The Issue:
In the federal budget tabled January 27, 2009, the federal government increased the maximum amount that an individual can withdraw from their RRSP to $25,000 to use as down payment for their first home. It is known as the Home Buyers’ Plan, and was first proposed to the Finance Minister by The Canadian Real Estate Association in 1992.

CREA CEO Pierre Beauchamp, Director of External Relations Randall McCauley and Chief Economist Greg Klump® met with Prime Minister Stephen Harper on February 12th, 2009  to thank him for the budget changes involving The Home Buyers’ plan, and to talk about how the economy is affecting REALTORS® from coast to coast.

The Prime Minister thanked CREA and REALTORS® for their support for the budget and their willingness to work with the government to help publicize these important budget initiatives.

The Chief Executive Officer of the Canadian Real Estate Association (CREA), Pierre Beauchamp, and Jean-Pierre Blackburn, the Minister of National Revenue, announced on February 2nd, 2009 how changes to the Home Buyers’ Plan outlined in the federal budget will help stimulate the housing sector and make it easier for first time home buyers to realize their dream of home ownership.

“We would like to thank the federal government for recognizing of the importance of the housing industry in our economy,” said CREA CEO Pierre Beauchamp, during a formal announcement ceremony with National Revenue Minister Jean-Pierre Blackburn. “There were several incentives in the federal budget designed to address the issue of affordability. This may prove to be one of the most important for generating economic activity.”

About the Home Buyers Plan
The national Home Buyers’ Plan encourages first-time home buyers to save for a down payment. It helps them build equity rather than debt by encouraging savings and maximizing down payments. The claim is sometimes made that low interest rates and more flexible mortgage insurance options provide the necessary support for homeownership. Those measures are important, but they facilitate borrowing and larger levels of debt. By emphasizing the down payment, the Home Buyers’ Plan helps the buyer minimize the level of debt over time.

The Plan has proven highly successful since it was introduced in 1992. Since then, other programs have been introduced to support homeownership, including lower down payments and high-ratio mortgages, backed by mortgage insurers. In the 2008 budget, the federal government introduced Tax Free Savings Accounts (TFSA) to facilitate savings for “needs,” including a home purchase. While these programs can provide benefits to home ownership, only the Home Buyers’ Plan effectively combines saving for retirement and saving for a home.

An estimated 2 million plan users have borrowed more than $15 billion of their own savings from RRSPs to purchase a home since the Home Buyers’ Plan was introduced in 1992. The Plan has helped in more than 900,000 home purchases.
Home ownership is the cornerstone of retirement for the majority of Canadians. Before the Plan was introduced, many young people had to choose between saving for retirement or saving to purchase a home. The Plan actually results in Canadians saving for retirement earlier because of their interest in purchasing a first home. The requirement to repay the RRSP over 15 years to avoid taxation is a powerful incentive for repayment. The integrity of the RRSP program is protected.

Annual repayments of RRSPs over 15 years are a fundamental feature of the Plan. The latest statistics show homebuyers are repaying their loans under the HBP. Repayments as a percentage of withdrawals under the HBP amounted to 41.3 per cent in 2004, 49 per cent in 2005, and 59.9 per cent in 2006.

When the Home Buyers’ Plan was introduced, the federal government was right to resist proposals to allow borrowing from RRSPs for other purposes, including education, travel and vehicles. Only homeownership is compatible with retirement security. When they came into force in 2009, Tax Free Savings Accounts (TFSA) addressed these other proposals by allowing annual $5,000 taxable contributions that are then tax-sheltered and may be withdrawn without tax for any purpose.

REALTOR® Position:
REALTORS® urge the federal government to maintain and promote the distinctive advantages of the Home Buyers’ Plan. By emphasizing down payments, the Home Buyers' Plan helps the buyer to minimize their level of indebtedness over time. The lack of inflation adjustment is an obvious oversight in the design of the national Home Buyers' Plan, so CREA is recommending the maximum individual withdrawals under the Plan also be indexed to keep pace with inflation.