moved that Bill C-520, An Act to amend the Income Tax Act (Home Buyers' Plan), be read the second time and referred to a committee.
Mr. Speaker, Bill C-520 will increase from $20,000 to $25,000 the amount of money first time homebuyers can borrow from the savings they have accumulated in their RRSPs. This will be the first adjustment in the borrowing limit since the home buyers' plan was created in 1992.
This increase in the $20,000 loan limit to $25,000 will help first time buyers in every region of the country and will allow couples to withdraw up to $50,000. This increase will allow new homebuyers to maximize their down payment.
The home buyers' plan was proposed by finance minister Don Mazankowski to allow homebuyers to have access to their own retirement savings. Mazankowski viewed it as a win-win. In the 1992 budget he said, “The Plan will stimulate the housing market without reducing tax revenues or risking retirement savings”. It was a win-win in 1992 and it is a win-win in 2008.
Canadian homebuyers like the plan. According to the Department of Finance, Canadian homebuyers have used the plan more than 1.6 million times since 1992. They have borrowed more than $16 billion from their own savings.
Clearly, homebuyers prefer to borrow from their own savings rather than borrow from the banks and pay interest. As popular as the home buyers' plan is with homebuyers, its value has been eroded since 1992 by the dramatic increase in the cost of housing in many parts of Canada.
Home prices have climbed 152% in metro Vancouver since 1992, severely eroding the value of the original home buyers' plan put in place by Don Mazankowski. If the home buyers' plan were to keep pace with the rise of home prices in metro Vancouver, the plan's borrowing limit might have increased to well over $50,000.
The increase proposed in Bill C-520 is a very modest proposal that builds upon recent tax measures, such as the reduction in the GST from 7% to 5% and the creation of the new tax-free savings account, all which give Canadians an increased opportunity to buy their first home. This is the least we can do for aspiring homeowners in British Columbia and, indeed, throughout Canada.
The British Columbia Real Estate Association told the finance committee earlier this year that the borrowing limit should be increased to $25,000. It was a laudable recommendation, worthy of our support today.
The finance committee agreed. In its February report on the budget it recommended that the Minister of Finance:
--increase the amount that can be withdrawn from a registered retirement savings plan to purchase or build a qualifying home for the holder of the plan or for a related person with a disability.
Bill C-520 will enact the increase recommended by the B.C. Real Estate Association and supported by the Canadian Real Estate Association. While a recommendation to increase the borrowing limit to $25,000 may have come from British Columbia, it also has widespread support throughout the country.
The actions that will flow from this private member's bill will address one of the most fundamental desires shared by most Canadians: to own a home. A home is more than just a roof over one's head or a place to hang one's hat. It is a symbol of permanence, an investment in something bigger than one's own property. It is a connection with the community.
The privately owned home is perhaps the strongest keystone in the building blocks of a community and the strongly shared values that flow from being part of a community. We are often buoyed when we hear that the housing market is booming because we know that housing construction is a huge economic driver. In some parts of the country, it is the only economic driver.
We have also welcomed news in the last decade that has pointed to the growing rate of home ownership. In fact, some would argue that the home buyers' plan introduced in 1992 helped to drive the expansion of home ownership with a rate of home ownership increasing from 62.3% in 1992 to 66.1% in 2001.
However, we must dig deeper into the statistics to see an alarming trend that runs contrary to the positive results I have just quoted. Statistics show that young people are struggling to meet the promise of home ownership. Home ownership rates in the first time homebuyer age groups are well below the level of two decades ago.
According to research by the Vanier Institute of the Family in a 2004 report entitled “The Current State of Canadian Family Finances”, the home ownership rates for those households aged 34 and under fell from 44% in 1981 to 41% in 2001.
Among households aged 35 to 44, home ownership rates plummetted from 72% in 1981 to 67% in 2001. The report reveals that both of these groups had flat earnings for almost two decades.
The lower home ownership rates are confirmed by a Statistics Canada analysis which indicates that there was a slight increase in the proportion of young adults living with their parents and 41% of Canadians aged 20 to 29 were living with their parents in 2001 compared to 33% in 1991 and 28% in 1981.
The decline in home ownership among the young is due to factors which are not measured in traditional analysis of affordability. The latter generally concentrate on mortgage payments on a typical dwelling versus average incomes. Such analyses tend to exaggerate the effects of lower interest rates and do not take into account other important factors which together determine whether someone is able to afford to purchase a home. For many young Canadians, purchasing their first home is extremely difficult, particularly accumulating a down payment.
The challenges faced by first time homebuyers are not clearly understood by many housing analysts and policy makers. It is important to note that the decline in home ownership rates among the young is not a reflection of diminished desire to own a home. Research shows that this desire is as strong as ever. While most people wish to own a home, home ownership has become less viable for a large proportion of Canadians.
This bill takes direct aim at that decline. It helps young Canadians meet the challenge of coming up with a down payment. The home buyers' plan is unique in that it both encourages savings and it maximizes down payments available to homebuyers.
It addresses directly two important Canadian desires that strengthen the economic health of our nation by strengthening the economic health of individual Canadians: buying a home and putting away savings. These are worthy financial goals for ordinary Canadians and worthy goals for a nation that believes in home ownership and believes people are most able to care for themselves when they have cared for their long term financial success.
The program is only of value if it reflects the realities of the marketplace. Bill C-520 does just that. It raises the borrowing limit for registered retirement savings plan holders to a level that is close to its real value when it was introduced in 1992, when we compare it to the rate of inflation identified by the CPI. It recognizes that the average price of a home has risen more than three times as fast as the rate of inflation since the program was introduced.
By encouraging home buying activity we would be driving an important economic engine that produces many economic spin-offs. These spin-offs include increased tax revenues that will flow to government. I have not done the economic modelling necessary to verify any figures but my belief is that this measure in terms of its tax deferral implications should be revenue positive.
It is worthwhile to take a brief look at the history of the home buyers' plan. The home buyers' plan exists today because of the determination of two finance ministers, one Conservative and one Liberal, Don Mazankowski and the member for LaSalle—Émard, to let homebuyers have access to their own retirement savings when borrowing for their home.
Then finance minister Don Mazankowski, in his February 1992 speech, announced a plan to allow homeowners to use their retirement savings for down payments for first home purchases. Mr. Mazankowski told Parliament that the plan would stimulate the housing market without reducing tax revenues or risk retirement savings.
The Mazankowski plan was introduced as a temporary measure. As one of my first statements in the House, I rose on January 31, 1994, to ask the new government to extend the home buyers' plan. While I do not claim any credit for the extension of the plan, the new Liberal government made the plan permanent in the 1994 budget a short time later.
The finance minister of the day, the member for LaSalle—Émard, indicated that he made the program permanent so as to continue supporting the housing market and further encourage home ownership. In his 1998 budget, the former finance minister amended the home buyers' plan to enable persons with disabilities to have greater access to the plan by allowing existing homeowners to use the home buyers' plan to purchase a more accessible home or a home for a disabled, dependant relative.
It is worth noting that the regulatory impact statement printed in the Canada Gazette on January 6, 1999, when these changes were made, did not identify any cost to the federal treasury in extending the plan to persons with disabilities. I take this as another indication that Finance Minister Mazankowski was correct in 1992 when he said in the House that the home buyers' plan did not create any revenue loss for the federal treasury.
The House of Commons finance committee in February recommended to the Minister of Finance that the 2008 budget:
—increase the amount that can be withdrawn from a registered retirement savings plan to purchase or build a qualifying home for the holder of the plan or for a related person with a disability.
This recommendation had all party support.
The Bloc Québécois, in its own chapter in the finance committee's report, specifically supported an increase in the amount that a home buyer could borrow from a retirement savings account:
To make home ownership more accessible, the Bloc Québécois supports the recommendation to increase the amounts available under the Home Buyers’ Plan (HBP).
I would now like to address a number of questions that arise when we talk about increasing the borrowing limit from an individuals' earnings to $25,000, or $50,000 if both spouses have an RRSP.
First, has the home buyers' plan been successful? Over the last five years, almost 600,000 Canadians have made withdrawals from their RRSPs under the home buyers' plan, totalling over $16 billion. Since the introduction of the home buyers' plan in 1992, about 1.6 million Canadians have borrowed from their savings accounts for their first-time home purchases. On the average, first-time home buyers borrow $10,000 from their retirement savings accounts, for a total of $16 billion. That is $16 billion borrowed without any cost to the government and without any cost to home buyers, because home buyers borrow from their own savings. It is a program that first-time home buyers absolutely support. Clearly Canadians prefer to borrow from themselves rather than borrow from the banks and pay interest to the bankers.
Second, is there a negative impact on the government's tax revenues? There is no impact. The former minister of finance, Don Mazankowski, who introduced the home buyers' plan, advised Parliament in February 1992 that the $20,000 would have no impact on government's tax revenues:
The Plan will stimulate the housing market without reducing tax revenues or risking retirement savings.
If the $20,000 limit had no impact on government tax revenues in 1992, then $25,000 would have even less impact on government tax revenues in 2008.
Third, does the home buyers' plan assist retirement security for Canadians? Yes. Before the home buyers' plan, Canadians had to make a choice, either save for retirement or save for a house. The home buyers' plan allows Canadians to do both. The home buyers' plan is a means to strengthen home ownership at no cost to the Canadian taxpayer. Borrowed savings are invested in a principal residence, which is a pillar of security for retirement.
Since the home buyers' plan was introduced in 1992, the rate of home ownership has increased from 62.3% in 1991 to 66.1% in 2001. The home buyers' plan is unique among support programs for home ownership in that it encourages savings and maximizes down payments. By emphasizing the down payment, the home buyers' plan helps the home buyer to minimize the level of indebtedness over time.
Fourth, what has happened to home prices since 1992? Residential home prices rose 85% nationally between 1992 and 2006. Since 1992, home prices in metro Vancouver have increased 152%. The 152% increase in home prices in metro Vancouver has eroded the value of the home buyers' plan. Nowhere in the country is the need for an increase in the borrowing limit in the home buyers' plan to $25,000 greater than in metro Vancouver.
In closing, let me reiterate that there are no negative consequences to increasing the amount that first-time homebuyers can borrow from the savings they have accumulated in their RRSPs from $20,000 to $25,000. Rather, this increase would result in a greater number of young Canadians being able to participate in the dream every young person has, to own their own home, which would be very positive both for young people and for Canada.