Australia’s biggest home-building lobby wants self-managed super funds to keep borrowing to build new houses, warning a restriction that took effect on 10 August could strip 4,000 to 5,500 detached homes a year out of the pipeline. The Housing Industry Association says the Government should publish modelling on what the change does to housing supply before pushing the policy any further.
The call was reported by Infrastructure Magazine, which carried HIA chief economist Tim Reardon’s argument that a policy directly restricting finance for new housing was introduced without the analysis applied to other Budget measures.
Limited Recourse Borrowing Arrangements, or LRBAs, are the mechanism that lets a self-managed super fund borrow to acquire or build a property, with the lender’s claim limited to that asset. The Australian Taxation Office administers the rules SMSFs operate under. From 10 August, new residential property LRBAs are off the table.
“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.
HIA says no modelling has been published on the restriction’s potential effect on housing supply, rental supply, apartment pre-sales, or progress towards the Government’s housing targets.
3,613 contracts that haven’t broken ground
A survey by the Housing Industry Association 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, with builders expecting around 2,415 of those contracts to be cancelled.
That’s the number worth writing down, and it’s worth knowing where it comes from: it’s HIA’s own survey of its biggest detached builders, not a government or ABS count.
The distinction between a signed contract and a started job is the whole story here. A contract that hasn’t commenced is forward order book. It’s the slab that gets set out after the current one cures, the frame that gets stood the month after that, the roofer, the brickie, the sparky and the plumber who each get a call because a job is queued behind the one they’re finishing.
When those contracts fall over, nothing dramatic happens on site. Nothing happens at all. The pad stays a pad and the next booking never lands.
HIA puts the total effect at a reduction in detached home commencements of roughly 3.5 to 5 per cent against what would otherwise have happened, which it converts to about 4,000 to 5,500 fewer detached homes in a year.
The apartment side could be worse
Reardon said the impact on apartment construction could be greater, because investor pre-sales are often important to securing project finance.
That’s the part that hurts most on the tools. A mid-rise or high-rise job doesn’t start when the DA lands, it starts when the financier is satisfied the pre-sales stack up. Until then there’s no piling rig, no tower crane, no formwork cycle and no follow-on sequence of blockwork, services rough-in and fitout behind it. Take a slice of investor buyers out of the pre-sale pool and the whole chain sits idle at the front end.
“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,” Reardon said.
In the meantime, HIA’s position is that the door shouldn’t be shut entirely.
“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,” Reardon said.
Show us the data, HIA says
The second ask is for the Government to release what it already holds on SMSFs, LRBAs, residential property transactions and housing construction.
“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,” Reardon said.
That’s a practical request more than a political one. Builders sizing up whether to keep a second framing crew on, or whether to take on an apprentice this intake, are working off contract books that just got a hole punched in them. Knowing how big the hole is nationally changes how conservatively you quote for the next six months.
Reardon tied the whole argument back to the national target.
“Australia won’t get to building 1.2 million homes by restricting those that have to borrow to build a new home,” Reardon said.
What to watch
The test is whether any modelling or administrative data on LRBA-financed homes gets published, and whether the Government carves out an exemption for borrowing that funds a genuinely new dwelling rather than the purchase of an existing one.
If you’ve got work quoted or scheduled off the back of a contract signed before 10 August where the client is buying through a super fund, that’s the one to check on now rather than in three months. Ask the builder or the client directly whether the finance survived the change. A cancelled contract you find out about early is a gap you can fill. One you find out about the week you were meant to start isn’t.
Frequently asked questions
What is a Limited Recourse Borrowing Arrangement (LRBA)?
An LRBA is the mechanism that lets a self-managed super fund borrow to acquire or build a property, with the lender’s claim limited to that asset. The ATO administers the rules SMSFs operate under.
When did the SMSF lending restriction take effect?
New residential property LRBAs have been off the table since 10 August, according to the Housing Industry Association.
How many homes could the restriction affect?
HIA’s own survey of Australia’s largest detached home builders found 3,613 signed contracts involving SMSF borrowing hadn’t started construction, with builders expecting about 2,415 to be cancelled. HIA estimates the change could cut detached home commencements by 4,000 to 5,500 homes a year.
What does HIA want the Government to do?
HIA wants the Government to publish modelling on the restriction’s impact on housing supply, government revenue and affordability, and in the meantime keep allowing SMSFs to borrow where the finance funds a genuinely new home rather than an existing one.
Sourced from Infrastructure Magazine, Housing Industry Association. Original article.
