Tim Reardon
“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.
“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.
“If a comprehensive assessment demonstrates that prohibiting SMSF borrowing for newly constructed homes provides a net public benefit, the Government can make that case.
“Until then, Australia should not sacrifice additional housing supply without the evidence to justify doing so.
“Legislation expected to be introduced into Parliament today provides an opportunity to allow SMSFs to continue to borrow to build new homes.
“The prohibition on new residential property LRBAs came into effect on 10 August, without the publication of modelling of its impact on housing supply, rental supply, apartment pre-sales or progress towards the Government’s housing targets.
“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.
“HIA’s survey of Australia’s largest detached home builders 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.
“HIA has also estimated that the restriction could result in detached home commencements being around 3.5 to 5 per cent lower than otherwise, equivalent to around 4,000 to 5,500 fewer detached homes in a year.
“These estimates do not include the potentially larger impact on apartment construction, where investor pre-sales can be critical to securing project finance.
“The Government should now undertake and publish a comprehensive cost-benefit analysis of the restriction, including its impact on detached housing, apartment construction, rental supply, government revenue and housing affordability.
“Until that work is completed, SMSFs should, at a minimum, continue to be permitted to borrow where the investment finances the construction or acquisition of an additional new home.
“There is also an important question about the information already available to government.
“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.
“If existing administrative data can identify the number of new homes financed through LRBAs, that information should be released to allow industry to adjust to the change in market demand for new homes.
“Australia won’t get to building 1.2 million homes by restricting those that have to borrow to build a new home,” concluded Tim Reardon.