“You Can't Do What We Did”

The SMSF borrowing ban is small in dollars and large in what it signals about how Australians are allowed to build wealth.

On 23 June, the Government confirmed it had struck a deal with the Greens to prohibit self-managed super funds from entering new limited recourse borrowing arrangements (LRBAs) to acquire residential property. The measure formed part of the broader tax package progressing through Parliament, alongside changes to capital gains concessions and negative gearing settings.

Existing arrangements are intended to be grandfathered. Transactions already underway are expected to have a limited transition period. Borrowing to acquire commercial property inside super remains untouched.

From the day the measure commences, the residential borrowing door simply closes to new arrangements. The temptation, on a change like this, is to move immediately to outrage or relief depending on which side of the debate you sit. Both reactions miss the more useful question.

So let’s start where the evidence actually sits, and then ask what it really tells us.

The change is genuinely small. That is not the interesting part.

The Treasurer was quick to frame the scale, and on the raw numbers he has a point. Self-managed funds hold roughly $1.06 trillion in assets across some 663,000 funds – about a quarter of the nation’s superannuation. Around one in ten of those funds carries a borrowing arrangement at all. SMSF residential property, held directly and through borrowing combined, sits at well under one per cent of the total Australian residential market. By the Government’s own figures, these funds account for less than half a per cent of new residential lending in any given year. 

In practical terms, that “well under one per cent” equates to a small fraction of the nation’s roughly 11 million dwellings and a level too limited to materially influence national supply. If you were looking for the lever that fixes housing affordability, this is not it. Even some of the policy’s sharpest critics concede the direct effect on the supply of homes is, in the Treasurer’s words, marginal. 

Supporters of the reform argue the issue is not scale but precedent. Superannuation was designed primarily as a retirement vehicle rather than a leveraged property platform, and limiting borrowing reduces concentration risk, property promotion practices and exposure to debt inside retirement balances.

Whereas opponents are arguing that if superannuation exists to maximise retirement outcomes, why should residential property be treated differently from every other leveraged investment inside the system?

Back to the numbers and we agree that the claim that banning these arrangements will meaningfully lift rents or strip homes from the market as it doesn’t survive contact with the data. It is a small change to a small corner of the system. Which is exactly why it’s worth paying attention to. When a measure this narrow is worth spending political capital on, the significance is rarely in the dollars. It’s in the direction.

The pattern, not the policy

Read this change in isolation and it looks like a technical adjustment to a niche borrowing structure. Read it alongside the rest of the budget (the narrowing of negative gearing, the tightening of the capital gains discount) and a clearer shape emerges. 

Each measure, on its own, is defensible and modest. Taken together, the measures suggest a policy preference toward reducing tax-supported leverage in residential property investment rather than expanding ownership pathways through reducing investor participation. In other words, they steadily reduce the number of ways a middle income household can use leverage and the tax system to build an asset base over a working life. 

That is the structural story, and it has a generational edge. 

A large number of Australians who hold property today did so by combining time, leverage and the rules as they then stood. The quiet message of this budget is that the next cohort will not have the same toolkit. 

You can’t do what we did, not because the ambition has changed, but because the pathways have been progressively closed. 

The Greens’ position is clear: leveraged property investment inside super was never the point of the system, and reducing investor demand is intended to improve outcomes for renters. At a broad level, that logic has intuitive appeal. Fewer leveraged investors should, in theory, mean less pressure on prices. But there is a tension in the detail that is worth naming. Property acquired inside a super fund cannot be owner-occupied. It is, by design, permanently rental stock. It is one of the few structures in the system where every dwelling added is guaranteed to remain in the rental pool. 

Removing borrowing from that structure does not automatically convert homes to owner-occupation. It may reduce one pathway through which rental stock has historically been financed and retained, although the overall supply impact is likely modest given the scale involved. But it does highlight the trade-off: a policy aimed at supporting renters may also be removing one of the more structurally reliable sources of rental supply within the system. 

A better question than the one being asked

The public conversation has fixated on the wrong question, whether self-managed funds should be allowed to borrow for housing. The more useful question sits underneath it. 

Look across these measures and they share a single premise: that investors are what stands between ordinary Australians and an affordable home, and that dialling investor activity back will close the gap. It’s an intuitive story, and a politically convenient one, because it supplies a culprit. It also doesn’t survive the evidence. 

Investor demand moves prices at the margin, as any demand does, but it is not what created the shortage. Australia’s affordability problem is, at its core, a supply problem: too few homes built for too long, against planning systems, construction costs, infrastructure delivery and population settings that the market cannot resolve on its own. 

Reducing the pool of buyers shuffles demand around. It builds nothing. You cannot subtract your way out of a shortage. 

What it may do, at the margin, is alter where investor capital flows, not remove it. Capital deterred from housing does not disappear; it relocates. The question is whether the system produces more homes as a result. On that measure, the answer is far less clear. 

What it actually means if you’re an investor

Cutting through the noise, the practical position is calmer than the headlines suggest. If your fund already holds residential property under a borrowing arrangement, nothing is being unwound and existing arrangements continue as they are. If a purchase is genuinely in train, there is a defined transition window, though the timeframe is measured in weeks rather than months once the legislation receives assent. Commercial property borrowing inside a fund is unaffected. 

And it’s worth saying plainly that the legislation is not yet final, so the detail may still move. What changes is not the value of what you hold. What changes is the strategic landscape around it, the relative position of assets held inside super versus outside it, and the toolkit available for what you build next. Restrictions like this do not remove opportunity. They concentrate it. 

Fewer pathways mean less competition in the ones that remain. Particularly for investors who understand structure, sequencing and where policy is, and is not, closing doors.

Where the work actually is

The instinct, when a pathway closes, is to mourn the pathway. The more productive response is to understand precisely what has changed, what hasn’t, and where the structure now creates advantage rather than removes it. 

Opportunity rarely disappears in moments like this. It moves. The investors who do well from here will be the ones who understand the new shape of the system – where capital is being redirected, which structures are gaining relative advantage, and how to position ahead of that, rather than the ones still arguing with the old one. This isn’t a housing policy in any meaningful supply sense. It’s a directional signal and one more step in narrowing how Australians can use property to build wealth. 

For investors, that doesn’t remove opportunity. It makes strategy more important than it has been in a decade. 

What to do next

Moments like this are where clarity matters. Not headlines. Not opinion. Structure. If you’re holding property inside super, considering using your fund, or simply reassessing your next move, the question isn’t “Is this good or bad?”, it’s: “Given the system as it now stands, what is the most effective way forward from here?” 

That is not a generic answer. It depends on how your assets are structured, what stage you’re at, and what you’re trying to build over time. We’re currently working through these changes in detail with clients, mapping where borrowing still works, where it doesn’t, how super and non-super strategies now interact, and where the real opportunities are emerging as the rules shift. 

If you want a clear, considered view on how this applies to your position, now is the time to step back and look at it properly. Reach out for a strategy session and make your next move with intent, not reaction.