SDA Property under the NDIS
Overall Market synopsis garnered from the NDIS March 2021 report
According to the NDIS, there are only 476 new dwellings under construction across 3 major states and what this means for you the investor is that there remains many years of opportunity in SDA housing in all 3 States.
Be mindful of which location on a micro level and the type of dwelling and disability category as per the report there is a tendency for some oversupply. This is not a general over supply, more of a micro one.
Comparing supply of SDA homes in Victoria, NSW and QLD
In QLD, the active number of SDA participants is well behind the other states and QLD has very little Legacy Stock (older outdated homes). And in QLD there is a heavier weighting towards 1 bedroom stock.
All 3 States have an equal amount of new builds under construction, where there remains a strong under supply of suited SDA homes.
QLD is the only State to have a large number of 3 bed/participant homes under construction. Again you would want to be mindful of what and where marketing groups are wanting to sell you.
We know there is no ‘demand data base’ however the report suggests that more people as a percentage of the population in QLD require SDA dwellings than in the Southern States.
The downside is that less people as a percentage of the population are either aware of the SDA program or have SDA funding in place. When they do become aware and begin to apply for SDA funding in their packages, the demand for SDA dwellings will escalate.
An investor needs to be realistic and patient in filling the home with participants, or in maximising their expected yields as you may elect to secure a participant who may not have funding yet, but who can qualify and just needs their paperwork completed.
Based on current supply and occupancy across the broad spectrum of SDA dwellings and NDIS disability categories Australia wide, the average occupancy equates to 1.4 participants per dwelling.
What this means is there is a shift in the market place for 1 x participant dwellings and or 2 x participant dwellings. Any higher could lead to a percentage of vacancy in the dwelling during tenancy.
Be wary of the high supply of apartments, it seems with the slow down of apartment sales, agents are approaching developers offering to sell them as SDA dwellings. Hence a strong rise in SDA apartments being made available right now.
Regional or Inner City Suburbs
The demand is pretty much evenly spread both inner suburbs as it would be regionally across Australia.
If you are chasing higher yields, securing a SDA dwelling closer in will be negatively impacted by the cost of the land closer in and visa versa further out. There are some Regional centres largely ignored by groups marketing SDA homes where current NDIS services are being provided in great numbers. The demand for SDA dwellings in these areas remain strong.
Currently there is a heavy weighting towards Legacy Stock (old homes converted into SDA accommodation), and dwellings built to suit Improved Livability participants. There is a lack of new builds to meet current NDIS stringent compliance especially in both Robust and High Physical Support dwellings.
Again a generalisation on the macro level, be wary on a micro level when considering locations as some areas have been heavily sold into for 2 or 3 participants in both Robust and HPS categories.
Each regional area will have it’s own peculiarities due to what SIL providers were requesting or accessing on behalf of their participants driving their local market on what was available at the time.
Access to Participants and Participant demand
Work closely with a SDA housing Provider who has quality relationships with SIL Providers both locally and nationally. SIL Providers who are proactive will be working with their own participants getting their SDA funding packages in order and reaching out to SDA Providers and Builders for new stock coming to market.
To date, corporate investors and industry super funds focused on inner fringe city suburbs and have created a stronger level of competition to attract participants, leaving regional centres as low hanging fruit for private investors.
Referring to the Summer Foundation SDA Supply Survey January 2021
Supply in Australia
- Currently there are 1,800 places (not dwellings) in the pipeline.
- Only 11,500 new places (not dwellings) have been built.
- 77.6% of dwellings in pipeline will accommodate only 1 person
It is estimated that 5,061 new dwellings are required to be built over the next 5 years. The current average number of participants per dwelling for those currently in the pipeline is 1.4 participants per built dwelling.
Demand in Australia
- SDA funding is currently only being paid to 54% of the estimated 28,000 NDIS participants who are expected to be eligible for SDA, many in existing and legacy stock.
- Over 12,000 remaining people who are eligible for SDA funding are likely to be living in government housing, hostels, residential aged care, or with family.
- Once the unmet demand and the need to replace old stock with contemporary models of disability housing is taken into account, new housing is needed for an estimated 19,000 NDIS participants over the next 10 years.
- Overall, only 26% of the allocated $700 million set aside annually for SDA housing is currently being claimed.
Breakdown of new SDA dwellings already built
- 54.9% built for 1 x participant (43.8% apartments & 11.1% villas)
- 15% built for 2 x participants (9.5% apartments, 3.9% houses & 1.6% villas)
- 21.6% built for 3 x participants (16.4% houses & 5.2% villas)
- 6.3% built for 4 x participants (houses)
- 1.2% built for 5 x participants (houses)
Versus Estimated Demand
Only 54% of estimated 28,000 NDIS participants are currently receiving SDA funding with many in existing and legacy stock.
It is assumed that the balance, over 12,000 eligible participants are living in aged care, nursing homes, hostels, with family or in government housing … all being unsuited to NDIS and the reason for the SDA initiative.
New housing is needed for an estimated 19,000 NDIS participants when reviewing over a 10 year period.
The government set aside $700 million dollars per annum to fund SDA packages, yet only 26% of this allocated budget is being claimed by participants.
What this data means to you is that there remains a shortage of new SDA dwellings.
Supply of SDA dwellings
If we only focus on QLD for the exercise there are only 520 dwellings in the pipeline with 75% being apartments, 5.5% being villas, 18.4% being houses and 2.4% being group homes.
That is a massive supply of apartments again you would want to be mindful of the location being marketed to you when it comes to apartments and of course the other categories too.
Supply across the other States are similarly dispersed as to the above.
What is required to ensure the model works going forwards
- SIL Providers need to educate their clients, show them options and get them approved for SDA packages
- SIL Providers should be reaching out to SDA Providers indicating current and future demand so that the SDA Providers know what to build and where to have them built. (this is starting to occur)
- There needs to be an ongoing and steady supply of suited SDA dwellings to meet current and future demand.
- Investors need to be educated and investment ready to put their hands up to secure and build a new SDA dwelling.
- The need for more SDA Providers who are not greedy in the fees they charge or in their offering of rental guarantees. SDA Providers who have skin in the game and are realistic and moral in wanting to best place participants whilst working with investors who have put their hands up to provide another SDA dwelling into a much needed market place.
An incredible bi-partisan Government initiative
SDA is an emerging market, with the potential to stimulate world-class innovation in disability housing and support. SDA is cost-effective, will save both the government and tax payers a significant amount of $’s and is now evidence based. Given the annual cost of the current support provided within disability housing sector is over $8.3 billion, the relative cost of the SDA model is small @ 2.3% of the cost of support. The SDA market provides unique opportunity to demonstrate how the provision of quality housing designed to maximise independence and autonomy for participants with disability, has the potential to reduce reliance on paid support and the long-term liability of the NDIS. By establishing a rigorous evidence based program, pertinent to tenant outcomes, including the impact on paid supports over the next 5 years, the SDA program has the potential to justify the expansion of SDA beyond the initial 28,000 NDIS participants.