The SMSF Association has countered against claims the use of limited recourse borrowing arrangements (LRBAs) by SMSFs has contributed to rising property prices and worsened Australia’s housing shortage.
In a submission to the Senate Economics References Committee’s inquiry into Australia’s financial regulatory framework and home ownership, the industry body dismissed the claims, put forward by the Greens, as a “myth” with no factual basis.
“Historically, myths and misconceptions have surrounded self-managed superannuation fund investment in residential property and the impact that has on housing prices and the broader housing market. These persist despite empirical data clearly illustrating that the concentration of SMSF investment in residential property, in relative terms, is very low,” the SMSF Association noted in its submission.
“Further, the level of gearing in SMSFs under the limited recourse borrowing arrangements is another area surrounded by misinformation. The use of LRBAs is subject to stringent rules and regulatory oversight.
“Greater understanding of these two elements demonstrates why these are not factors of significant influence on the accessibility and affordability of residential housing.”
To support its argument, the association cited ATO data from 2021/22 showing SMSFs held $76.9 billion in residential property, both directly and through LRBAs. This represented 0.7 per cent of Australia’s $10.9 trillion residential property market.
Additionally, only 11 per cent of SMSFs are using an LRBA, with these borrowings making up 2.7 per cent of total SMSF assets. The loan-to-value ratio for these loans was reported at 40.2 per cent.
The SMSF Association also suggested SMSFs may help to address housing shortages by investing in assets targeted at specific segments of the population.
“Inquiries and feedback from our members show that there is interest in the SMSF market to invest in National Disability Insurance Scheme (NDIS) housing. This interest is driven by a desire to provide for this segment as part of their social and ethical investment philosophies,” the submission stated.
“It also provides stability for the fund, given the long-term tenancy requirements and the reliable, consistent income paid.”
The submission also highlighted SMSFs might invest in programs such as those offered by Defence Housing Australia (DHA), which provides housing for Australian Defence Force members and their families.
“The DHA has included SMSFs in its target market as a source of investment capital to fulfil their purpose,” it said.
The Senate Economics References Committee is expected to submit its report by 5 December 2024.
