SDA opportunities for developers and providers
What is SDA?
Specialist Disability Accommodation (SDA) is a key component of the National Disability Insurance Scheme (NDIS). SDA refers to specialist designed housing for NDIS participants requiring integrated housing and supports, due to their significant functional impairment and/or complex needs.
The NDIS provides SDA-funding through participant plans to support the availability of SDA for participants who are assessed as requiring specialist accommodation. From an economic perspective the SDA-funding is designed to stimulate the market to supply housing. It is intended to supplement returns so that the overall payments to housing providers (inclusive of rent contributions) which are commensurate with the market rate of return on investments.
This provides financial incentives for:
existing housing providers to continue to make their housing stock available to people with a disability (rather than exit the market to seek higher rates of return), and
developers and providers to invest in new disability-appropriate housing stock, resulting in greater choice and improved housing availability.
ROI is better than you’d expect
The SDA-funding rates are set to provide an incentive to a broad range of potential investors to respond quickly in constructing new properties to provide for unmet SDA demand. Prices vary based on design category and building type, reflecting the underlying costs on build (and ownership) for each combination and design and building type.
The economic modelling underlying the SDA-pricing is built around a "pre-tax equity return" of 11.6% ... so it's worth investigating!
The demand profile is still immature
The 30 June 2019 NDIS quarterly report issued to the COAG Disability Reform Council reported that there were 13,309 participants with SDA in their plan, representing an increase of 8% since last quarter. While a strong growth rate, this represents only 47% of the anticipated 28,000 SDA places forecast at full scheme.
The emerging nature of the NDIS is further highlighted by Figure 1, illustrating the inconsistent participation levels in the NDIS across the country.
SA, ACT, NSW and Tasmania have the highest rates of participation at 30 June 2019 (measured per 1000 of estimated resident population).
Further, there continues to also be material variation across the country in the proportion of participants with SDA in their NDIS plans.
Figure 2 highlights Tasmania, NT, SA and Victoria as all being above the national average at 30 June 2019,
Many participants are not living in specialist accommodation
On average, 51% of SDA-enrolled dwellings are classified as "basic" under the SDA rules. As illustrated in Figure 3, NSW and SA are skewing these figures.
These states then, represent the biggest opportunity for new builds to deliver more appropriate accommodation to the market.
Over time, "basic" stock will be vacated as people with disability choose the convenience, independence and lifestyle that is offered with the more appropriate SDA-design types. Owners of "basic" stock will need to upgrade should they wish to stay in the disability market.
Figure 4 presents the SDA enrollments per 100,000 of the estimated resident population in each jurisdiction. SA will way out in front with 450 enrollments per 100,000. However, 56% of enrollments are "Basic" so plenty of investment opportunities remain.
Where should you build ... and why?
Well, that is up to you! Supply and demand data is now becoming more available, and investors are now better informed to make investment decisions. If you would like a conversation about assessing SDA opportunities, please contact me.