New LRBA restrictions could reduce home commencements by up to 5,500 dwellings annually, HIA warns
The Housing Industry Association (HIA) has called on the federal government to allow self-managed superannuation funds (SMSFs) to continue using Limited Recourse Borrowing Arrangements (LRBAs) to finance new home construction until a full cost-benefit analysis of the prohibition is published.
"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," said HIA chief economist Tim Reardon (pictured top).
"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."
The HIA's survey of Australia's largest detached home builders found 3,613 signed contracts involving SMSF borrowing had not commenced construction at the time the policy was announced, with builders expecting approximately 2,415 of those contracts to be cancelled. The association also estimates the restriction could reduce detached home commencements by between 3.5 and 5% — equivalent to around 4,000 to 5,500 fewer dwellings per year — figures that exclude what it describes as potentially larger effects on apartment construction, where investor pre-sales are often critical to securing project finance.
Reardon noted that modelling has been published for other budget housing measures and said the same standard should apply to a policy directly limiting finance for new residential construction. He argued that if a thorough assessment showed a net public benefit from the SMSF borrowing ban, the government could make that case, but that Australia should not forgo housing supply without the evidence to support doing so.
"Australia won't get to building 1.2 million homes by restricting those that have to borrow to build a new home," Reardon stressed.
Legislation expected to be introduced into parliament presents an opportunity, the HIA said, for SMSFs to retain borrowing rights where the investment finances the construction or acquisition of a new home. At a minimum, the association is seeking an exemption for such arrangements while the broader analysis is completed.
The HIA also called on the government to publish administrative data on SMSF-financed residential property transactions, including the proportion linked to newly constructed dwellings. It said government agencies already collect extensive information on SMSFs, LRBAs, residential property transactions, and housing construction, and that releasing this data would help industry assess the change in market demand.
"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.
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