” he says. “By allowing people to raid their RRSP, you are exacerbating a baby boomer retirement crisis.”
While Hogue sympathizes with younger Canadians looking to buy in expensive markets, he says that the decision would be a bad one for already hot markets, like Vancouver and Toronto.
“It can be difficult for young people looking to buy, but at the end of the day the market in certain parts of the country is very strong, and changes that would boost demand would probably be unwarranted,” he says.