SMSF investment in housing under the microscope

A PEAK housing industry body is calling on the Federal Government to be more transparent regarding superannuation investment in residential housing.

And another industry heavyweight said the impact of the government’s tax changes, which have passed through the Senate, “would be felt across the property industry”.

Housing Industry Association chief economist Tim Reardon said Treasury had modelled the adverse effect on housing supply of changes to taxation on negative gearing and CGT for the Budget.

“The government should now provide the same level of analysis on the impact of restricting self managed superannuation fund investment in residential housing,” Reardon said.

“The government had already acknowledged through the Budget that changes to housing taxation would reduce the supply of new homes.

“HIA’s concern is straightforward. Restricting access to capital available to finance new housing is likely to reduce the number of homes that are built. The question is by how much?

“SMSFs represent one source of private investment that supported the construction of new housing, particularly in markets where investor demand contributed to project feasibility.

“Policies that reduce investment in new housing should be accompanied by transparent advice on their likely impact on housing supply.

“Housing does not become more affordable if fewer homes are built.”

Reardon said calculating the number of loans for the purchase and construction of a new home by SMSFs does not account for the loss of new home supply caused by the policy change.

“Home building is determined by the marginal borrower, especially in the case of apartment building, so removing a small number of projects can have a larger adverse impact on housing supply.

“Every new home also generates tax revenue through GST and stamp duty and additional restriction at the federal level can adversely impact state revenue. 

“The government has also introduced a range of positive housing initiatives through the Budget, including increased investment in enabling infrastructure and planning reform.

“Those policies recognise that Australia needs more homes.

“We know the government considered the housing impacts of the negative gearing reforms. The same level of transparency should apply to the SMSF borrowing restrictions,” Reardon said.

Meanwhile, the Property Council of Australia has warned changes to capital gains tax and negative gearing will reduce housing supply and weaken investment at a critical time for the economy.

Property Council chief executive Mike Zorbas said the impact of the changes passed by the parliament today would be felt across the property industry.

“According to the government’s numbers these new laws are a tax ball and chain that shrinks housing supply by 35,000 homes,” Zorbas said.

“The property sector already pays $130 billion in taxes each year and that impacts all buyers because four in every 10 dollars spent on a new home is blown away by taxes and charges.”

Zorbas said that while the retention of the new housing carve out was positive, the overall package will undermine investment confidence across the development pipeline.

He said the breadth of the changes, including restrictions on SMSF investment and further reforms to trusts, would have wider consequences beyond housing.

“These tax hikes impact investment in all projects including housing, commercial and industrial assets that support jobs and productivity.”

The Property Council said the government must closely monitor market activity and investment sentiment as these changes take effect and have the policy courage to act if they constrain investment and new development.