Indexation of the Home Buyers' Plan

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Each year, the home buyer must pay back to their RRSP a portion of the withdrawn amount.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 Money withdrawn through the HBP essentially serves as a repayable, zero-interest self-loan.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 Issue

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's Proposal

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 2015, 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 $49,625 in ancillary spending. This includes renovations, furniture and appliances, professional services, moving costs, and tax revenue to government. In 2011, more than 53,000 homes were purchased using the HBP, resulting in over $2.64 billion in spin-off spending and over 20,500 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 2015

Using Budget 2009 as a starting point, indexing the HBP in $2,500 increments would enable the government to meet its deficit reduction targets and other planning objectives. This approach would cost nothing until 2020, at which time the plan would adjust by $2,500 at a cost of $7.5 million. A further $2,500 increase would occur in 2020 at an additional cost of $7.5 million.