The State of the SDA Market in Australia

The SDA (Specialist Disability Accommodation) market in Australia is still in its infancy (after 3 years) and still has significant untapped opportunities.

This was a key takeaway from a recent industry seminar held with a number of NDIS stakeholders throughout Australia.

What does this mean for the future of SDA?

Read on to understand what this maturing of the industry means and how it changes the dynamics of NDIS property for the impact investor.

SDA market forecast

The NDIA has recently issued a forecast for 870,000 NDIS participants by 2030.

Based on the currently assumed 6% of all NDIS participants being eligible for SDA, we are now looking at a total of ~ 52,000 SDA places being needed within the next 8 years. This is a 62% increase in projected demand for SDA places.

Working on an estimated future occupancy rate of 1.8 tenants per dwelling*, this equates to between 25,000 – 30,000 dwellings required in total which means that up to 14,000 more homes above and beyond those existing and in the pipeline may be required during the next decade.

• 52,000 SDA places by 2030
• 62% increase from 2022-2030
• 25,000-30,000 dwellings required in total
• 20,000 new builds required

Legacy, Basic and Group Homes

As of September 2021, 16347 NDIS participants were funded for SDA. 77% of those participants are currently residing in existing and legacy stock dwellings, many in group homes and ‘basic’ dwellings*.

Much of this accommodation is unsuitable for participants needs, so NDIS funding for legacy and basic dwellings will cease over time. This presents an opportunity for participants to be rehomed and additional new dwellings will be required.

• 16,347 participants currently in SDA (around 12,500 in legacy dwellings)
• 3,857 participants are currently seeking SDA
• 2020 – 1.8% of participants in an existing SDA were seeking an alternative
• 2021 – 11.3% of participants in an existing SDA are seeking an alternative

Dwelling category – Existing vs Demand

There have been 2200 new SDA dwellings built as of Sep 2021. 67% of these have been built to HPS (High Physical Support) level, however funding for HPS is difficult to obtain from the NDIA and will only be given to a small number of SDA eligible participants.

Because of this, we expect to see more lower funded participants (IL – Improved Livability and FA -Fully Accessible) moving into HPS homes over the medium to long term.

• 67% of the 2200 dwellings built as of September 2021* were HPS
• HPS will reach saturation point quickly
• IL and FA funded participants will fill up HPS homes in the medium to long term
• There is an undersupply of Robust builds in the Pipeline

Vacancy risk in SDA properties

As the market matures and more participants gain an awareness of their ‘choice and control’, it is expected that there will be a move towards homes that offer the tenant a higher standard of quality.

Many recent SDA developments have been built to an inferior quality, so vacancies that are at present predominantly found in Legacy Dwellings, will ultimately shift towards the newer inferior quality properties as Legacy and Basic SDA dwellings are defunded.

Sophisticated investors should look to purchasing a higher quality development, offering a high standard of home for tenants in order to reduce the risk of vacancy.

• Current vacancy rates are 2.9% of which 60% are in Legacy/Group homes*.
• Quality of stock is improving, and this will continue as legacy dwellings are de-funded.
• Participant choice & control is growing – there are more options for participants.
• As the market matures, vacancy in existing or poorly designed dwellings will increase.

*Source: M3property – based on Sep 2021 figures released by the NDIA

In summary…

• By 2030, we will need ~ 52,000 SDA places
• We need to see a lot more development over the course of the next 8 years
• The market is not growing all that fast
• Participants are learning more about the choices they have
• Quality of stock is improving, and this will continue as legacy dwellings are de-funded
• Lower funded participants will fill up the HPS dwellings over the medium to long term
• As the market matures, we will see vacancies increase in existing or poorly designed dwellings
• Sophisticated investors are looking for higher quality development – seeking a good quality product
• Overall, the market still has significant, untapped opportunities