Impact investors in disability housing call for stronger market stewardship by the NDIA

A new industry report on investment funds in the specialist disability accommodation market highlights the need for greater government oversight to increase investor confidence, write Di Winkler and Sabina Curatolo.

The future of the National Disability Insurance Scheme (NDIS) is unclear as costs are rising at a rate that the government says is unsustainable. However, specialist disability accommodation (SDA) funding is creating a world-first and life-changing market that has the potential to leverage over $5 billion of private capital to finance the build of disability housing. Early movers in the SDA market have invested substantial capital to date, seeing the total value of the market currently exceed $2.6 billion. But an ongoing flow of capital is needed to build houses for the estimated 12,000 NDIS participants yet to have SDA funding allocated in their plans. 

Last week several SDA investment fund managers including Australian Unity, Macquarie Group, and Inspire Impact met with Minister Linda Reynolds. Fund managers presented the SDA Investor Think Tank Findings and Recommendations report, highlighting the need for stronger market stewardship. Fund managers asserted that investor confidence would be greatest – and flows of private capital more likely – when there was more stability and transparency in the market. Minister Reynolds welcomed the report and noted its sensible recommendations, while committing to further collaboration with the sector to help develop and implement joint solutions.

Funding for SDA is allocated in eligible NDIS participants’ plans and creates a user-driven market where individuals use their funding to lease a property from a registered SDA provider. In most cases, SDA providers and the houses they build are financed by impact investors. With its clear benefit to people with disability and housing payments designed to provide a market return, SDA is one of the biggest impact investment opportunities in the country. 

At its best, the SDA market will benefit all its stakeholders: the National Disability Insurance Agency (NDIA), housing and support providers, impact investors, and people with disability. SDA policy and payments are world-leading innovations that replace institutionalised housing models and welfare mentalities by putting the needs and preferences of people with disability at the centre. Early results from an ongoing study demonstrate that SDA fosters independence, social inclusion and community connection. Well-designed housing will improve the lives and independence of NDIS participants and reduce support costs for the government.

Investor confidence is the lynchpin in the SDA market. This is because the availability of private capital depends on investors’ trust that the market offers predictable returns with manageable risk. While the total demand for SDA is static, a steady supply of SDA cannot be taken for granted. Without new SDA to foster tenants’ independence and the efficient delivery of disability supports, the NDIA will continue to pay for supports that would not be required in more appropriate housing.

Weak investor confidence could see the withdrawal of private capital and undermine the integrity of the SDA market. If insufficient capital is being invested to build new SDA, the government will be faced with a difficult choice: allocating scarce public funds to build thousands of houses, rolling back SDA as a housing option, or leaving NDIS participants in housing that is not fit-for-purpose, leading to higher support costs in the long run. While the NDIA is aware of this risk and is attempting to improve market engagement and communication, emerging challenges require urgent attention. 

A recent survey of SDA providers found that providers are losing confidence in the NDIA to properly steward the market, due to slow processing times, overdue payments, and opaque funding eligibility criteria. Providers note that the vacancy rates across their properties is often high, leading to significant financial pressures that raise the risk of insolvency. A number of high-profile insolvencies by SDA providers is all it would take to seriously undermine the market, as impact investors would be compelled to take their capital elsewhere. 

In response to these challenges, the Summer Foundation – supported by Impact Investing Australia – convened the SDA Investor Think Tank in mid-2021. The aim of the think tank was to understand the perspective of impact investors, and to collaborate with the federal government by articulating investors’ vision for effective market stewardship. Participants were investment fund managers who had collectively invested over $650 million in the SDA market. Fund managers noted their role in balancing positive housing outcomes for NDIS participants, alongside a fiduciary duty to the investors in their funds to manage risk and seek a return on investment. 

In an effort to help strengthen the NDIA’s market stewardship, fund managers made several recommendations. These included the release of regular market statements containing supply and demand signals from the NDIA, as well as information on changes to government policy and expected market conditions. Furthermore, they highlighted the need for greater transparency around SDA policies, agency decision-making, and the eligibility criteria for SDA funding.  

While fund managers pointed out the need for urgent government action to stabilise the SDA market, they were also optimistic about its great potential as an impact investment opportunity. They looked forward to the possibility of greater collaboration with government to help shape a thriving market underpinned by the symbiotic relationship between providers, impact investors, the NDIA and people with disability.