SMSF property investment changes: Why builders predict a $450m hit to state budgets and a drop in new housing starts
The housing industry is demanding a review of the government’s changes to borrowing through self-managed super funds, warning thousands of planned new homes will be abandoned while state budgets will suffer a $450 million hit to their bottom line.
A Housing Industry Association survey of the sector to be released on Monday shows builders expect up to 67 per cent of 3613 signed home construction contracts financed by limited recourse loans through self-managed super funds (SMSFs) are likely to be ditched because of government policy.
As part of its deal with the Greens to win Senate support for its budget changes to negative gearing and the capital gains tax concession, the government agreed to ban the practice of self-managed funds borrowing for residential property.
Formalised in 2011, there have been ongoing concerns about the risk to the financial and superannuation system posed by the practice. An inquiry into the financial system in 2014 initially recommended its abolition while the Council of Financial Regulators – which includes the Reserve Bank and the banking regulator – have also backed changes to the system.
In revealing the ban, Treasurer Jim Chalmers said self-managed funds accounted for less than 1 per cent of total residential property borrowing and less than half a per cent each year. There are about 173,000 homes built over the past 12 months.
But HIA chief economist Tim Reardon said its own survey of members had shown the change would ultimately reduce the number of new homes being built and the revenue these would produce for the states.
He said builders had 3613 signed contracts with buyers through self-managed fund borrowing arrangements where construction had yet to start. Of those, builders estimate 2415 will be abandoned because of the government’s changes.
“These are not hypothetical future investments. They are signed contracts to build homes that builders had expected to construct in the next year,” Reardon said.
“SMSFs do not live in homes. They do not create demand for housing. They do provide capital that finances the construction of new housing.
“Restricting one source of investment does not reduce the number of Australians needing somewhere to live.”
Reardon said 70 per cent of builders had reported a drop in investor enquiries since the budget’s release in May, with 90 per cent expecting a drop in detached housing starts this year and into 2027.
The fall in construction, Reardon said, would equate to a 3.5-5 per cent fall in housing starts with a $450 million fall in GST and stamp duty for state and territory governments.
In revealing its negative gearing and CGT changes, the government released Treasury modelling showing they would reduce new home builds by 35,000. This would be offset by a 65,000 increase in homes started because of a $2 billion funding injection for the states and councils to build necessary property infrastructure such as roads and sewerage.
Reardon said the government should properly examine the fallout from its SMSF borrowing ban.
“Treasury should publish a housing supply impact assessment and cost-benefit analysis consistent with the analysis undertaken for the changes to negative gearing and capital gains tax,” he said.
“That assessment should quantify the expected impacts on detached housing, apartment construction, housing affordability and government revenue.”
Chalmers has pushed back at claims the SMSF changes will have a substantial impact on the property market, arguing that they do not affect any sale contract exchanged by August 10.
He has also noted that super funds, including SMSFs, could continue to invest in housing and property but not by borrowing against a person’s personal super holdings.
The government’s budget tax measures, plus the Reserve Bank’s three interest rate increases this year and record levels of unaffordability in cities such as Brisbane, continue to weigh on the market. Data from Cotality shows auction clearance rates were at 50 per cent at the weekend, with that likely to fall once final sales figures are collated.
Coalition housing spokesman Andrew Bragg said on Sunday that lower house prices may be the only way to help young Australians priced out of the property market.
“For younger people, some of that should be returned to younger people because prices are too high in Australia for young people who are looking at, in some cases, 15 times a multiple of their salary to buy a first house,” he told the ABC’s Insiders program.
“That is not fair, it is not reasonable. And so that’s why I think our policies must be focused on affordability over the longer term.”
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Shane Wright is a senior economics correspondent for The Sydney Morning Herald and The Age.Connect via X or email.
