Today the NDIA released the next step in the NDIS housing journey – a Position Paper on Draft Pricing and Payments.
The Position Paper sets out a draft position on key aspects of housing in the NDIS – including how much the NDIA will pay, how payments will be made and how organisations can register for NDIS housing payments.
The Position Paper is a set of draft proposals for community feedback. Written responses are due by 15 April and can be emailed to SDAhousing@ndis.gov.au.
The NDIA’s housing funding will begin to be released from 1 July 2016.
Confirming what we suspected
Significant disability only. NDIS funding for housing will only be for those with the most significant functional impairments. Participants need to demonstrate that their disability requires specialised disability accommodation – more detail on this will be made available in the coming months.
Participant choice. The paper aims to maximise participant choice by separating housing from support (so people can change their support provider without moving house) and having housing funds attached to individuals (so they can move without losing their housing funds).
Separating tenancy (housing bricks and mortar) from support. The Paper makes clear that the proposed model “as far as possible, explicitly separates provision of housing infrastructure from supply of supports”. Support providers will only be able to provide housing in exceptional circumstances.
Occupancy risk. The NDIA’s position is that the vacancy risk will be borne by providers. This means that the NDIA will only make housing payments to the provider while a participant is living in the dwelling. In particular circumstance (not yet outlined) the NDIA may step in if the market fails and directly commission housing and take on vacancy risk.
Yearly payments. The position paper confirms that the NDIA will be using yearly payments where providers get paid over the life of a building, rather than an upfront grant. Housing providers will need to ‘cash flow’ the cost of housing over lifetime of the housing.
Group homes. the NDIA will not be paying for the construction of dwellings that accommodate more than 5 people with disability. There will be no more large group homes built in the NDIS.
The NDIA’s payment formula has two components – a dwelling price (the actual cost of owning and managing a property), and then a benchmark price (the cost per person in the dwelling).
Dwelling price =
Consumption costs (depreciation)
+ Opportunity costs of capital (cost of accessing finance – e.g. interest on loans. Set at 8.1%)
+ Costs of ownership (repairs, tenancy managements, insurance etc)
– Land price inflation (a 20+ year measure of gains/losses in housing prices. Set at +5%)
– Reasonable rent contribution (25% of DSP plus CRA. $8,554 per annum)
This benchmark price is calculated the dwelling price divided by the number of rooms.
This is then multiplied by a ‘location factor’ to ensure the benchmark price reflects different housing/building costs in different regions. For example, Melbourne = 1.0, whereas building in Sydney’s inner south, the multiple is 2.5 and in Geelong it is 0.92.
The NDIS’ housing rates
The NDIA is making payments to all housing that is occupied by the participant. This includes housing that existed prior to the NDIS and new housing constructed in response to the NDIS housing initiative. The price paid by the NDIA will be higher for ‘new builds’ to attract new investors to enter the market and construct new housing.
Housing is based on a 20 year NDIS life, after which it is assumed that the housing will be sold in the private market. At this time, the payment rate will change from being a ‘new builds’ to the ‘existing stock’ price.
The annual per-participant NDIS housing rates vary from $14,510 for a standard 5 person group home through to $101,336 for a participant in an apartment with a spare room for a sleep over.
As an example, a two bedroom townhouse with Platinum accessibility would have a housing payment of $20,613 per participant per annum. Adding in the full NDIS subsidy for both participants, participant rent and accounting for vacancies, this gives a yearly income of $56,273.
These rates are significantly lower than the rates for new builds – often around half or less of the price of new dwellings. These annual per-participant NDIS housing rates vary from $5,473 for a standard 5 person group home through to $60,209 for a participant in an apartment with a spare room for a sleep over.
As an example, a two bedroom townhouse with Platinum accessibility would have a housing payment of $9,035 per participant per annum. Adding in the full NDIS subsidy for both participants, participant rent and accounting for vacancies, this gives a yearly income of $34,275.
What housing with the NDIS fund?
The position Paper breaks down the types of housing that the NDIS will create into 5 categories:
Standard – no specialized design features
Improved livability – specialization for participants without a physical disability
Fully accessible – Platinum accessibility for participants with physical disabilities
Robust construction – fully accessible housing that also has improvements that reduce risks to participants (e.g. unbreakable glass and sound proofing)
High support needs – accessibility features in excess of Platium standards
Innovation – other options considered on a case by case basis.
In addition to the housing design, the NDIA also splits housing into the type of dwelling- apartment, townhouse, house (3 bedrooms) and group home (4-6 bedrooms).
The NDIA expects the greatest increase in demand to be for townhouses that are fully accessible (Platinum level accessibility).
All properties and all providers will be registered. The NDIA will capture data on the housing stock that is being funded.
The position paper does not set out additional hurdles to register for housing beyond the requirements for all providers. These include that the provider agrees with the NDIA’s terms of business, the dwelling meets relevant State and Commonwealth laws and is charging a rate consistent with the benchmark pricing.
Providers will also need to register each dwelling with the NDIA. This will provide a database of housing that is current tenanted and housing that is available for NDIS participants. In registering dwellings providers will need to attest that the dwelling meets the standard that it is being registered for (e.g. fully accessible/Platinum accessibility).
Three thorny issues:
1. Will the market respond when it is bearing so much risk?
Investors and providers will be thinking carefully about whether they want to develop housing with no guarantee that any NDIS participant will live in it. The NDIA has said that providers bear the risk of vacancies – and they estimate this ranges from 3-10% of a provider’s yearly income. This position will be a big concern to some providers. There is limited information available on the current state of how specialist disability housing works. Plus, the NDIS represents a transformational change in how disability housing works with new housing models and a new funding model from the NDIA. This market uncertainty may stop some developers and lenders from choosing to be part of such an uncertain venture – especially for specialized housing that can’t be easily re-sold in the private market. If that is the case, this would be an enormous loss, given that the people with disability who most need new housing options need specialized dwellings.
2. How insurance thinking is imbedded in this housing approach?
An insurance approach is at the core of the NDIA’s existence – insurance is literally its middle name! Housing was often talked about as an important area for applying insurance thinking, for example, make housing closer to transport to reduce the NDIA’s transport costs. But this position statement does not include any of that thinking. It appears that providers will develop housing where they choose and participants will move into the housing should they wish. There does not appear to be any strategic involvement of the NDIA to (at best) encourage housing development that reduces lifetime cost through smart design and good location or (at worst) avoid cost shifting of housing located on the cheapest land and pushing transport costs onto the NDIS. This appears to be a big gap in today’s announcement.
3. What happens to the NDIA’s housing ‘under-spends’?
The NDIA does not provide an estimate of how much the approach they have outlined will cost. At first look, it will cost significantly less than the amount that the Productivity Commission (PC) estimated. The PC estimated that the subsidy would range from $18,000-$30,000 per annum per participant. While the prices for ‘new builds’ are in this ballpark, the prices for ‘existing stock’ are significantly lower. Currently, there is a group of between 35,000-113,000 NDIS participants who are low income and aren’t being assisted by the NDIA or living in public housing. A key question for governments is whether they allow any under-spent money to be re-allocated to increase accommodation options for those not currently covered by the NDIA’s housing policy.