The Turnbull government has released draft legislation to restrict borrowing by private super funds just a week after Labor pledged to ban the practice.

Working to a tight deadline, the government released its draft laws governing limited recourse borrowing arrangements (LRBAs) on Thursday and called for comments on the plans to be lodged by Wednesday May 3.

Using LRBAs is the only way self-managed super funds can borrow. They restrict lenders to taking only the asset borrowed against as security, meaning if there is a problem neither the owner nor the rest of the super fund assets can be called on to cover any shortfall.

The new laws mean that any debts in the super fund are added to its asset base for the purposes determining the new $1.6 billion limit on super pensions to come in on July 1. That is designed to stop people effectively getting round the cap by using borrowings to reduce asset values.

“This increase to an individual member’s total superannuation balance ensures that it more accurately reflects the overall values of the assets in a fund that support the individual’s superannuation interests,” the explanation memorandum for the draft legislation says.

As the following table shows, SMSF borrowing has blown out by a factor of 10 in the last 4.5 years, raising concerns they are contributing to the housing affordability crisis.

As The New Daily recently reported, self-managed superannuation fund borrowing arrangements have grown almost tenfold, from $2.5 billion in June 2012 to $24.3 billion last December. The lion’s share of that is going into commercial and, increasingly, residential property.

That has been a concern for regulators, with the Murray inquiry into the financial system in 2014 recommending SMSF borrowing be banned, warning “further growth in superannuation funds’ direct borrowing would, over time, increase risk in the financial system”. The Reserve Bank concurred.

The explosion in SMSF borrowing is being exploited by advisors who pressure SMSF owners into taking out sometimes inappropriate loans. ” We’ve seen lots of them; a whole bunch of advisors and agents,” Josh Mennen, lawyer with Maurice Blackburn, told The New Daily.

“It’s driven by spruikers,” he said.

Another often unremarked upon influence of SMSFs in the property market is through lending to developers. A large market has developed with SMSFs lending to developers for interest rates of between 10 and 20 per cent, insiders have told The New Daily.