Rob Carrick: Liberals, here’s permission to break an election promise on housing affordability

The federal Liberals have quite the checklist of housing affordability measures to work through.

Check out the party’s platform in the recent election campaign: There are promises to curb speculative buying of homes as investments, create a rent-to-own program, improve tax breaks for buyers and otherwise reduce costs for buyers. How to simplify things: cancel one additional promise, the creation of a new Tax-Free First Home Savings Account.

The TFFHSA would allow people under age 40 to accumulate up to $40,000 toward a first home down payment and withdraw it tax-free. The account resembles the well-established tax-free savings account, but with the additional benefit of offering a tax refund for contributions. In this way, TFFHSAs resemble registered retirement savings plans.

It could make sense for young adults saving for a home to divert money away from TFSAs and RRSPs to use the tax-free home savings option. Money could be routed to TFSAs and RRSPs once the TFFHSA is filled.

Under the long-standing federal Home Buyers’ Plan (HBP), up to $35,000 can be withdrawn tax-free from an RRSP toward the down payment on a first home. This money must be paid back into the plan over a period of up to 15 years. A TFFHSA withdrawal does not have to be repaid.

Overall, though, TFFHSAs aren’t a significant enough upgrade over the savings vehicles now available. In fact, they distract from a basic problem of housing affordability, which is that every month seems to bring price increases in housing that cause a big jump in the amount needed for a down payment. In November, the average resale price nationally jumped almost 20 per cent on a year-over-year basis to nearly $721,000.

Full details on how TFFHSAs work haven’t been issued, but a key question is what happens if you don’t buy a house. If you save for a down payment in a regular TFSA, there are no issues if you give up on ownership and repurpose your money for retirement or other goals. RRSPs are supposed to be for retirement, so leaving money in one of these plans instead of using the HBP is a definite plus.

Data on contributions to TFSAs show young adults are avid users of these accounts, but only a tiny fraction maximize contributions. Among people aged 25 to 29, 2.6 per cent contributed the maximum $6,000 in 2019 (the most recent year for which there are numbers). The average value of a TFSA in this group was $8,911.

Rerouting this amount to a TFFHSA wouldn’t be a difference-maker. So if the Liberals let the TFFHSA slide in favour of better ideas, that’s fine. One thought is to double down on measures to curb buying houses for investment purposes.

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