Aug 13, 2015

Raising RRSP withdrawal limit no solution to unaffordable housing


Far be it from me to school the Prime Minister on the laws of supply and demand. He is, after all, the one who has extensively studied neo-liberal economics.

But the Conservatives’ plan to increase what first-time homebuyers can pull from their RRSPs for a down payment – from a maximum of $25K to $35K – would do nothing to help ease the unaffordability of housing. That’s because an effective policy response either has to control prices (for example by means of a speculation tax), cool demand (by more tightly regulating speculative buyers), or increase the supply (by building more affordable housing). But a policy such as the one proposed, aimed at simply encouraging more demand, would only result in the bidding up of prices. That’s how supply and demand works.

Of course, it’s quite possible the policy would have no effect at all; it’s not at all clear to me that another $10K for a down payment would make much of a difference to those unable to enter the housing market.

And if some were to withdraw more from their RRSPs for a down payment, it’s quite possible that this policy would be encouraging an unwise decision; while many unpredictable factors are at play, sometimes the RRSP may be a better long-term investment than a large mortgage.

But this policy response is also typical Harper. It is a favored approach of the current government to seek to address important policy problems via registered tax-subsidized individual savings plans: address retirement security through the RRSP and Tax-Free Savings Accounts (TFSA); escalating post-secondary tuition via the RESP; disability expenses via the Registered Disability Savings Plans; etc. This government is loath to engage in direct public spending, preferring instead to have individual households manage these problems, with the aid of tax breaks. After all, as Margaret Thatcher said, “There is no such things as society, only individuals and families.” Heaven forbid we try to tackle such problems collectively through our governments.

The problem is that plans such as the RRSP are hugely inequitable. The lion’s share of these plans are held by the wealthiest Canadians, and the tax breaks just compound the injustice. So, for example, someone with $35,000 in an RRSP will tend to be older and wealthier (whereas most lower income people have no RRSPs at all, and many young people seeking to enter the housing market have not built up much in an RRSP).

The same day Prime Minister Harper also announced that the government will “study” the impact of foreign ownership on the housing market. That’s welcome news. We do indeed need better data and research (and this is a pleasant surprise from a government who has frequently been inclined towards less data collection, not more). But the promise seems the bare minimum people of all political stripes should support.

But of course, sometimes you just have to appear to be doing something.

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