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Yukonomist: More firepower for the Bank of Mom and Dad

The Yukon housing market seems to be an ever-escalating arms race between different groups of buyers. Local first-time home buyers, newcomers, rental investors and others battle for a limited supply of units.
The sun shines on the Yukon River in Whitehorse on April 25. (Stephanie Waddell/Yukon News)

The Yukon housing market seems to be an ever-escalating arms race between different groups of buyers. Local first-time home buyers, newcomers, rental investors and others battle for a limited supply of units.

Even with rent control taking some rental investors out of the market, competition remains fierce. According to the Yukon Department of Finance’s latest outlook, the Yukon population will approach 49,000 by 2027. It only cracked the 40,000 mark in 2018. Fueled by growing transfer payments and a healthy mining sector, our population is growing at almost double the national rate.

The result is record-high prices. Finance’s outlook reports that the Yukon was the only jurisdiction in Canada where the number of deals kept going up despite global turbulence in 2022, and that “the average weighted price of single detached homes, duplexes and mobile homes all reached record highs in 2022.”

The recent federal budget included a new program that will give substantial new firepower to some hoping to jump into this market: the First Home Savings Account (FHSA).

FHSAs officially kicked off on April 1, but the opportunity is no joke. FHSAs are a combination of Yukoners’ favourite features of Registered Retirement Savings Plans (RRSP) and Tax-Free Savings Accounts (TFSA). Someone who does not have a home already can contribute $8,000 per year, up to $40,000 over a lifetime. They can deduct the contributions from taxable income and the invested money grows tax free until withdrawn to buy a house.

If you are thinking of buying a house (or even if you aren’t – more on that below), and have the money, you should definitely open a FHSA.

FHSAs are especially good news for the well-paid or people with money. Not everyone can afford to put $8,000 a year aside for five years to maximize the benefits. But if you are a 20-something making big bucks at a mine, or starting a career in a well-paid profession, the FHSA is a great idea.

But there aren’t actually that many 20-somethings making six figures in the Yukon.

Enter the Bank of Mom and Dad. FHSAs are also a great idea for affluent parents planning to support their kids.

Last year a report by the Ontario Real Estate Association found that around 40 per cent of Ontario homebuyers aged 18 to 38 years old got either a gift and/or a loan from their parents. The survey found that 71 per cent of these parents gave a gift, averaging $71,000. And 61 per cent provided a family loan, averaging $41,000.

Here is how the Bank of Mom and Dad can now get additional help to boost their support for the kids.

As soon as you think you have enough money to give your kid a substantial sum, and the child turns 19 (18 in some provinces), you get them to open a FHSA. You gift up to $8,000 each year for five years, which the child contributes to their FHSA. The child gets the income tax deduction, not you. If they are studying trades or at university, they defer using the tax deduction until they have a full-time job.

If they are wise, they will also use this tax relief in the first few years of their career to set aside additional funds for a down payment.

After your gift up to $40,000, the child invests, hopefully in some safe investments, and the money grows tax free until whenever they are ready to buy a home.

If your child is already in their 20s or 30s, you can still start right now. The child just won’t have as many years of compounding to grow the $40,000.

If you were planning to give them $40,000 anyway, then you are still giving them $40,000. Just a bit earlier. And the government is boosting your gift with juicy tax incentives.

But what if your child isn’t sure they will buy a house? Maybe they will join the trend towards life-time renting or live off-grid somewhere?

No problem. FHSAs must be closed after 15 years. If your child has not yet bought a home, they can just roll the money – with no tax complications – into their RRSP. Essentially, the FHSA gives your child extra bonus RRSP contribution “headroom” if they don’t buy a house.

The same RRSP transfer option applies if your child eventually decides to buy a house in Alaska or some other foreign locale.

Depending on your child’s eventual tax bracket and the rate of return on their investments, the government contribution to their down payment could be over $10,000. Or even double or triple if they are in a high tax bracket and act early enough to have many years of tax-sheltered investing.

If their life partner can tap into Bank of the In-Laws, then they can double that.

Economists tend to quibble about such programs. They prefer a simple tax code without all those deductions and loopholes that give our tax code the rococo flourishes that so delight your accountant. If there is to be a special program, they recommend either an RRSP-style deduction or a TFSA-style tax shelter; but not both.

Some kill-joy analysts have also questioned whether it makes sense to give buyers more firepower when housing supply remains tight. Boosting demand in such a situation can simply boost prices higher at the expense of those without such firepower.

But a quick Google reveals that whiny economics blogs have already been submerged online by excited commentary from financial planners and RHSA ads from financial institutions.

You may be asking what if you are one of the Yukoners who aspires to buy a home but does not have a six-figure job or an account with the Bank of Mom and Dad? The brutal truth is that you will now have to compete with buyers whose offers are fuelled by fully topped-up FHSAs.

But for those who do have the money, the FHSA is the new must-have financial accessory.

Keith Halliday is a Yukon economist, author of the Aurore of the Yukon youth adventure novels and co-host of the Klondike Gold Rush History podcast. He won the 2022 Canadian Community Newspaper Award for Outstanding Columnist.