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!
