Why builders predict a $450m hit to state budgets and a drop in new housing starts
The housing industry is demanding a review of the government’s changes to borrowing through self-managed super funds, warning that thousands of planned new homes will be abandoned and state budgets will suffer a $450 million hit.
The Housing Industry Association’s industry survey, to be published on Monday, shows housebuilders expect up to 67 per cent of 3,613 signed housebuilding contracts financed with limited repayment loans through self-managed super funds (SMSFs) are likely to be canceled due to government policy.
The government agreed to ban the practice of self-managed fund borrowing for residential property as part of a deal with the Greens to win Senate support for negative gearing budget changes and a capital gains tax concession.
There are ongoing concerns about the risks this practice, which was formalized in 2011, poses to the financial and pension system. While an inquiry into the financial system in 2014 initially recommended its removal, the Council of Financial Regulators, which includes the Central Bank and the banking regulator, also supported changes to the system.
Announcing the ban, Finance Minister Jim Chalmers said self-managed funds accounted for less than 1 per cent of total mortgage loans and less than half a per cent each year. Nearly 173,000 homes were built in the last 12 months.
But HIA chief economist Tim Reardon said his own survey of members showed the change would ultimately reduce the number of new homes built and the revenue they would generate for states.
He said builders had signed 3,613 contracts with buyers through self-managed fund borrowing arrangements in places where construction had not yet started. Builders estimate 2,415 of these will be abandoned due to government changes.
“These are not hypothetical future investments. They are contracts for the construction of homes that builders expect to build next year,” Reardon said.
“SMSFs do not live in houses, they do not create demand for housing, they provide capital to finance the construction of new housing.
“Restricting a source of investment does not reduce the number of Australians who need a place to live.”
Reardon said 70 percent of builders reported a decline in investor demand since the budget was released in May, while 90 percent expect a decline in single-family home starts this year and into 2027.
Reardon said the decline in construction would equate to a 3.5-5 per cent drop in housing starts and a $450 million drop in GST and stamp duty for state and territory governments.
In announcing its negative outlook and CGT changes, the government published Treasury modeling showing they would cut new home construction by 35,000. This will be offset by a 65,000 increase in housing starts due to a $2 billion injection of funds to states and municipalities to build necessary property infrastructure such as roads and sewers.
Reardon said the government needed to properly examine the consequences of the SMSF borrowing ban.
“The Treasury should publish a housing supply impact assessment and cost-benefit analysis consistent with the analysis for changes to negative gearing and capital gains tax,” he said.
“This assessment should measure expected impacts on single-family housing, apartment construction, housing affordability, and government revenue.”
Chalmers pushed back on claims that the SMSF changes would have a significant impact on the property market, arguing that these changes would not affect any sales contracts made by 10 August.
It also said super funds, including SMSFs, could continue to invest in housing and property, but it would not be possible to borrow against one’s personal super assets.
The government’s budget tax measures, the Reserve Bank’s three interest rate hikes this year and record affordability in cities such as Brisbane continue to put pressure on the market. Data from Cotality shows auction confirmation rates were at 50 percent over the weekend, and that rate is likely to drop when final sales figures are tallied.
Lower house prices could be the only way to help young Australians be priced out of the property market, Coalition housing spokesman Andrew Bragg said on Sunday.
“Some of that money should be returned to young people because prices in Australia are too high for young people looking to buy a first home, in some cases at 15 times their salary,” he told the ABC. insider program.
“It’s not fair, it’s not reasonable. That’s why I think our policies need to focus on affordability in the long term.”
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Shane Wright is senior economic correspondent for The Sydney Morning Herald and The Age.Connect with: X or email.
