Self-managed superannuation funds will be banned from direct borrowing under an expanded housing affordability policy unveiled by the Federal Opposition today.
Speaking to media this morning, Shadow Treasurer Chris Bowen said the policy will target a $24 billion borrowing "explosion" by SMSFs which has contributed to an overheated property market and a crisis in housing affordability.
"We will restore the general ban on direct borrowing by superannuation funds to help cool an overheated housing market driven by wealthy SMSFs," Bowen said.
The policy is backed by the head of the government's financial system inquiry, David Murray, who recommended the general ban on direct borrowing by SMSFs to mitigate the risk of financial instability.
The Turnbull government rejected Murray's recommendation late last year.
Bowen added that while SMSFs currently represent a relatively small section of the property market, the sector is growing exponentially and that this measure will prevent a build-up of risk.
"It's a factor in the over-heated market which needs to be dealt with," Bowen said.
Since 2007, SMSFs have been allowed to borrow money under certain conditions to invest in assets on a limited recourse basis. According to Labor, this has been a growing feature of many SMSFs, particularly for the purchase of property.
"Limited recourse borrowing in SMSFs has exploded in recent years - from about $2.5 billion in 2012 to more than $24 billion today," Labor said in a statement.
"This represents an 860% increase in limited recourse borrowing in SMSFs in just 4.5 years. Allowing this to continue would increase risk in the superannuation system and crowd out more first home owners."
The SMSF Association has hit back against the policy, saying that there is little or no evidence that the use of limited recourse borrowing arrangements by SMSFs is playing a significant role in affecting housing affordability.
"ATO statistics show that SMSFs hold $24.3 billion in LRBAs, with these financial instruments being predominantly used to invest in residential and non-residential property in an almost 50-50 split," said SMSFA managing director/chief executive Andrea Slattery.
"That estimated $12 billion where SMSFs have used LRBAs to invest in residential housing has to be put in the context of a $6.43 trillion housing market. SMSFs investing in residential property, whether through borrowing arrangements or not, should not be singled out from other investors when looking at policy solutions to improve housing affordability."
Shorten was quick to reassure that any SMSFs investing under the current rules would not be affected.
The Coalition government is expected to unveil the details of their own housing affordability measures in the May 9 budget.
Finance Minister Mathias Cormann told Sky News this morning that the government's view is "that compulsory super is to generate an income in retirement and that is what superannuation is all about."
"Increasing the amount of money that goes into residential property, all other things being equal, does not help to make it more affordable, it puts upwards pressure on prices. So that is not something that we think would help address the problem," Cormann said.
"If you have a concern about housing affordability, if you have a concern about the affordability of anything, the way to address it, overwhelmingly, is by increasing supply and overwhelmingly that is going to be the area that we have got to continue to focus on in the months and years ahead."