As a specialist broker in SMSF lending, I’ve witnessed firsthand how LRBAs can be a powerful wealth-building tool when used appropriately. Yet, despite their efficacy, LRBAs continue to be mischaracterised as a significant contributor to Australia’s housing affordability issues.
The Facts vs. Fiction
The Greens’ persistent efforts to ban LRBAs as a condition for passing the Better Targeted Superannuation bill is based on a fundamental misunderstanding of how these arrangements impact the property market. The suggestion that SMSFs are distorting the residential property market through their borrowing capacity is simply not supported by the data.
Let’s examine the facts:
According to the ATO’s annual statistics, SMSF investment in residential property – both directly and through LRBAs – stood at $76.9 billion in 2021-22. With Australia’s residential market valued at approximately $10.8 trillion, this means SMSFs hold just 0.7% of the market. This hardly constitutes market-moving influence.
In my brokerage at Mortgage Advice Bureau Sydney, we see an even more telling statistic: 62% of our SMSF lending activity is directed toward commercial property, with much of that focused on business real property. This aligns with the broader trend where many SMSFs are utilising LRBAs to help business owners secure their commercial premises – a strategy that has nothing to do with residential housing pressure.
A Tool for Wealth Creation, Not Market Manipulation
The Council of Financial Regulators has examined the evidence twice (in 2019 and 2022) and concluded that LRBAs pose no material risk to the superannuation system or the broader financial system. In fact, the proportion of SMSFs using LRBAs has shown signs of stabilising or slightly decreasing in recent years, with only 11% of SMSFs having an LRBA in place.
These borrowing arrangements represent just 2.7% of total SMSF assets. This is hardly the profile of a systemic threat or market disruptor.
What’s often overlooked in this debate is the responsibility with which SMSF trustees’ approach LRBAs. ATO data shows that SMSFs in the pension phase have only a 1.5% asset allocation to LRBAs compared to 9.4% for funds in accumulation phase. This demonstrates that trustees are appropriately managing risk as they approach retirement – exactly the kind of prudent financial planning we should be encouraging.
The Real Housing Affordability Issues
If we’re serious about addressing housing affordability, we should be focusing on the actual drivers: restrictive planning laws, infrastructure constraints, migration and population growth pressures, and the ongoing imbalance between supply and demand. These factors collectively exert far more influence on housing prices than the relatively minor participation of SMSFs in the residential market.
Moreover, the strict regulatory framework governing LRBAs ensures they’re not a vehicle for speculation or excessive risk-taking. Lenders apply stringent criteria to SMSF loans, with conservative loan-to-value ratios and careful assessment of the fund’s capacity to service the debt. In my brokerage at Mortgage Advice Bureau Sydney, the vast majority of our SMSF Lending is under 70% Loan to Value Ratio (LVR), often supported by financial advisers guiding a max of 60% LVR.
Supporting Informed Investment Choices
For many Australians, an SMSF represents an opportunity to take a more active role in their retirement planning. The ability to selectively invest in property – whether commercial or residential – provides valuable diversification and can be part of a thoughtful, long-term investment strategy.
As a broker specialising in this area, I’ve seen how LRBAs can help clients build sustainable wealth when implemented with proper advice and careful consideration of their overall financial situation. The strategic use of business real property in particular can create valuable synergies between business growth and retirement planning.
Moving Forward Constructively
Rather than seeking to restrict investment options for SMSF trustees, we should be focusing on improving financial literacy and ensuring access to quality advice. The real issue isn’t that LRBAs exist – it’s ensuring they’re used appropriately and as part of a diversified investment strategy.
The Treasurer’s stance against changing LRBA rules recognises this reality and acknowledges that these arrangements, when used responsibly, can be a valuable component of Australia’s retirement landscape. It’s time we moved beyond using SMSFs as a convenient scapegoat for complex housing market challenges and instead focused on real solutions to housing affordability.
For the 1.1 million Australians who are members of SMSFs, this represents a sensible policy position that respects their right to make informed investment choices within a robust regulatory framework. As specialists in SMSF lending, we welcome this clarity and look forward to continuing to support clients in building secure financial futures through strategic, responsible investment.
