Feds fear expanding Home Buyers’ Plan would fuel hot housing market

With expansion, Canadians could borrow RRSP money to put toward purchase

OTTAWA— The federal Liberals are having second thoughts about a 2015 campaign promise out of concern that expanding the popular Home Buyers’ Plan would throw fuel on overheated housing markets.

An internal document suggests high housing prices are a key reason the Liberals don’t appear to be in a hurry to fulfil an election pledge that would enable Canadians to dip back into their registered retirement savings to help pay for a home.

The detail surfaces as policy-makers consider new measures aimed at cooling real estate markets and slowing down rising household debt loads, which have climbed to historic levels.

During the election campaign, the Liberals promised to expand the Home Buyers’ Plan to allow those affected by major life events — death of a spouse, divorce or taking in an elderly relative — to borrow a down payment from their RRSPs without incurring a penalty.

The current plan enables first-time buyers to borrow up to $25,000 tax- free from their RRSPs to put toward the purchase of a home. The amount must be repaid within 15 years.

The Trudeau government recently signalled that its promise to modernize the plan was still in progress, but that it faced “challenges.”

The update was posted on a website the government created to track the tasks Prime Minister Justin Trudeau assigned to his cabinet ministers.

An accompanying explanation on the site says Ottawa has instead provided more support for families facing significant life changes, helped stabilize the real estate market by tightening mortgage rules and committed $11.2 billion over the next 11 years to support affordable housing. A June briefing note for Finance Minister Bill Morneau adds more details about the government’s thinking on the Home Buyers’ Plan.

The document, prepared for Morneau ahead of his meeting with the Canadian Real Estate Association, recommends he answer questions about the status of expanding the plan by saying policies that increase home ownership by triggering more demand would help push prices higher.

The briefing, obtained via the Access to Information Act, also lays out the government’s concerns that low interest rates and rising home prices have encouraged many Canadians to amass high levels of debt just so they can enter the real-estate market.

“Policies to further boost home ownership by stimulating demand would exert more pressure on house prices,” says the memo, which also notes that CREA has recommended the government extend the plan to allow more borrowers more time to repay their withdrawals from their RRSPs.

The briefing note also says: “With respect to housing affordability, at this time, the government is prioritizing investments to support Canadian households that need it most.”