Albo’s government wants more homes built so why is it banning the one group ready to fund 40,000 of them? A new SMSF investment ban could wipe out more housing than Labor’s own $10 billion fund creates.
For a government committed to increasing the supply of housing, the ban on self-managed super funds (SMSFs) investing in properties is set to take away more than 40,000 new homes from the housing market. And a leading industry body says this will offset the gains from Labor’s $10 billion Housing Australia Future Fund (HAFF).
Oscar Stanley, the national president of the Urban Development Institute of Australia, told the AFR’s Michael Bleby that “even based on Treasury’s figure of 4,000 new home loans to SMSF investors a year, as many as 12,000 homes would not be built”.
Stanley explains that for every loan two or three homes are built and that’s because developers usually will do off-the-plan or pre-sales and lenders want to see around 30% of a project locked into a buyer before construction finance is approved.
That then leads to another burst of sales, and, in total, a big chunk of these new properties are destined for the rental market.
Stanley told the AFR that the loss of new, privately funded rental housing would more than offset the number of new homes created by the federal government’s HAFF program, which aims to deliver 40,000 affordable and social rental homes by June 2029.
By law, SMSF trustees can’t live in a property they own in their super fund, so their investments in bricks and mortar add directly to the supply of rental homes.
Bleby reports that “official figures published on Wednesday showed total new home approvals fell for a third straight month to a seasonally adjusted 17,019 in May”.
The same was the case for approvals of attached homes – apartments, townhouses and semi-detached dwellings.
These numbers are worrying, given that we need 250,000 new homes a year to cover immigration, young people leaving home and family break-ups.
Andrew Bragg, the Opposition’s spokesman on housing asked a pretty sensible question at the industry conference: “Why would you have primary tax legislation which makes a distinction between new and existing houses, but then ban every SMSF from investing in any house?”
Bragg says “it’s insane” and he looks like he has a rational point.
Treasury says the number of SMSF loans are 4,000 a year but the industry says it’s way higher. Ray White chief economist Nerida Conisbee is in the camp that thinks the number is higher, but whoever is right, the more important question is why would any government work against super trustees investing to create more rental properties?
If they were worried about SMSFs adding to higher prices for existing homes, a government could restrict property investments to new homes.
Governments since the Hayne Royal Commission has made it harder for loan approval and more expensive in terms of interest rates charged for SMSF property loans, which has looked over-the-top.
And given the rise in house prices, those super trustees who wanted to invest property but have been prevented to do so have missed out on very good returns.
I think there’s a Labor-union-industry super fund interest in making SMSFs less attractive to prevent high super balance member of these funds leaving an industry super fund to buy shares and property, while reducing their overall fees.
Going from an industry super fund to an SMSF can lead to savings, while giving trustees the right to choose their investments, which makes sense if they’re sophisticated investors or they work with a trustworthy advisor.
Bleby gave an example of a Queensland developer who has 100 builds on the go, of which 75 would be earmarked for SMSFs. He’s not only seeing contracts being pulled, purchaser interest fall, he says his bank won’t fund construction without guaranteed sales.
I’d like to say there was a beneficial ‘method in the madness’ of the Government’s housing changes but I can’t see real lot.
Here’s why:
- Existing homes will be cheaper because investors are less likely to buy them, so homeowners have lost wealth.
- Investors can buy new homes with the 50% capital gains discount and negative gearing, which young people are more likely to buy, so these should become more expensive.
- The SMSF ban reduces the demand for new homes, which lowers the future supply of rental properties.
Sure, investors could sell their properties, which would help the supply of homes on the market but also they could simply hang on to them as they retain their negative gearing tax deductions and the 50% capital gains discount for gains from date of purchase until 1 July next year. After that, any gains will be taxed under the recent Budget changes, which discounts the increased value of the property for inflation and a minimum tax of 30% applies.
Thanks to the Jim Chalmers’ Budget, investing property is less attractive and that’s good news for super funds. Funny that!
The reason they are doing it is because they plan to dip into your super in the near future ‘for Australia’ (legislation already allows this) and it’s easier to take if the funds are liquid – cash and shares – vs property. And PAYG employees won’t be able to do anything about it as their employers are obligated to continue to pay super on their behalf.
Dear Mr Switzer,
Super funds should not be used to invest in houses.
The biggest problem with Government at the moment is the Greens who, with Labor in the Senate, hold veto. The Greens ‘ agenda is hard to define but they are mostly against development, aspiration and having a “crack”. Then, again, they appear to be mostly against everything that mainstream Australians aspire to. This veto power has forced Labor into making concessions which are against logic and harm our society. Like the Unions with a similar percentage of representing Australians- approx 12%- they utilise their leverage to deform decisions
Peter, I started reading your articles hoping, based on your background, to get sound economist points of view and some common-sense debate. Unfortunately, your articles about housing and current Government policies in this sector has left me disappointed and disillusioned. You seem keen to blame Albo even when your instincts tell you otherwise. For example you say “I’d like to say there was a beneficial ‘method in the madness’ of the Government’s housing changes but I can’t see real lot. Here’s why:
1. Existing homes will be cheaper because investors are less likely to buy them, so homeowners have lost wealth. Seriously? Homeowners’ wealth, based on their property value, an artificial value created by a market on steroid, is ILLUSORY. It may seem “real, true or possible” but it’s actually false (if you sell cheap, you buy cheap!), imaginary (you can’t sell a brick at the time to finance your expenses or take that long overdue holiday) and impossible unless you reverse mortgage and cash in your imaginary wealth. In my spare time I do volunteering work taking old and frail residents to hospitals and medical appointment. They can’t afford the taxi fares for their frequent visits, yet the vast majority of them live in large houses in some of the wealthiest Sydney suburbs worth several millions, yet they are cash poor. They can’t access their wealth because it is ILLUSORY!!
2. Investors can buy new homes with the 50% capital gains discount and negative gearing, which young people are more likely to buy, so these should become more expensive. Seriously again? Young people are strapped for cash. They have problem putting together the deposit. Brand new houses or house-and-land packages are usually more expensive to purchase upfront than established properties. That is a FACT. You are asserting the opposite, but you haven’t provided supporting evidence. AI may assist you if you wish to check.
3. The SMSF ban reduces the demand for new homes, which lowers the future supply of rental properties. Well, if that was the real reason then the problem could be easily solved. Unfortunately, it isn’t that simple. The critical shortage of dwellings in Australia is due to: (a) Inadequate Workforce. It’s a well-known fact that Australia currently lacks the adequate workforce in many aspects of the construction industry, and restriction on migration will make the situation worse, not better! And (b) Australia lacks the stable building material stockpiles needed to rapidly and significantly increase the construction of dwellings. In sort, the residential construction sector in Australia is heavily constrained by systemic bottlenecks. SMSF ban isn’t a bottleneck, rather it is an attempt not to clog further a congested bottleneck.
Please try to leave politics aside for something as important the critical housing shortage in Australia and maybe you could contribute rather than adding spikes in the wheels trying to solve a perennial problem due to having a successful nation.
I watched my children struggle to afford a house. I have done well with previous tax policies and was able to help them. It is all illusory as the previous commentator mentions. My parents 85 will not leave their home because the transfer costs of moving is too high. The house is far to big for them. As is my house for me. I feel guilty I am taking up so much space but I also worked hard to get here.
Why would I leave? The house is pretty, in a great neighbourhood, near transport and to move I would have to pay stamp duty, agents and other costs. Not to mention the disruption. The council has only just been forced to allow this area to be dual occupancy. Finally a good move.
We are living longer so house turnover is less.
Simple control logic (I’m an engineer) dictates that an equilibrium will be reached controlled by various drivers. The main drivers I see are: Political policy, Financial incentives (eg. 50 capital gains tax discount), House building (council approval too slow and shortage of skills ), Material shortage, desirable land shortage (partly due to very large houses using space poorly).
The 50 capital gains tax discount – what a stupid policy and probably the most likely cause of housing being used as an investment which pushed up prices. I thought this when it came in and if you look at graphs house prices skyrocketed almost as soon it was law. What an easy way to make money. I certainly did. It also encourages churn and “gambling” in the share market. The old discount system based on CPI worked well and was fair. Abo should not have grandfathered it or grandfathered it on a time limit of 2-4yrs.
Gov. policy seems to encourage everyone to go to uni – not everyone should. Invest in TAFE and develop tradies here rather than rely on immigrants. They will probably earn more than most of us due to scarcity
I am worried by the number of units going up too quickly. The quality of building work is not being supervised. The number of units that are 5-10yrs old with major defects and result in very high special levies is not a joke. The strata management system is broken and often fails to hold builders to account (they have 7 years), or the builder calls bankruptcy to avoid any defect reparations. Investing in units is like russian roulette.
Good comments Pete and both my wife and I agree. Regrettably, it appears you have a left wing ranter in your client base that is quoting misinformation online.
You and I know as we are linked to Real world Economics and real world commerce (yourself running a small business and consulting on these matters each day, and I that consults to the majors and sees first hand the carnage and heart breaks to business that this weak Albanese / Chalmers / Wong / Burke and Bowen government is doing to our beautiful country).
Very unprofessional indeed.
Cheers mate.
Steve
It was not all that long ago Albo and Bowen wanted their pet agenda item to be funded by superfunds in greenfiekd renewable sites, many of which failed or still need more govt funding and favours to seem alive. Yet when it comes to what the public needs in the way of housing they seem to be on a go slow not being their prime pet agenda.
Instead of funding dodgy renewables at great public debt maybe create a proper fund that superfunds can invest in removing the direct property ownership factor. But build this more affordable accommodation not part of the crooked EBAs doing the rounds these days pushing up construction costs beyond economic reality.