SMSF finance ban on new homes should be paused until impact is properly assessed, HIA says

Australia risks sacrificing thousands of new homes without sufficient evidence to justify a ban on self-managed superannuation funds borrowing to build, the Housing Industry Association has warned.

The HIA is calling on the federal government to allow SMSFs to continue using Limited Recourse Borrowing Arrangements to finance new home construction while a comprehensive cost-benefit analysis is completed. The industry body’s position comes as legislation is expected to be introduced into Parliament that could provide that opportunity.

“The Housing Industry Association supports allowing self-managed superannuation funds to continue using Limited Recourse Borrowing Arrangements to finance the construction of new homes while the impact of the Government’s prohibition is properly assessed,” said HIA Chief Economist Tim Reardon.

The prohibition on new residential property LRBAs came into effect on 10 August, without any published modelling of its impact on housing supply, rental supply, apartment pre-sales or progress towards the government’s target of 1.2 million new homes.

“Modelling has been published on the expected housing supply consequences of other Budget measures. The same standard should apply to a policy that directly restricts finance for new housing,” Reardon said.

The HIA’s concerns are grounded in data from its own survey of Australia’s largest detached home builders. That survey identified 3,613 signed contracts involving SMSF borrowing that had not commenced construction when the policy was announced. Builders expected around 2,415 of those contracts to be cancelled as a direct result of the prohibition.

Beyond contracts already in place, the association has estimated the restriction could result in detached home commencements falling by around 3.5 to 5 per cent compared with what would otherwise have occurred — equivalent to between 4,000 and 5,500 fewer detached homes in a single year.

The HIA has cautioned that those figures do not capture the potentially larger impact on apartment construction, where investor pre-sales can be critical to securing project finance. The full scale of the policy’s effect on housing supply may therefore be significantly understated.

“At a time when Australia is already failing to build enough homes, restricting a source of finance for new housing should require a clear and demonstrated public benefit,” Reardon said.

The industry body is pushing the government to undertake and publish a comprehensive cost-benefit analysis covering the restriction’s impact on detached housing, apartment construction, rental supply, government revenue and housing affordability before the ban remains in force.

“If a comprehensive assessment demonstrates that prohibiting SMSF borrowing for newly constructed homes provides a net public benefit, the Government can make that case,” Reardon said. “Until then, Australia should not sacrifice additional housing supply without the evidence to justify doing so.”

The HIA has also raised questions about the extent of information already held by government agencies. It notes that those agencies collect extensive data on SMSFs, LRBAs, residential property transactions and housing construction activity, and argues that relevant data should be released publicly.

“Government agencies collect extensive information on SMSFs, LRBAs, residential property transactions and housing construction. At the very least, the Government should publish the number and value of residential properties acquired using LRBAs and provide whatever information is available to identify the proportion associated with newly constructed housing,” Reardon said.

The association’s minimum ask is that SMSFs be permitted to continue borrowing where the investment finances the construction or acquisition of an additional new home, pending the completion of a full assessment.

With Australia’s housing construction sector already under pressure and the government’s 1.2 million home target increasingly at risk, the HIA argues the timing of an unmodelled restriction on a financing source for new supply is difficult to justify.

“Australia won’t get to building 1.2 million homes by restricting those that have to borrow to build a new home,” Reardon said.