The illusion of accessibility: why Canada's home buyers need houses, not just financial schemes

In the midst of soaring home prices and a very competitive real estate market, the Canadian government has introduced measures aimed at making home ownership more attainable for first-time buyers. Among these measures, the recent proposal to increase the RRSP (Registered Retirement Savings Plan) withdrawal limit for home purchases from $35,000 to $60,000 per individual—or $120,000 for a couple—sounds like a significant boost. This change, coupled with the introduction of the Tax-Free First Home Savings Account (FHSA), which allows for tax-deductible contributions and non-taxable withdrawals for home buying, seems to offer a solid financial leg-up.

But is it the right kind of help?

The intent behind these policies is clear: enable Canadians to accumulate the funds needed for hefty down payments in the face of relentless market upswings. On paper, these initiatives appear beneficial, providing immediate relief to prospective homeowners by increasing their purchasing power. However, this approach overlooks a fundamental issue plaguing the Canadian housing market—a severe lack of affordable housing. Instead of tackling this root problem, the government’s strategy might inadvertently fuel further price escalations.

Historically, Canada has faced similar crises. Post-World War II, the introduction of "Strawberry Box" houses represented a government-led initiative to rapidly increase affordable housing stocks. These modest homes offered returning veterans and their families a feasible route to homeownership, through direct action on supply rather than simply enhancing buying power. This historical lesson underscores a crucial point: meaningful government intervention in housing should prioritize increasing the number of affordable homes, not just the cash people can spend on them.

Today, the scenario is dire. The Canada Mortgage and Housing Corporation (CMHC) estimates a current shortage of 3.5 million homes. With the Canadian population growing significantly, mainly due to immigration, and over a million newcomers last year alone, the demand for housing has only intensified. This discrepancy between supply and demand leads to bidding wars and skyrocketing home prices, as evidenced by a personal situation where a home we purchased 2-years ago attracted 14 competing offers.

Moreover, encouraging citizens to deplete their retirement savings to fund home purchases poses significant long-term risks. While homeownership remains a key wealth-building tool, the overemphasis on tapping into RRSPs compromises the future financial security of Canadians, impacting their ability to sustain themselves post-retirement. The extended repayment grace periods and potential tax penalties associated with failing to repay these funds only add to the burden.

As such, while the government intent to facilitate home buying, the real effect is a probable increase in home prices due to elevated demand spurred by greater access to down payment funds. This is not a sustainable approach to housing affordability.

To genuinely address the housing crisis, Canada needs a renewed focus on building more affordable housing units. By increasing supply, the government can help stabilize or even reduce house prices, making homeownership accessible without compromising the financial future of Canadians. It is crucial to balance the approach: while financial tools like the RRSP and FHSA can play a role, they must be part of a larger strategy that includes significant investment in affordable housing construction.

Only through a concerted effort to build more homes, reminiscent of the post-war initiative, can we hope to provide real, lasting solutions to the housing affordability crisis in Canada. Without such measures, we risk deepening the divide between the housing haves and have-nots, pushing the dream of homeownership further out of reach for the average Canadian.

Considering stepping into the housing market? Contact Fred and Martin Mortgages for expert guidance tailored to your needs. With our deep understanding of available programs and the housing landscape, we're equipped to explore various financing scenarios with you, ensuring you're well-informed and prepared. We go the extra mile by prequalifying you for a mortgage, helping you understand exactly what you can afford, and steering you clear of financial pitfalls. Count on Fred and Martin to transform your home buying journey into a confident and informed experience.

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