Registered Home Buyers Savings Plan

Developed by:
Jaclyn Rodrigues, Katie McQuaid, Leslie Hepditch, Sara Clarke, Vanessa Allen and Kathy Crossley

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Problem

First time how buyers are unable to save enough for a down payment for their first home while renting.

Problem Drivers

The price of rent is disabling young Canadians from saving for a down payment for their first home. Many could afford the monthly mortgage payment on a house but are struggling to get approved for a mortgage loan because they haven’t been able to save enough for a down payment. The struggle to save enough for the down payment is spurred not only by rising rent costs, but inflation, and limited housing stock as well.

Actors

The main actors involved are individuals or couples aged 18-40 working to purchase their first home. Other actors who have the power to make changes include all levels of government, banks, and credit unions.

Barriers to Solving the Problem

The barriers to renters moving along the housing continuum into home ownership include but are not limited to:

Those who do not have wealthy parents/caregivers who can gift them with a first down payment.
The cost of rent and meeting basic needs do not allow for individuals to save for their future.
An income raise is up to the discretion of employers or they need to find a new higher paying job.
The small number of houses available in a reasonable price range require maintenance/repairs that are an extra expense we need to consider on top of the purchase price.

Places to Intervene

Whatever the cause, there are a range of approaches that might be helpful in providing a solution to those trying to buy their first home. Some things to consider:

Shared down payment pool for shared housing projects.
Employer incentive with regular deductions from employment income to put towards home savings.
Tax breaks to families who help their children with a down payment
100% financed mortgage products from Financial Institutions, so no down payment required.
Savings matching in a registered product as outlined by Canada Revenue Agency, like RRSP or RESP products.
Rent-to-own home purchases administered through cooperative housing projects, where the rent goes towards down payment.
Not-for-Profit agencies, such as Habitat for Humanity, that target fresh from school, dual-working young people and provide down payment support.

Habitat for Humanity
CMHC
Krystin Scheels - First-time home buyer who has been driven out of the Waterloo Region (where she grew up) because of high housing prices.
Region of Waterloo - Affordable Homeownership Program
Affordable Housing Cafe
Panel members at Leadership Waterloo Region orientation

There's much more to learn about this solution! Download a copy of the full report with all sections via the link above!

Solution

The Registered Home Buyers Savings Plan is our solution to the problem of being able to save for a down payment. It is a savings plan designed to help people accelerate their savings for their first home through a government matching program. This is an upstream approach that will not make a difference today, but can assist those in the coming years to start saving for their future home purchase.

Persona - Meet Alyssa

Alyssa is a 29-year-old college graduate who has been struggling to purchase her first home. She and her partner earn comparable salaries of approximately $55,000 annually and have a household income over $100,000 annually. They are able to save some money monthly, but with the current housing market in the Waterloo Region, it isn't enough for a 5% down payment because of their other expenses (especially high rent). On paper, Alyssa has done everything right. She went to school, got a good job, and saves what she can, but it is not close to what she needs.

Alyssa's situation has become the norm rather than the exception. We see young working professionals stuck renting, unable to move along the housing continuum into home ownership. Based on their income and savings they can qualify for a mortgage, but, unfortunately, just don't have the down payment necessary to purchase a property in KW.

With the help of Alyssa's story, we decided to focus on the final stages of the housing continuum: moving from rental to ownership. For some, home ownership comes with a sense of pride or a stamp of approval that they are successfully progressing into the next stages of adulthood. We wanted to provide a solution for first-time home buyers, to help get people into homes. Homeownership deepens the sense of community and commitments to the neighbourhoods, cities and municipalities that people find themselves living in. We know that when people enter into home ownership, they begin to grow wealth through market appreciation of their homes. They begin to pay down their mortgages, their home value increases and they can take advantage of this to reinvest, sell their property and potentially use the money they make for retirement. Having to support people less through social service supports, or old age security supports, will allow more money to flow to those in our society who need it. We also know that those who have stable homes and increasing assets, will give back by donating their time and money to help others who need it.

Solution Details

Who they Spoke to

The Registered Home Buyers Savings Plan would run similar to an RESP, an education savings plan is started for children when they are born, knowing that the funds won’t be used for several years.

How Does RHBSP work?

The RHBSP is intended for adults ages 18 to 40 to accelerate their savings for the purposes of a down payment towards the purchase of a first-time home. The government provides a matching grant to top up your RHBSP contributions. This is referred to as the Canada Home Buyers Savings Grant.

The Canada Home Buyers Savings Grant has a tier matching program based on the individual’s gross Federal income. If individual could be eligible for up to 40% matching grant if their income is less than $41,7751

If an individual’s gross income is between $41,776-$89,075 the grant matching would be 30%
If an individual’s gross income is greater than $89,075 the grant matching would be 20%
The lifetime maximum you can receive as a grant is $10,000.

Your RHBSP can be in investment vehicles such as:

Stocks
Bonds
Exchange-traded funds
Mutual Funds
Guaranteed Investment Certificates (GICs)

RHBSPs help you by collecting money through government grants and accumulating all earnings (capital gains, dividends and interest) on your investments without having any tax implications on the growth. The RHBSP contributions are not intended to reduce your gross income similar to the Registered Retirement Savings Plan and the use of the Home Buyers’ Plan withdrawal.

RHBSP Withdrawals

RHBSP withdrawals help to build up down payment for a first-time home purchase. When withdrawing from your RHBSP, the expected closing date of the home purchase must be within 30 days of withdrawal. The RHBSP can remain open for up to 35 years after the plan was open, however, after the age of 40 individuals would be ineligible to receive grants. Growth within the plan can continue tax sheltered.

If someone wants to withdraw from the RHBSP, without having purchased a home, they may transfer the funds into their RRSP, provided RRSP room is available. In this case, the government grant contributions would be returned. They may also withdraw their contributions tax-free, however the growth would be taxed at 20% to offset the years of growing tax sheltered within the plan.

Intended Outcomes

According to the MLS Home Price Index, Kitchener Waterloo had the second-highest house price growth in Canada from January 2015 to July 2021. To add to this, home price to income ratios put Waterloo Region comparable with some of the most expensive cities in the world. The KW Community Foundation Vital Signs report states that home prices are 8.6 times higher than the estimated median household income in 2021, up from 3 times higher in the 2005 Census.

In April 2022, Peak Realty published home sale statistics for Kitchener – Waterloo. The average residential sale price in KW was $907,205. This represents the price of 633 homes sold. Of those sold homes, 107 were condominiums at an average price of $600,219; 117 were townhome units at an average price of $763,422 & 48 semi-detached units were sold at an average price of $785,394. The accelerated savings plans should allow young Canadians to reach their 5% down payment requirement sooner. In addition to a cooling market in a rising interest rate market we hope to see more Canadians reach their goal of home ownership. While limited statistics were available for other dwellings that may be attractive options for first-time home buyers, the RHBSP allows for savings towards any housing option including - cooperatives, tiny homes, shared homes, condos, and single-family dwellings.

The RHBSP is also an upstream intervention, intended to help alleviate the current bottleneck in the housing continuum keeping those who have the desire and the means to own a home, in rental housing. With more individuals moving into home ownership, there will be less of a demand on the rental housing market, leaving more rental units available for many individuals that either do not have the desire or means to own a home.

Unintended Consequences

With any bold intervention, there are always potential unintended consequences. The RHBSP is available to any individual between the ages of 18 and 40, regardless of income. This means that even high-income earners can take advantage of this accelerated savings plan. As a result, this plan has the potential to increase the inequality between the rich and the poor.

In addition to this, as more buyers enter the market with the help of the RHBSP, the demand for housing could increase in turn. If there remains a limited supply of housing inventory, this may result in house prices continuing to rise, making it more difficult to attain home ownership.

Increasing taxes to fund the program which could be done through various tax sources.

Suggested Partners

Government of Canada
Government of Ontario
Banks and Credit Unions
Employers who could run a program similar to an RRSP program