SDA Market Wrap: The Bricks and Mortar

In July 2016, the NDIA launched a policy to encourage the market to build 12,000 new housing places for people with disability. The policy also enables 16,000 existing homes to be renovated or refurbished. Today we know it as the SDA.

This level of construction is unprecedented. The SDA policy could potentially see more housing for people with disability built in the next five years than has been constructed over the last half-century.

But the question is: how much SDA housing has been built—or committed to—since the SDA policy began more than 12 months ago? And what types of housing are being developed by providers in the market?

Unfortunately, these are hard questions to answer because the NDIA does not allow providers to register their housing until the construction is completed. Moreover, the NDIA has not been inclined to release much data on SDA to date. Therefore, even if they did collect it, it is unlikely we would see the data.

DSC has been heavily involved in the SDA provider market. We have been providing due diligence on projects, supporting Boards to make investment decisions and developing or critiquing SDA provider business plans. This article reflects our understanding of what has currently been committed to in the market.


SDA to date: the princess and the pea

The NDIS is expected to provide 28,000 participants with an SDA payment. Of these participants, 16,000 are anticipated to require a new property (12,000) or a refurbished or replacement dwelling (4,000).

All this housing will be needed over the next five years or so. When 12,000 participants start looking for new homes, will they find a vacancy? At this stage, the answer is: unlikely.

So how many new properties are in the pipeline? So far, DSC is aware of around 800 SDA places under development. This figure only includes SDA developments where the project has been completed, or construction has commenced, or there is a signed commitment to begin construction. A large share of these projects are tied to government investment or selection and tendering.  

These projects include:

•    390 new SDA places (78x 5 bedroom homes) to replace the large government run institutions in the Hunter Residences. This project is driven by a NSW government tender;

•    100 new properties being developed by the South Australian Government as part of the 1,000 houses in 1,000 days initiative;

•    80 or so places being constructed by not-for-profit disability support providers;

•    60 or so homes being developed by community housing providers, of which at least 25 are through the Sector Development Fund $10m grant;

•    60 or so places by not-for-profit organisations that are neither CHPs or Disability Support Providers;

•    200 or so homes being developed by commercial (for profit) providers.

800 places may appear like a lot. But in practice, at least half of these are just to replace existing, inappropriate government stock. Based on the commitment to date, the 12,000 participants getting an SDA payment in the next 12-36 months will have just 400 places between them.

The story of NDIS construction is one of demand and supply imbalance. And it does not look like it will be closing anytime soon.


SDA to date: High Physical Support is the go-to design

SDA providers are using a range of metrics to decide what to build. These include: past experience, participant engagement, co-design, financial modelling of SDA prices, land, availability and opportunities are all playing a role.

The SDA design category most often landed upon is ‘High Physical Support.’ The vast majority of SDA properties DSC is aware of are built to this level.

The rationale for most SDA being built to ‘High Physical Support’ is three fold:

1.    SDA requires an extreme functional impairment, so the number of SDA recipients needing minimal accessibility features and no behavioural modifications (Improved Livability) is likely to be very low.  By virtue of the SDA criteria, High Physical Support is the most logical category to build.

2.    This category offers the greatest flexibility to manage vacancy risk. High Physical Support is versatile enough to accommodate most participants, especially if combined with some ‘Robust’ features.

3.    Cost benefit analysis. The additional cost of moving from ‘Fully Accessible’ or ‘Robust’ to ‘High Physical Support’ are outweighed by the revenue collected through the higher ‘High Physical Support’ payments in the medium term. It is a rational investment to make because most providers are in the market for the medium to long term.

Evaluating the SDA market in 2021 will also be a good time to reflect on whether the categories of 'Improved Livability' and 'Fully Accessible' have a long-term place in the SDA framework.

The SDA market is relatively thin, especially outside of suburban Sydney, Melbourne, and Brisbane. SDA providers are walking a vacancy tightrope – excluding large cohorts of SDA recipients through the lower level SDA design categories is simply not an option for providers.

SDA properties need to be as versatile as possible to maximise the number of SDA recipients who can live there. ‘Improved Livability’ and ‘Fully Accessible’ may be the right level for some SDA tenants, but they also active exclude anyone with higher design needs. Very few providers can afford to be this restrictive in managing their vacancies.


SDA to date: opposite ends of the size spectrum

The second theme in SDA construction is that SDA properties are often being built at either end of the size matrix: apartments or group homes.

A significant number of the SDA projects that are being developed by private providers (i.e. without government grants or tenders) are apartment designs. These are somewhat appealing to providers as they often do not require local government approval, are easier to cash flow because the majority of the cost is on completion (coinciding when SDA revenue should start) and they reduce the need to match tenants given the smaller dwelling size. Apartments also provide the best access to public transport and community amenities – especially important in the NDIS world of constrained transport funding.

Conversely, there are also a substantial number of group homes under construction, at least 100 by DSC’s count. This reveals the other end of the spectrum – large dwellings that reflect participant and family preferences for homes where participants can maintain a high levels of social interaction.

So why the missing middle of townhouses, duplexes and villas? DSC’s financial analysis shows that the pricing for these mid-sized dwellings often doesn’t stack up. This is especially the case in the main cities where land for these types of houses is more constrained and expensive.  

Most providers looking at these middle ground options simply find it easier to go with an apartment design, and/or participants tell them that they would rather be in an apartment so they are closer to amenities.

In the future, the SDA construction market will need to produce 2-3 person townhouses, duplexes and villas. This absence is a large gap for those wanting to live with others, but who do not want a group home model.

For these dwellings to be developed, it will need to be established whether the SDA pricing for these homes is workable in some locations, or whether this will have to wait for the SDA Price Review in 2021.


What can we say about SDA bricks and mortar in the future?

Looking back on the first 12 months of SDA commitments reveals a story about the future of SDA. But it is also a very distorted narrative.

The redevelopment of the Hunter Residences for 390 tenants is a once off. There is no sign of this kind of large-scale, government-led redevelopment in the future. Similarly, the100 homes in SA are unlikely to be repeated.

Ultimately, the best SDA providers could hope for is more visibility about the upcoming SDA pipeline. Not knowing what SDA properties will emerge across the country just adds to the already perception of high risk in the SDA market.

Closing the information gap on SDA supply is on the top of the list of most SDA providers that DSC is working with. This could occur through the NDIA allowing pre-registration and publishing this data, or through an intermediary opening up to share more supply-side information.

We hope this article helps to shed some light on what the market is currently happening with SDA bricks and mortar.