Changes to the Home Buyers’ Plan could help Quebec close the home ownership gap
When it comes to home ownership, Quebec lags far behind the rest of the country. One way to close that gap is to make changes to the Home Buyers’ Plan (HBP) to encourage more first-time buyers to enter the market, according to Paul Cardinal, chief economist of the Quebec Federation of Real Estate Boards (QFREB).
“There is a clear financial advantage to owning your own home,” said Cardinal, citing statistics from the Quebec Association of Construction and Homebuilding Professionals.
The statistics showed that the net worth of renters in 1999 averaged $76,800, rising to $116,300 in 2012; an increase of 51 per cent. In comparison, the net worth for homeowners in 1999 was $413,800, which jumped 81 per cent to $748,400 by 2012. In addition, the analysis revealed the amount of revenue available for retired people was higher for homeowners compared to renters.
Only 61.2 per cent of Quebecers own their own home, compared to 70 per cent in other provinces, according to 2011 census data. Cardinal says that 2016 census data will be released in October and expects to see the percentage rise in Quebec, but believes it unlikely the gap has reduced by much.
One tool that could help close that gap is the Home Buyers’ Plan, a federal program which allows first-time buyers to borrow money from their Registered Retirement Savings Plans (RRSP) to use against down-payments on their home.
“The HBP has proven to be an excellent way to help young households acquire their first property,” said Cardinal. “During the period of 2002 to 2015, the HBP enabled nearly half a million Quebec households to become homeowners, by borrowing $6 billion from their RRSPs. However, our analysis shows that there has been a sharp decline in the use of this program in the province, suggesting that modernization of this program or the introduction of new measures could further stimulate home ownership.”
The QFREB supports recommendations made by the Canadian Real Estate Association (CREA) to the federal government to modernize the program, which allows buyers to borrow up to $25,000 from their RRSPs, an amount that hasn’t changed since 2009.
The program was first introduced in 1992, but the number of people participating in it has been steadily declining since 2004, according to Canada Revenue Agency statistics.
On average, 34,856 HBP withdrawals were completed annually in Quebec from 2002 to 2015, with a peak of 42,200 in 2004. However, from 2005 to 2015, the number of withdrawals declined almost continuously. By 2015, only 26,910 withdrawals were made.
While the number of people borrowing money from their RRSPs has declined, the average amount they borrowed has risen. In 2002, the average was $11,431. By 2015, it had jumped to $14,077. The average began rising strongly in 2010, a year after the federal government increased the original HBP borrowing limit from $20,000 to $25,000.
“The 23 per cent increase in the average withdrawal over the period of 2002 to 2015 is very small compared to the 108 per cent increase in the average price of properties,” said Cardinal. “Property price inflation resulted in a significant loss of purchasing power for every dollar withdrawn from the HBP, as one dollar in 2002 was worth only 48 cents in 2015.”
The QFREB and CREA recommend that Ottawa bump the borrowing limit from $25,000 to $35,000 to reflect the rise in real estate prices.
They also believe other changes are needed to modernize the program, such as changing the eligibility criteria to allow for exceptional circumstances. These include divorced individuals who need to suddenly purchase a home, people who lose their spouses, or those have to move to another city for work and have to contend with higher market prices.
Another QFREB recommendation that was adopted by the CREA was to allow for inter-generational lending to let parents or grandparents use their RRSP money to help their children or grandchildren finance a new home.
“A lot of financial planners might shake their heads and say it’s not a good idea to borrow money from your RRSP because you lose any return on that money while it is not in the account. However, this money may have been put into an RRSP specifically for HBP purposes also”, said Cardinal. “By borrowing money from your RRSP to buy a home, at least the HBP forces you to repay yourself within 15 years.”
For more information, visit qfreb.ca.