Australians' love affair with housing and managing their own super is creating a potential powder keg for both the property market and the Federal Government budget.

In a low-growth world, self-managed superannuation funds (SMSFs) are struggling to find adequate returns and are increasingly turning to the property market, one of the few markets they remain confident about.

Last month, newly minted Reserve Bank governor Philip Lowe explained why he was watching the property market so carefully.

"I am struck by the fact that large financial disturbances are repeatedly caused by the same factors," he said.

"Number one; poor asset quality, particularly in the area of commercial property development."

Over 2006 and 2016, self managed superannuation experienced a meteoric rise, from comprising around 20 per cent of the super system to now being about a third.

Those funds are taking on more debt, fuelling price rises, funding developments and potentially risking Australia's financial stability.

No APRA supervision

Unlike industry and retail superannuation funds, self-managed super does not fall under the supervision of the Australian Prudential Regulation Authority (APRA).

Last week a report from Credit Suisse accused self-managed superannuation of being the shadow bankers behind Australia's property price boom.

SMSFs are getting exposure to residential developers through buying various types of debt and preferred equity.

"Self-managed super funds don't have the same access to public insurance in a sense as other funds do," said Professor Helen Hodgson, associate professor in the department of taxation at Curtin Law School.

"So if something goes wrong with a self-managed superannuation fund and it loses its money, it can't call on the prudential arrangements to be reimbursed for the money it has lost."

APRA declined an interview with the ABC, but released a statement saying it would be too expensive to extend supervision.

"The cost of prudentially regulating SMSFs would, simply by virtue of the sheer number of such funds, be substantial and significantly outweigh any benefits."

David Murray: Self-managed funds should not be able to borrow

One of the key findings of the David Murray led financial system inquiry in 2014 was that leverage should be banned in superannuation funds to mitigate the risk of financial instability. The Government rejected his advice and Mr Murray said that was a mistake.

Since the review was completed, self-managed super funds have piled on even more debt, and the numbers are startling.

"Superannuation funds should not be leveraging, including self-managed superannuation funds, because leverage magnifies risk," Mr Murray told the ABC.

Leveraging is where borrowed capital is used to increase the potential return of investments.

"If the system is unleveraged then if asset prices rise, bubble and fall then all the loss is contained within the superannuation fund and does not have another contagion effect because there are no forced sellers or other assets from those funds."

In June 2011, self-managed superannuation funds held $1.4 billion of limited recourse borrowing arrangements (LRBA) - by June 2016 that number had ballooned to nearly $22 billion, an increase of over 1,500 per cent in five years.

According to the Tax Office, an LRBA requires a self-managed super fund trustee to take out a loan from a third-party lender, who then uses those funds to purchase a single asset to be held in a separate trust.

Any returns earned from the asset would go to the super fund trustee while, if the loan defaults, the lender's rights are limited to the asset held in that separate trust.

SMSFs surge on 'I could do that better' philosophy

It is the makings of a perfect storm, with people taking over control of their superannuation, taking on debt and ploughing it into an already heated property market.

"I think it started when the GFC hit and people saw their managed funds fall in value so they said, I could do that better myself," said finance author Noel Whittaker.

"Their accountant, just chasing fees, helped them set up a self-managed superannuation fund."

Many of those who have taken their money out of industry and retail funds to look after it themselves, are not necessarily experts.

"If you're talking to someone who isn't particularly financially literate, they might not have a lot of cash to invest but they do have superannuation," said Professor Hodgson.

"So you might be able to talk them into setting up a self-managed superannuation fund and use the money in a way that the trustee of the previous fund would not have considered."