Emerging disability housing market meeting appetite for impact investment at scale

Dr Di Winkler and Dr Peter Mulherin explain the Specialist Disability Accommodation market and why disability housing is well placed to leverage the private capital available through impact investment.

Impact investment in Australia is starting to engage mainstream investors, investment banks and super funds. The value of impact investment products in Australia has tripled over the past two years (from $5.7 billion in December 2017 to $19.9 billion in December 2019). Investors are looking to increase their allocation to impact investment over the next five years from 0.7 per cent to 4 per cent of assets under management, which would result in a five-fold increase to $100 billion. A factor limiting the growth of impact investment is the lack of products that have the capacity for investment at scale. Specialist Disability Accommodation (SDA) is one product that is well placed to leverage the private capital available through impact investment. 

The National Disability Insurance Scheme (NDIS) provides housing payments for people with disability who need housing designed to maximise independence and access to supports. This housing payment is called SDA. When fully rolled out, SDA payments are expected to total approximately $700 million per year. Building the scale of housing required for the SDA market has the potential to stimulate around $5 billion in private sector investment. Using SDA payments to leverage private capital has enormous potential to transform disability housing in Australia.

By providing housing payments directly to NDIS participants, SDA funding is designed to “create a marketplace”, in which people with disability are empowered consumers. Once deemed eligible for SDA payments, participants are able to choose from a range of housing offered by registered SDA providers. Given this purchasing power, a flourishing SDA market will foster healthy competition among SDA providers that continually improves the built design, technology, and the support provided within the dwellings. However, the growth of the SDA market is currently hampered by the limited number of NDIS participants with an adequate level of SDA in their NDIS plans, the time taken to get SDA approved in plans and the lack of detailed demand data about the housing needs and preferences of potential tenants. 

Four years after the commencement of SDA payments, only 54 per cent of the estimated 28,000 eligible NDIS participants receive payments for SDA. Over 12,000 eligible NDIS participants are eligible for SDA but do not have these payments included in their NDIS plans. The “missing” SDA tenants are living with parents, or living in disability housing owned by the Victorian or Tasmanian governments, residential aged care, hostels or boarding houses. Most of the NDIS participants that do have SDA payments in their NDIS plans are living in old housing stock and do not have SDA approved at a level that would enable them to move into newly built SDA. This is reflected in the fact that only $185 million of the promised $700 million is currently allocated in the plans of NDIS participants. Once the unmet demand and the need to replace old stock with contemporary models and configurations of disability housing is taken into account, new housing is needed for an estimated 19,000 NDIS participants over the next 10 years. 

While the NDIA has been working on its SDA approval systems and processes, the SDA provider experience is that the time the NDIA takes to determine the outcomes of SDA and support applications continues to be a major contributor to vacancies. Most NDIS participants who are identified as potential tenants in newly built SDA do not have the level of SDA and support needed in their NDIS plan. One current SDA tenant said that if they “could change one thing about the current SDA market, [it would be] for the policy and process to be more streamlined and not so difficult for people to access or complex to follow”. 

While the NDIA has recently released some useful data on where NDIS participants with SDA funding are currently living, the NDIA has not systematically collected data on the housing needs and preferences of NDIS participants. Where people with disability are currently living does not indicate where they want to live. 

In 2017, the Australian government provided seed funding to the Summer Foundation to develop a two-sided matching platform for housing seekers and housing providers called the Housing Hub. The recently launched iteration of the Housing Hub obtains information about the housing needs and preferences of housing seekers. The Housing Hub, together with a national engagement strategy and a series of Housing Options Workshops delivered by people with disability will generate the demand data in 2021 that is critical to the emerging SDA market.

The momentum of the emerging SDA market was demonstrated by a recent desktop scan which identified 32 investment opportunities in Australia. The advertised returns ranged from 7 to 22 per cent, some of which are unrealistically high. Only a small group of funds were investing in SDA at scale. As an emerging market, SDA has enormous potential to provide both long-term stable returns to investors, while also meeting the housing needs of people with disability. However, given the early stage of market development, there is a risk of attracting investors and providers who are focused on profit at the expense of delivering high-quality housing. 

Seeking to better understand the investor perspective, a recent report from the Summer Foundation and JBWere includes a survey of current SDA investors. Although there were only nine respondents, together they have provided over $700 million to 13 SDA providers to house over 1,200 NDIS participants. The survey found that the SDA market best suits “sophisticated investors” with a substantial portfolio looking to diversify, and interested in “long-term stable returns” and a social impact. Active SDA investors and fund managers emphasised the need for rigorous due diligence on counterparties, vacancy risk management and the operating model.

This report identifies a range of investment principles and due diligence questions to support investors considering SDA investment opportunities. These principles relate to the specific properties, the quality of the new dwellings, the tenant selection process, disability support and ensuring that the investment is set up for a long-term positive social impact.

“My number one thing is be patient ‘cause I never thought it was going to happen but it did. I couldn’t have done it without good people around me. Living in SDA is better than I thought it would be.” – Lisa, SDA tenant.

The SDA market has the potential to stimulate world-class innovation in disability housing and support that incorporates smart home technology and is cost-effective and evidenced based. Given the annual cost of the support provided within disability housing – called Supported Independent Living (SIL) – is over $8.3 billion, even a relatively small improvement in the independence of tenants living in new SDA has the potential to dwarf the investment made by the NDIS in SDA. The cost of SDA is 2.3 per cent of the annual $8.3 billion SIL bill. 

The SDA market provides a unique opportunity to demonstrate how the provision of good quality housing designed to maximise independence and autonomy has the potential to reduce reliance on paid supports and the long-term liability of the NDIS. Establishing a rigorous evidence base regarding tenant outcomes and the impact on paid supports over the next five years also has the potential to justify the expansion of SDA beyond the initial 28,000 NDIS participants.