The Home Buyers’ Plan (HBP) is a federal program that makes getting a first home easier. Under the HBP, anyone can withdraw money from their RRSP to help purchase or build a qualifying first home, either for themselves or a disabled relative.
Each year, the home buyer must pay back to their RRSP a portion of the withdrawn amount. Generally, the full amount must be repaid within 15 years.
The Benefits of the HBP
The HBP makes home ownership more affordable. Money withdrawn through the HBP essentially serves as a repayable, zero-interest self-loan. This can reduce or eliminate the need for costly mortgage insurance and reduce the amount of interest paid to lenders.
The HBP’s withdrawal limit is set at $25,000. Unfortunately, inflation erodes the plan’s buying power, thus reducing the ability of Canadians to afford their first home. This wouldn’t be an issue, however, if the HBP were indexed to the Consumer Price Index (CPI).
CREA would like the federal government to index the HBP to the Consumer Price Index (CPI) in $2,500 increments. This will ensure that first-time homebuyers never lose their purchasing power. There’s no cost to the government until 2016, at which point the cost would be minimal.
The Benefits of Our Proposal
1. Economic Spinoffs
According to Altus Group, each MLS® home sale or purchase generates an average of $52,043 in ancillary spending. This includes renovations, furniture and appliances, professional services, moving costs, and tax revenue to government. In 2015, HBP purchases are expected to result in over $2.9 billion in spin-off spending and more than 22,000 jobs.
2. Follows Established Practice
A number of other government programs are indexed to ensure they do not lose their intended value, including retirement benefits, Registered Retirement Savings Plans, and Tax Free Savings Accounts. Tax Free Savings Accounts are indexed to the Consumer Price Index and rounded to the nearest $500. The HBP should be indexed in a similar way.
3. Zero Cost Until 2016
Indexing the HBP is an affordable way for the government to support first-time homebuyers. Using Budget 2009 as a starting point, the plan would adjust by $2,500 in 2016 at a cost of $7.5 million. A further $2,500 adjustment would not occur until 2020 at a cost of $7.5 million.