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With housing unaffordability near its worst-ever level, our trusty leaders are on a quest to right their housing wrongs and get more young people into homes.

Part of Ottawa’s big strategy to “help” is promoting tax-sheltered savings accounts and pumping up their contribution limits. That, of course, stimulates real estate demand amidst Canada’s population and housing supply crises. But save that thought.

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First-time buyers now have three government piggy banks to stockpile cash for a down payment:

1. The 32-year-old RRSP Home Buyers’ Plan — which lets you deduct contributions from your income to defer taxes and then borrow from the account interest-free for your down payment (as long as you wait 90-plus days to withdraw any contributions);

2. The 15-year-old Tax-free Savings Account (TFSA) — which lets you save after-tax dollars, grow your money tax-free and withdraw it without the taxman taking a bite;

3. The one-year-old First Home Savings Account (FHSA) — which is a combination of an RRSP and TFSA. It lets you deduct contributions from income, compound it tax-free and never pay tax on withdrawals used to buy a home. You can even save the deduction for a year when you need it more — when you’re earning more money.

Assuming you have the funds and contribution room, these tax shelters can combine to help you amass a supersized down payment.

“Looking at the FHSA alone, with the max annual contribution room of $8,000 for 2023 and 2024, a potential first-time home buyer could have as much as $16,000 deposited in the account today for a down payment,” says Eric Larocque, chief mortgage operations officer at Questrade’s Community Trust Company.

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“If you also add in the cumulative contribution room of $95,000 for the TFSA, it amounts to $111,000 in potential funds available — and that’s before incorporating investment gains from either account.”

And it doesn’t stop there. RRSP, TFSA and FHSA savings limits keep increasing. If first-timers have enough contribution room, down payment savers in 2024 can sock away even more in these tax-sheltered troves.

“Factoring in the recent changes to the Home Buyers’ Plan, which now permits RRSP withdrawals of up to $60,000 — up from $35,000 — we land at a potential total of $171,000 in deposited funds that can be tapped for a first-time home buyer’s down payment,” Larocque adds.

That’s quite a wad — easily enough to cover the 20 per cent ($139,706) down payment required to avoid mandatory (and pricey) default insurance on the average home. Canada’s average abode is now worth $698,530 by the way, according to the Canadian Real Estate Association.

Here’s the rub: Canada’s living costs are sky-high, and real disposable income has trended downward. So, how’s an average first-time buyer household, raking in less than six figures, supposed to amass such a stash?

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Based on national averages, saving 10 per cent of one’s pre-tax income per year (who does that?) would take a young FTB couple over 15 years to sock away $140,000. History shows what would happen to home values if you waited 15 years — they’d jet off without you.

If you have no other resources and your bet is that historical appreciation rates continue — despite slower population growth, more building and potentially higher long-term rates — you’re better off saving less and buying sooner with a five per cent down insured mortgage.

So, does Big Brother really expect your typical first-time buyer to max out all these savings plans? Nope. But hey, throwing a buffet of options at you sure paints a pretty picture of government effort, doesn’t it?

Ottawa’s dirty little secret is that these nifty programs crank up demand, turning renters into buyers. So don’t bet on them making the home-owning dream any cheaper, for first-timers or anyone else.

Take advantage of them anyway.

The government sets limits on these tax shelters with well-off home buyers in mind. One lucky bunch who can make use of all three down payment savings plans is the first-timer with prosperous parents.

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Such buyers can make a withdrawal from their parental ATM (a living inheritance, some call it), deposit that cash in all three savings vehicles above and reap: hefty income tax savings or deferrals (thanks to the FHSA and RRSP deductions); tax-free/tax-deferred growth on the investments; and tax-free withdrawals if the money is used to buy a qualifying home (albeit, you’ll have to pay the RRSP HBP back over 15 years, starting five years after your withdrawal).

The more opportunities it gives people to save for a down payment, the more Ottawa worsens the imbalance between purchase demand and supply. And that, of course, boosts real estate values skyward — which is dandy for existing owners but contradictory to the government’s affordability messaging.

But hey, these tax treats are ripe for the picking. Home shoppers with the means — especially those with deep-pocketed parents — might as well take advantage of all three accounts.

Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X at @RobMcLister.

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