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“Intergenerational RRSP Loans” Could be the Answer to Unaffordable Housing

When it comes to finding ways to afford housing in Vancouver and Toronto’s out-of-reach markets, many homebuyers are forced to be creative. For some, that means pairing up with friends or family members to purchase homes. For others, it means choosing to rent out portions of their home to tenants who can act as “mortgage helpers,” or taking on second jobs to boost down-payment savings.

But The Canadian Real Estate Association (CREA), representing over 100,000 agents, brokers and salespeople, has another idea to help out homebuyers in a financial bind. The organization made a 2018 pre-budget submission recommending changes to the Home Buyers’ Plan (HBP), one of which is the installation of an “intergenerational RRSP loan” program. Under this new plan, both parents would be able to tap into their RRSPs, tax-free, to help bolster their children’s down-payments.

This would be a revamped version of the Federal government’s First Home Buyer’s Plan, which currently allows Canadians to withdraw up to $25,000 from their RRSP, tax-free, to contribute to the purchase of their first home, with the caveat that the loan is repaid within 15 years. Here, the pros and cons of implementing an intergenerational RRSP program:

Pros:

  • Empowers first-time buyers to enter the real estate market
  • Potentially reduces risk to the lender and the borrower who is able to take on a
    smaller mortgage.

Cons:

  • The plan could be risky for parents who are under-saving for retirement, Thomas Davidoff, a professor at the University of British Columbia’s Sauder School of Business, told CBC, and would likely be of most benefit to wealthier families.
  • This plan effectively pushes both parents and children into more debt.
  • Since the plan would allow homebuyers to take on more debt, it may push up
    housing prices, which would benefit owners instead of buyers, Davidoff
    continued.

In addition to “intergenerational borrowing,” the CREA also recommends that the First Time Home Buyer’s amount be increased from $25,000 to $35,000.

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