Households continue to face the cumulative impact of three interest rate increases this year.

“Sales of new homes declined for a third consecutive month in July, falling by 3.7 per cent as higher interest rates and policy uncertainty continued to weigh on consumer confidence,” stated HIA Senior Economist, Tom Devitt.

The HIA New Home Sales report is a monthly survey of the largest volume home builders in the five largest states and is a leading indicator of future detached home construction.

“The recent decline in sales reflects households becoming more cautious in response to higher borrowing costs and increased uncertainty, rather than a reduction in Australia’s underlying need for new homes,” added Mr Devitt.

“Sales of new homes in the three months to July were 13.5 per cent lower than in the previous quarter but remained 17.1 per cent higher over the last 12 months compared to the previous year, supported by the momentum built earlier in the year.

“Households continue to face the cumulative impact of three interest rate increases this year. At the same time, uncertainty surrounding recent housing policy changes has encouraged many prospective purchasers to delay, or cancel, major financial decisions.

“In the three months to July, house prices nationally declined by 2.0 per cent, the largest quarterly fall since 2022. Because the new and established home markets are linked, a decline in established prices will lead a decline in new home sales and a slowing in home building.

“The adverse shock to established home prices, due to the Federal Budget, is likely to be one factor slowing sales of new homes.

“Despite this, the structural drivers of housing demand remain firmly in place. Unemployment remains very low, migration remains elevated, household formation continues, and Australia’s shortage of homes will continue to support underlying demand.

“The goal of building 1.2 million homes will become increasingly unachievable if governments continue to restrict who can build, invest in, or finance new homes.

“Policies that add uncertainty, reduce investor participation, or constrain finance will only make it harder to deliver the homes Australians need,” concluded Mr Devitt.

By state, New South Wales was the only state to record a monthly increase, rising by 2.1 per cent. The largest decline was seen in Queensland (-10.9 per cent), followed by South Australia (-7.6 per cent), Victoria (-2.0 per cent), and Western Australia remaining relatively unchanged (-0.4 per cent).

In the year to July 2026, new home sales in Victoria were 27.6 per cent higher compared to the previous year, followed by South Australia (+26.3 per cent), New South Wales (+16.6 per cent), Queensland (+10.0 per cent) and Western Australia (+3.3 per cent).

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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.

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The housing and finance industry is urging the Government to permit SMSF borrowing for newly constructed homes.

The housing industry is calling on the Australian Government to allow self-managed super funds (SMSFs) to continue borrowing to build new homes, at least until the impact of its new borrowing restrictions on housing supply is independently assessed and made public.

From this week, SMSFs can no longer enter into new Limited Recourse Borrowing Arrangements (LRBAs) to finance residential property.

Industry data indicates that SMSF borrowing directly financed the construction of thousands of new detached homes each year and facilitated an even larger volume of apartment commencements. These new homes provide a pathway to homeownership and support the rental market.

With a third of Australians renting and cost of living pressures particularly for those Australians that do not own their home and thus experiencing housing insecurity, this ban does not just adversely impact housing supply at aggregate, it impacts intergenerational fairness and financial wellbeing of working Australians.

The housing and finance industry is urging the Government, at a minimum, to permit SMSF borrowing for newly constructed homes while Treasury undertakes and publishes a comprehensive assessment of the impact of the ban on detached home commencements, apartment construction, project pre-sales, rental supply and progress towards the Government’s 1.2 million homes target.

Restricting investment in established homes still adversely affects new housing supply. But restricting finance for a home that has not yet been built means the policy reaches directly into the new-home market and contradicts the Government’s own tax reforms designed to encourage new housing.

At a time when Australia is already struggling to build enough homes, there should be a clear and public justification for any policy expected to reduce the building of new homes.

The review should also demonstrate a clear net public benefit sufficient to justify restricting Australians from using SMSF borrowing to build new homes.

If the evidence demonstrates a clear net public benefit from extending the prohibition to newly constructed homes, the Government can make that case publicly. Until then, SMSFs should, as a minimum, not be banned from borrowing for residential property and be allowed to continue to borrow to build new homes.

Australia should not sacrifice additional housing supply before the Government has demonstrated that a clear public benefit from doing so.

A Joint statement from:

• Australian Finance Industry Association
• Housing Industry Association
• Property Council of Australia
• Real Estate Institute of Australia
• Self-managed Super Fund Association
• Urban Development Institute of Australia

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