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Ottawa’s dirty little secret — home-buyer savings plans boost demand, not affordability



In Canada's ongoing battle with housing affordability, government initiatives aim to assist prospective homeowners, particularly the younger demographic, in achieving their property ownership dreams. Among these strategies are tax-advantaged savings plans, which have seen recent expansions in contribution limits, designed ostensibly to foster homeownership. However, a closer look reveals a less savory truth: rather than alleviating affordability challenges, these programs inadvertently stoke demand in an already strained housing market.


The trio of government-backed savings avenues includes the longstanding RRSP Home Buyers’ Plan, the Tax-free Savings Account (TFSA), and the more recent addition, the First Home Savings Account (FHSA). These accounts offer various tax benefits, allowing individuals to accumulate substantial sums towards a down payment.


Eric Larocque, Chief Mortgage Operations Officer at Questrade’s Community Trust Company, illustrates the potential windfall available through these accounts. For instance, utilizing the maximum annual contribution room of the FHSA alongside TFSA allowances could yield a significant down payment corpus, even before factoring in investment returns.


However, the crux of the issue lies in accessibility. While these savings plans present an attractive proposition on paper, the reality for many Canadians, particularly those with modest incomes, paints a bleaker picture. With living costs soaring and real disposable income dwindling, the prospect of amassing the requisite funds becomes increasingly daunting.


For the average first-time buyer household, the task of saving enough for a substantial down payment within a reasonable timeframe seems insurmountable. Opting for the traditional route of diligently socking away funds could entail a prolonged waiting period, during which housing prices may spiral further out of reach.


Furthermore, the targeted beneficiaries of these programs seem to be those already in a favorable financial position, including individuals with affluent parental support. By leveraging inheritances and parental assistance, a select few can maximize the benefits of these savings schemes, enjoying significant tax advantages and investment growth potential.


Paradoxically, while intended to address affordability concerns, these initiatives inadvertently exacerbate the demand-supply imbalance, propelling real estate values to dizzying heights. The government's professed commitment to affordability appears at odds with the unintended consequences of its policies.


In essence, while these savings plans may offer some advantages to savvy homebuyers, they do little to address the fundamental issue of housing affordability. Instead, they serve to perpetuate a cycle wherein demand outstrips supply, further entrenching the challenges faced by aspiring homeowners.


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