d h isability ousing futures work group

November 2015 of 35

Disability Housing Futures Work Group

Interim Report

Scope and Issues Relating to the Delivery and Funding

of

Specialist Disability Housing

under the

National Disability Insurance Scheme

Produced by the Disability Housing Futures Work Group

Sponsored by the National Affordable

Housing Consortium

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1. Contents

1. Contents .......................................................................................................................................... 2

2. About Disability Housing Futures Work Group ............................................................................... 4

3. Executive ......................................................................................................................................... 6

3.1 Background ............................................................................................................................. 6

3.2 Purpose ................................................................................................................................... 6

3.3 Summary ................................................................................................................................. 6

4. Discussion ........................................................................................................................................ 8

4.1 The Specialist Disability Housing Challenge ............................................................................ 8

4.2 NDIS Targets ............................................................................................................................ 8

4.3 The Characteristics of SDH ...................................................................................................... 8

4.4 The Need for Geographic Diversity ....................................................................................... 10

4.5 Choice and Serviceability ...................................................................................................... 10

4.6 Ownership and Renting......................................................................................................... 11

4.7 Priority Funding Numbers ..................................................................................................... 11

4.8 Targets for the Creation of New Stock .................................................................................. 12

4.8.1 Creation of 12,000 new SDH Dwellings ........................................................................ 13

4.8.2 Replacement of Fully Depreciated Existing Stock ......................................................... 14

4.9 Benchmarking with Other Housing Programs ...................................................................... 14

4.9.1 Delivery Numbers and Program .................................................................................... 14

4.9.2 Age of the Stock and Depreciation ............................................................................... 16

4.9.3 Maintenance Funding Assumptions ............................................................................. 17

4.10 The User Cost of Capital (UCC) .............................................................................................. 19

4.10.1 User Cost of Capital ....................................................................................................... 19

4.10.2 Reasonable Contribution by Clients .............................................................................. 20

4.10.3 Identifying a Funding Gap ............................................................................................. 21

5. Understanding the Roles of Stakeholders .................................................................................... 22

5.1 The Private Sector ................................................................................................................. 23

5.2 Not-for-Profit Organisations ................................................................................................. 25

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5.3 Individuals ............................................................................................................................. 26

5.4 NDIA ...................................................................................................................................... 26

5.5 The States/Territories ........................................................................................................... 26

6. Funding Scenarios ......................................................................................................................... 26

6.1 Direct Funding ....................................................................................................................... 26

6.2 Housing Bonds ...................................................................................................................... 27

7. Mechanisms for Delivery .............................................................................................................. 31

7.1 State Housing and Public Works Departments ..................................................................... 31

7.2 Not for Profits’ Delivery Capacity .......................................................................................... 31

7.3 A Delivery Entity .................................................................................................................... 32

7.4 Planning for Outcomes - An Allocation System .................................................................... 33

7.5 Direct and Indirect Funding .................................................................................................. 33

8. Information for Decision Making .................................................................................................. 34

9. Abbreviations ................................................................................................................................ 35

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2. About Disability Housing Futures Work Group

Purpose

The purpose of the Disability Housing Futures Work Group (DHF) is to explore the availability of

innovative ideas, models and research in this space, and to share and champion the good work that

already exists.

The DHF was formed to design new models that take into account the NDIA criteria for the delivery of

housing for people with a disability. Opportunities have been identified that create a viable market

for disability housing now and into the future. The DHF has identified and assessed the best options

to deliver disability housing, incorporating reforms introduced by the National Disability Insurance

Scheme (NDIS).

The members of DHF are experienced high profile industry leaders from relevant backgrounds who

are committed to ensure all DHF activities, communications, and efforts will be positive and reflect

the desired collaboration and cooperation with the wider industry and stakeholders.

Under the terms of reference, Members serve as individuals and the views expressed are not

necessarily those of any entity that a member may be associated with. In addition the views expressed

in this report, and any other information produced by the Disability Housing Future Work Group, are

not necessarily the views of individual members.

Chair

Mike Allen Former CEO of New South Wales Housing.

Members

Carrie Hamilton Affordable housing finance expert and city planner, with 20 years' experience

in the US and Australia.

Dr Ilan Vizel Senior research fellow at UNSW, specialising in housing for people with

disability.

Dr Tom Alves A Senior Adviser with the Office of the Victorian Government Architect with

interest in housing provision policy.

Geordan Murray Housing Economist at HIA with a considerable level of experience and skills in

data/statistics collection, analysis and interpretation.

Kate Finch Advocacy Projects Manager with People with Disability Australia (PWDA),

working on social justice issues including housing and living in the community.

PWDA is a national peak disability rights and advocacy organisation with a

cross-disability focus.

Owen Donald Former Chair of the National Housing Supply Council with substantial research

and senior public sector experience.

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Mike Myers Managing Director of NAHC with over 30 years’ experience in social and

affordable housing in the UK and Australia.

Sponsor National Affordable Housing Consortium

Support

Daniela Weatherill Project Manager at NAHC with 15 years property experience in the private

and not-for-profit sectors in the UK and Australia respectively.

Graham Marshall Business Development Manager NAHC. 20 years’ experience in property

development. Previously General Manager AVJennings Qld, Villa World, QM

Properties.

Lee-yun Chiang Bond University student researcher.

Tracey West PhD Candidate, Research Assistant and Sessional Lecturer / Tutor at Griffith

University, Gold Coast

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3. Executive

3.1 Background

The National Affordable Housing Consortium (NAHC) is sponsoring the Disability Housing Futures

(DHF), a Work Group that aims to provide housing solutions incorporating the National Disability

Insurance Scheme (NDIS) reforms.

The purpose of the DHF is to explore the availability of innovative ideas, models and research in this

space, and to share and champion the good work that already exists. The output of the DHF is a report

to be completed by the end of the year, identifying opportunities for a viable disability housing market.

The members of the DHF are experienced high profile industry leaders from policy, social and disability

practice, planning, economics, academia and property backgrounds. Stakeholders have been engaged

during this project to ensure all DHF activities, communications, and efforts are collaborative and

cooperative with the wider industry.

3.2 Purpose

This is an interim report which includes the modelling work completed to date by the DHF. The

purpose of the interim report is to share the high level conclusions of the modelling work, concerning

the delivery and funding mechanism for NDIS Specialist Disability Housing (SDH).

In addition to the program delivery and financial modelling work, the final report will provide a

systematic discussion of the legislative and policy context including housing programs, supply

affordability issues, demographic and demand factors, an overview of the challenges and

opportunities for the NDIS, assessing social value and transitions to a new future.

The assumptions provided herein are broad and in need of refinement subject to further research,

however, in many cases the limitations are due to lack of detail on the NDIS funding itself and in-depth

detail about the potential NDIS participants and their needs and aspirations in regard to

accommodation.

3.3 Summary

The application of funding under the NDIS should be linked to the objectives of the scheme. There

are 28,000 people living with disability that are the focus of funding for accommodation.

Of these, there are 12,0001 people who live with a disability, who are the focus of funding, in

accommodation that is not considered appropriate.

The NDIS should fully fund life-cycle depreciation, which will result in a requirement to decommission

and renew each SDH dwelling on a 40 year basis. This results in a program of cyclic investment, not a

one-off stimulus. Renewal of existing 16,000 SDH will require a minimum of 4,000 new dwellings each

decade for 40 years.

1 Productivity Commission. The Costs of NDIS Chapter 16 Page 760.

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Benchmarking against the Social Housing Initiative (SHI) and NRAS confirms that a delivery target of

16,0000 new SDH in 10 years is realistic and achievable. There would be disbenefits to NDIS recipients

if the initial program took longer than 10 years, so this period is considered an appropriate target.

SDH is more expensive to produce than private housing for a variety of reasons that include the size

of the units, design features and access that avoids stairs, and technological fit out. The cost of

providing SDH will vary widely depending on a range of factors including location, design and site

specific factors; the average cost is estimated at $410,000 per unit, however it is stressed this is an

estimate of an average figure.

SDH are not an attractive private investment product. Private developers and private investors are

unlikely to invest at the scale needed to achieve the program. By comparison, an NRAS property is

private rental housing, and will revert to the open market on the completion of the subsidy. However

this is not the case with SDH. Accordingly an NRAS-style subsidy is unlikely to gain traction.

NFP’s are pivotal stakeholders, well placed to add value (GST 10% benefits, and borrowing against

rental cashflow) and will in most cases also be the operators and managers. These savings would be

significant when taken over the whole program.

There is an established formula for funding between NFP’s and commercial banks on social and

affordable housing projects which is suitable for use with NDIS projects. However the NFP sector does

not have the capacity to borrow from commercial banks at the scale needed to meet the program

targets. The level of debt would greatly exceed their combined balance sheets, the number of

properties that will need to be provided as security would exceed their portfolios and in many cases

NFP’s will need to use equity to cover a funding gap, which taken across the whole program will

exceed their resources.

Modelling suggests that direct cash funding by the NDIA is unlikely to achieve the program target

numbers within the funding envelope.

One solution would be to slow down the program delivery, although benchmarking shows that the

target of 16,000 in the first decade is achievable and a slower program would be counter to the mission

of the NDIA.

A social investment bond is one way of overcoming this problem. Bonds would need to be fully

discharged within the maximum service life of the properties, estimated to be 40 years, so that

renewal can take place in the future and avoid the problem of ageing stock that undermines

sustainability of the system. Because State Governments are not likely to commit to debt at the scale

required to meet the program, the responsibility for issuing a bond would fall to the NDIA.

While NFP’s have developed significant delivery capability over recent years there is a question about

whether it is efficient for NFP’s to individually set up project management divisions to deliver the

stock. There would be potential delays during the establishment period, and then most of the capacity

would be unravelled after the initial 10 year program. It might make more sense to create a

centralised procurement body. This body can include NFP participation and can conduct research,

and guide best practice. A central agency could sit with a hybrid organisation structure that also allows

the States to participate directly through State agencies.

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The User Cost of Capital is not a good method of allocating resources because 12% of the package

does not equate to the individual’s needs and cost of housing given the variability in costs. It is

impractical to calculate a book of adjustments to provide different subsidies in different projects in

different locations. The central procurement body can be used to allocate resources efficiently; similar

to State works departments’ methods. It makes sense for a central procurement agency to ensure

that best practice design and tendering standards are used to achieve value for money.

The agency can also weigh up the conflicting demands about where best to locate housing and the

types of designs based on cost, operational efficiency and consumer preferences. As a centre of design

and delivery excellence the agency would potentially create a great deal of value and reduce waste

over the program.

The agency could also serve as a centre for research and information. There is a critical issue for the

NDIS, which is the shortage of high quality information resources concerning disability and housing.

This is surprising given the amount of public money proposed to be invested, and the financial

implications of getting the planning wrong based on poor data, as well as the unnecessary cost to the

system of pricing risk.

4. Discussion

4.1 The Specialist Disability Housing Challenge

SDH poses unique challenges to policy makers in terms of how best to use the funding available to

achieve better housing choice for people with disability.

To meet the objectives of the NDIS, the funding model must consider factors including the target

number of dwellings, the uniqueness of SDH, the geographic locations of new supply (proximity to

desired support services etc.) and a provision for replacement of stock over time. These key themes

are discussed below.

4.2 NDIS Targets

An aim of the NDIS is to provide assistance with accommodation costs for participants that require

specialist accommodation to live independently. The Productivity Commission estimated that there

are approximately 28,000 people living with disability that are the focus of funding for supported

accommodation, and it is expected that 12,000~13,000 new dwellings will be required to meet the

aims of the scheme, assumed to be within the first 10 years.

4.3 The Characteristics of SDH

While not all people with a disability require a wheelchair, SDH should be able to accommodate clients

with wheelchairs as there is a shortage of this type of accommodation available in the marketplace

and this will increase total supply. Also it would be less than efficient if a person qualified to receive

accommodation could not occupy a particular SDH because it did not meet the standard, or if the

person was forced to relocate if their condition worsened.

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Just because the SDH needs to meet this requirement, it is not necessary for them to have a harsh or

clinical appearance, as the recent Australia wide architectural design competition sponsored by the

National Affordable Housing Consortium (NAHC) convincingly demonstrated.

SDH designs require more floor area, and have bathrooms and kitchens that are substantially larger

to that of general accommodation. Anecdotal evidence also suggests that group facilities are

sometimes operated at less than full occupancy to reduce inter personal pressure on residents, further

increasing the effective floor area per occupant, and of course directly affecting the cost per person

housed. Sound proofing and design features such as quiet zones also add to overall cost.

In addition, modern technologies like sensor-operated sliding doors and lighting controlled from a

hand held device makes life easier for people living with a disability. This technology can increase

capital cost, and has high depreciation rates, but it can also lead to labour saving.

As a result the costs of constructing SDH are more expensive than general accommodation. Research

shows that construction costs are 20% higher in metropolitan areas and 10% higher in regional areas.2

So if the median cost to buy a dwelling in an Australian city is $490,000, the cost of an equivalent SDH

would be $588,000, and the median cost of a dwelling outside of a city is $350,000, the equivalent

SDH would cost $385,000.3

For the aforementioned reasons, the SDH product is distinct from general accommodation, and not

easily substitutable. A general occupant would likely not consider buying or renting a SDH unit. In

addition, cash flows that may attract an investor market are, in most cases, limited by the amount of

Disability Support Pension (DSP) and Commonwealth Rental Assistance (CRA) noting that the most

common housing stress formula limits rent to 25% of income in such cases. Thus, SDH is a very illiquid

asset to own with a high risk-low return profile.

The picture that emerges is a product that is more expensive than the majority of residential dwellings,

which is generally unattractive to private risk development capital or to ownership as a privately held

asset class.

Section 7 refers to a key issue which is that in general, good information needed to plan a program of

this nature is not accessable and in particuilar a lack of good national data on the capital and recurrent

costs of SDH is a hurdle to informed discussion.

In order to create estimate the relative cost of SDH in various locations, data has been taken from

mainstream private housing. The majority of SDH will be one bedroom, but because a typically 52

sqm one bedroom apartment is not large enough to meet SDH requirements; the comparison is done

on two bedroom unit size. Although more research is needed, it would appear that there is little

difference in the overall cost of a two bedroom private housing unit, and an SDH with the same floor

area fitted out as an SDH.

The assumption used in this analysis is that the weighted average estimated capital cost of an SDH is

$410,000

2 WT Partners, 2015

3 ABS Yearbook 1301.0, 2012

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Table 1: Estimated Weighted Average Cost of SDH units

Sydney Melbourne Brisbane Darwin

Location of users of NDA accommodation support services4

27% 19% 16% 0%

Estimated Cost of 2-bed SDH Unit in 2019 $619,080 $443,520 $425,040 $364,980

Perth Canberra Adelaide Hobart

Location of users of NDA accommodation support services1

10% 1% 13% 3%

Estimated Cost of 2-bed SDH Unit in 2019 $392,700 $429,660 $309,540 $258,720

Weighted Average Cost of SDH Dwelling $410,000

4.4 The Need for Geographic Diversity

The majority of people with disability live within the inner city area (65%), while 23% live in the outer

city area and 12% live in suburban or regional areas.

If NDIS funding is structured without sufficient thought, the unintended consequence may be to drive

housing to locations that offer lower capital cost, but potentially at the expense of more expensive

and less efficient servicing, and undermining consumer choice and empowerment.

In addition, the value of support provided by family, friends and local support services connections,

and the positive effect that this can have to improve individual living arrangements will be foregone.

While the value of this ‘free’ support is typically not measured, the cost to the system of providing

these same services using paid workers will be quite real if family and friends are not in a position to

contribute.

4.5 Choice and Serviceability

Planning must ensure that the supply of new accommodation is near to where people currently reside,

or where people living with disability aspire to reside, to achieve a key objective of the NDIS to provide

greater choice and control to people leaving with a disability. In some cases this will involve relatively

high initial capital cost.

4 1 AIHW Report on Disability Support Services, Services Provided under the National Disability Agreement, 2013-14.

November 2015 of 35


Where service providers are closely linked to the accommodation providers, there will be pressure to

locate accommodation in places where services can be efficiently provided. There will be a trade-off

between fairness, choice, and the rationing of limited supply.

Left to market forces this tension will always favour the providers, rather than the consumer. A

suggestion in this paper is that for the NDIS to meet its aims in terms of fairness, planning funding and

delivery mechanisms will be necessary from the outset to influence where accommodation is

provided.

4.6 Ownership and Renting

The DHF has also identified that many people who live with a disability, have a desire to live in a way

that is more self-determining and self-reliant, just as many people in the community at large have the

same aspiration. That includes the option to own their own home as compared to renting

accommodation from a provider.

The DHF has examined shared equity and shared ownership models, including a combination of the

two means of finance. An advantage of this approach is that it is likely the NDIS finance can be

leveraged through co-investment, thus increasing the reach of the NDIS funding, resulting in better

value for taxpayers.

Anecdotal evidence is that there are many families who would be prepared to financially contribute

to a solution if the right investment structure was available. Currently this is a missed funding

opportunity for example for persons living with a disability in Social Housing.

The design of the NDIS could potentially capture this contribution, however most candidates for

independent living will have a disability level outside the 28,000 who are the priority for funding.

4.7 Priority Funding Numbers

The DHF understanding of the number of participants who are clients in existing supported

accommodation and those which will be subject of the renewal focus is 28,000.

However, as the Diagram 1 beside illustrates,

there are many more people living with

disability who are in need of support; e.g. there

are approximately 1.4m people who live with

profound or severe core activity limitation.

It follows that any savings, efficiencies,

leveraging or recycling of funds should be

directed to assisting people in real need outside

the priority 28,000.

Overall, research indicates that there is a

significant gap between the current housing

situations of people who live with disability, and

the type of housing that would potentially

better suit their needs. Refer to Diagram 2.

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At least 60,000 persons who currently live with a disability and will be eligible for NDIS are housed in

Social Housing5. Notwithstanding the NDIS funding, the demand for social housing by people who live

with a disability will continue. Despite the general intention by the States to transfer responsibility for

disability housing to the NDIA, many NDIS recipients will have high needs and low income, and will

continue to put pressure on Social Housing, with obvious funding implications.

It is estimated that approximately 30,000 – 40,000 new social housing allocations will be made to NDIS

participants between 2019 and 2028, assuming no addition or subtractions to supply, no changes to

allocation policies and continuation of recent trends in new allocations. This estimation is based on

data and assumptions related to new social housing allocations nationally over the previous decade,

and the proportion of such allocations made to people with severe or profound disability.

Diagram 2 identifies a ‘gap’ of 45,000 - 65,000 people who will experience difficulty accessing housing

outside of existing group homes, private housing, social housing and private rental. NDIS funding

priorities is expected to find solutions for 12,000, leaving an estimated 33,000 – 53,000 people who

qualify for NDIS without a funded housing solution. Refer to Diagram 2 and also Table 11 later in this

paper.

4.8 Targets for the Creation of New Stock

With reference to Table 1 bellow, the following targets are suggested for the NDIS housing program:

12,000 new SDH dwellings in the first 10 year period.

Replacement of the 16,000 at the rate of 4,000 each decade between commencement and

year 40.

5 The WG recognises the contribution of Dr Ilan Vizel to this section of the work.

Three Tiers of NDIS

Source: Productivity Inquiry Report, July 2011, Executive Summary

Diagram 2: Numbers in need greatly exceed the priority funding

Tier 3: Existing Housing and Housing Targets

Source: Dr Ilan Vizel, DHF Workgroup

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Repeat the cycle after each 40 year period by decommissioning fully depreciated housing

stock

Table 1: DHF’s understanding of the target cohorts for priority housing6

Numbers are rounded and do not account for changes since 2011

Functional Group DHF Assumptions Renewal Requirements

16,000 people are in existing dwellings that are

currently in a serviceable condition

The DHF estimates that about half of these

dwellings are in serviceable condition and

reasonably suitable for purpose.

Detailed information about the age distribution

of the dwellings is not available.

The assumption for planning is that it will be

satisfactory for these units to be progressively

renewed to match needs over a 40 year period.

Assuming that the age of the facilities is evenly

distributed being up to 10, 20, 30 and 40 years

old, this implies that 4,000 tenancies will need to

be renewed in each 10 years to maintain the

serviceability of the stock.

12,000 people are in accommodation that is

less than satisfactory

Approx. 6,500 residents are in aged care facilities

Approx. 5,500 in accommodation described as

‘other’

New construction is required to create new

purpose built accommodation, in the first 10

years at the latest.

Table 2: Overall Program Workflow and Total Cost

Total Y10 Y20 Y30 Y40 Y50

Decade ending…

2019 2029 2039 2049 2059

New SDH Units 12,000

Programmed Renewal of Existing SDH 4,000 4,000 4,000 4,000 16,000

Renewal Workflow: Number of Units 16,000 4,000 4,000 4,000 16,000

Capital Cost of Renewal $18,040 $6,560 $1,640 $1,640 $1,640 $6,560

Capital Cost of Renewal With NFP Benefits

$15,400 $5,600 $1,400 $1,400 $1,400 $5,600

4.8.1 Creation of 12,000 new SDH Dwellings

These are the new dwellings required to decant people living with a disability out of existing

arrangements that are considered unsatisfactory, and the highest priority.

The period of 10 years is suggested, as 1,200 per annum is considered a realistic minimum rate of

delivery, having regard to benchmarks set by other housing programs identified later in this section.

Importantly, there is a disbenefit attached to each period of time that a person living with a disability

experiences in unsatisfactory housing. Therefore an extension of the target will increase this

6 Productivity Commission. The Costs of NDIS Chapter 16 Page 760.

November 2015 of 35


disbenefit: in other words, a new housing unit is not much value to someone who has to wait 20 years

for it to become available.

4.8.2 Replacement of Fully Depreciated Existing Stock

Depreciation has a very significant impact on the scope of the project; it is a key concept that the User

Cost of Capital (UCC) should provide sufficient capital to renew the properties when they are fully

depreciated. The DHF’s research indicates that:

The dwellings are subject to high wear and tear because of their intensive use; 24 hours, 7

days, high occupancy

Technology, which is an expensive building element, has a high depreciation and redundancy

rate

New and better design and management concepts are constantly evolving, and there is a

natural desire to implement the best and most cost-effective management resulting in

accelerated functional redundancy.

An accurate description of the challenge is a continuous process of investment. The difference

between a ‘One-off’ capital injection, like the Social Housing Initiative (SHI) and NDIS housing is

visualised in the following charts. Refer Diagram 3.

Diagram 3

Table 2 and the diagrams above show that a program of continuous investment is required for the

construction of new dwellings and renewal of existing dwellings. Obviously if needs increase, these

estimates will understate the scope of the challenge. This scale of investment can only be achieved if

there is a systematic approach to delivery built into the planning of the NDIS from the outset, engaging

all stakeholders including the State, Not for Profit Organisations (NFP)’s, banks, builders, service

providers etc.…

4.9 Benchmarking with Other Housing Programs

4.9.1 Delivery Numbers and Program

The Social Housing Initiative (SHI)7 represented the largest single commitment of funding to social

housing in Australia’s history. The Commonwealth Government provided funding of $5.638 billion to

7 KPMG. Housing Ministers’ Advisory Committee, Social Housing Initiative Review Advisory September2012

November 2015 of 35


the SHI over three and a half years (2008-09 to 2011-12). Of this, $5.238 billion was allocated to the

construction of new dwellings. Key lessons drawn from the SHI are:

The NDIS target of 16,000 in the first 10 years is less by comparison and fully capable of being

achieved

Delivery was achieved through central agencies (State housing and public works agencies).

Without their focus and capacity to drive the program the targets would not have been met.

In contrast to the SHI, the Home Insulation Program led to unplanned outcomes and damaged

the sector8. The NDIS has the opportunity to avoid this mistake and engage with the private

sector (builders, architects, NFP’s etc) in the same way that the central agencies did under the

SHI.

Despite the unprecedented pace of the SHI, value for money and competitive construction

pricing was achieved on the whole.

The National Rent Affordability Scheme is on track to deliver 37,538 dwellings in the years 2009~

20179. This confirms that the NDIS target of 16,000 in the first 10 years is achievable. The NDIS has

the opportunity to take an important lesson from NRAS:

NRAS got off to a slow start, with Rounds 1 and 2 falling well behind expectations. The main

reason was that it did not engage sufficiently with key development companies, finance, and

investment stakeholders to ensure the take up of the concept.

NRAS was intended to attract institutional capital (super funds etc.) however this did not

occur; again a consequence of inadequate consultation.

In a general sense, Social Housing has many similarities and parallels to the NDIS. Indeed, persons

with high needs currently account for many places in the system. One aspect of Social Housing that is

highly relevant to the NDIS design has to do with the age of the stock.

8 Report of the Royal Commission into the Home Insulation Program. Ian Hanger AM QC. August 2014

9 National Rental Affordability Scheme Quarterly Performance Report As at 30 June 2015

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10Nu

mb

er o

f D

wel

lings

Del

iver

ed

Program Years

Diagram 4: Comparison of Delivery Targets: NRAS, SHI, NDIS

NRAS

Social Housing Initiative

NDIS Targets

November 2015 of 35


Generally, delivery of social housing has not kept pace with demand over a long period, and as a result

the average age of the stock is now quite old. As a result the system has gradually become less

sustainable because older stock demands high annual maintenance costs and the slow rate of renewal

results in functional redundancy (i.e. mismatching housing to demographic and geographic need over

time, including disability design features).

4.9.2 Age of the Stock and Depreciation

A discussion paper in NSW

published the chart

reproduced below, which is

representative of most social

housing portfolios in Australia.

In NSW the majority of stock is

more than 20 years old and

18% is older than 50 years10.

The NDIS has the opportunity

to plan for a portfolio that has

roughly equal numbers of

properties up to the age of 10,

20, 30 and 40 years. This can

only be achieved if full

replacement funding of life

cycle costs and depreciation is

designed into the system.

Otherwise history is set to

repeat.

Defence Housing Australia typically offer leases for 9 or 12 years. After that, in general new properties

are developed as required to replace the stock in the numbers, types and locations required. This

strategy effectively caps the age of the majority of the portfolio, ensuring quality living conditions,

well matched to the locations and type of need, with lower overall operating costs. In respect of the

NDIS, this demonstrates that managing the age of the stock and the sustainability and suitability of

the portfolio is achievable, but must be planned from the outset.

10 Social Housing in NSW: A discussion paper for input and comment. NSW Dept. of Family and Community Services p39

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4.9.3 Maintenance Funding Assumptions

The COAG agreement provides a definition of User Cost of Capital11:

The data on the expected maintenance costs of SDH is scarce, and the assumptions used in this paper

have been taken from a combination of anecdotal evidence and review of individual projects, and the

historic costs associated with public housing for which there is some available data12.

The Productivity Commission regards maintenance costs as “costs incurred to maintain the value of

the asset or to restore an asset to its original condition. The definition includes day–to–day

maintenance reflecting general wear and tear, cyclical maintenance, performed as part of a planned

maintenance program and other maintenance, such as repairs as a result of vandalism”13.

The assumptions used in this paper are summarised in the following table:

Assumed Annual Asset Maintenance Costs

Y1 Y10 Y20 Y30 Y40

Average $ per SDH unit per Annum

'Day To Day' 2,500 2,500 2,500 2,500 2,500

Cyclic or Planned 9,100 5,400 4,400 4,800 2,500

Annual Average Asset Management Cost $11,600 $7,900 $6,900 $7,300 $5,000

$’000 per Annum

Annual Total Asset Management Cost $324,800 $221,200 $193,200 $204,400 $140,000

An explanation of the assumptions follows:

“Day to Day” maintenance includes ownership costs (e.g. rates, insurance, body corporate if

applicable) services which are the landlord’s responsibility including a proportion of utilities

charges, fire detection and the repair and replacement of trunk water, power and sewerage

pipes, costs such as keys, locks, window and door repairs, and some garden management if

not included in a body corporate or operations (e.g. storm damage or removal of large trees)

11 Bilateral Agreement between the Commonwealth and New South Wales for the transition to an NDIS. Schedule J.

12 The NSW Government has recently published a number of high quality documents including “Social Housing in NSW: A discussion paper for input and comment.” NSW Dept. of Family and Community Services referred to in Diagram 5 above, and the New South Wales Auditor-General’s Report Performance Audit “Making the best use of public housing”, NSW Land and Housing Corporation 2013. The data for NSW is considered typical for the Australia for the purpose of this paper.

13 17.62 Report On Government Services 2015, Chapter 17 Page 62

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Planned Cyclic Maintenance includes for example replacement of kitchens and bathrooms

complete with fittings and equipment (maximum each 20 years), floor finishes, periodic

internal and external painting.

Asset management does not include structural replacement at the end of economic life,

referred to in Section 4.9.2 above.

Asset Management does not include operational costs. For example cleaning is not included

because public housing tenants are responsible for day to day cleaning.

The DHF is aware that some SDH currently under development include $60,000 in assistive

technology. Equipment of this type will have short depreciation periods and high annual

upkeep; however these costs would be justified by reducing labour costs. Accordingly, the

annual cost of running this technology, and periodic replacement and upgrade, is attributed

to operating costs.

Assumptions are consistent with costs reported in NSW14:

There is an assumption that the average age of the portfolio will be balanced as illustrated in

Diagram 5 above, and that new SDH will apply best-practice design and specification having

regard for the full lifecycle of the housing. It is assumed that this be enough to counter the

trend in public housing for high increases in maintenance liability (see Figure 8 above), and

that new SDH will be more efficient than existing SDH, thus a drop in per unit cost over time.

No attempt has been made to estimate the variance in maintenance costs across Australia,

although it is known that maintenance in rural and remote areas is higher than in the cities.

Further research will be needed to determine if these assumptions are excessively optimistic.

14 “Social Housing in NSW: A discussion paper for input and comment.” NSW Dept. of Family and Community Services.

Page 40

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4.10 The User Cost of Capital (UCC)

4.10.1 User Cost of Capital

The UCC methodology has served a useful purpose by providing a rational basis to establish a funding

envelope. However there are a number of issues that have been identified concerning usefulness of

the method given that it is not sensitive to a number of supply factors such as location, building costs,

interest rates, availability and cost of land, and building type.

The use of UCC to allocate funds for SDH is used in the energy sector by the Australian Energy

Regulator. The AER grants companies an allowance to spend on capital and operating costs as a

proportion of total costs. However, this method of resource allocation has received much criticism.

For example a Senate Enquiry into electricity price increases concluded that there was an “inefficient

over-investment in network infrastructure”, that resulted in higher energy prices and did little to

stimulate innovation. The Enquiry recommended much greater engagement by the AER into how

value for money and desirable outcomes can be achieved.15 16

The DHF suggest that while the UCC method is useful, it is clear that when it comes to the allocation

of resources, an alternative method is needed to deliver more efficient outcomes in the case of SDH.

The following table shows scenarios for two persons who live with a disability at different levels. It is

apparent that the cost of providing accommodation is not proportional to the value of the NDIS

package, and that this would have significant impacts on the ability of a provider to finance a housing

solution.

Estimated Value of the UCC

Overall NDIS Package UCC

Level 24 (Highest) $280,000 $33,600

Median (rounded) $25,000

Level 16 (Lowest) $168,000 $20,160

The UCC subsidy is not sensitive to geographic demand, and a supplementary method needs to be

developed to ensure that people who live with disability can express reasonable choice to live near

friends, family, services, work, shopping, transport and recreational facilities, and have access to new

and better forms of accommodation.

15 The Senate Select Committee on Electricity Prices “Reducing energy bills and improving efficiency” 2012. Executive Summary, Page 1.

16 The Monthly Essays. “Power Corrupts. How network companies lined their pockets and drove electricity prices through the roof.” Jess Hill https://www.themonthly.com.au/issue/2014/july/1404136800/jesshill/powercorrupts

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Table 3: Variation in Accommodation Costs

Metro Area Regional Area

NDIS Package with 12% UCC Highest Lowest Highest Lowest

Price of a SDH unit $ 588,000 $ 588,000 $ 385,000 $ 385,000

As the analysis in later sections of this paper will show, the total funding under the UCC method is not

expected to be sufficient to achieve a target of 16,000 new dwellings in 10 years. Some of the reasons

for this shortfall are suggested below:

The UCC is not sensitive to supply factors such as the charitable benefits and tax position of

various stakeholders. Thus the total cost of producing SDH will be less for a NFP than for a

For-Profit private sector company, because the former will enjoy tax benefits while the later

will cost tax into the project.

It appears that properties that were surveyed by the NDIS included housing that was funded

historically through a combination of grants and direct public expenditure, and charitable

donations. It appears that new SDH funded under different financial arrangements will have

different cost structures.

The research that underpinned the UCC calculation is now at least 3 years old. Technological

innovation in the area of disability is moving very quickly. Technology is expensive and has

fast depreciation and redundancy, but it also has significant potential to reduce service costs.

There is a question about how much technology will be funded through the 12% housing

provision, and how much will be funded through the general disability package, and generally

how this will be assessed.

Land is a significant component of total costs. Some States may have a policy of subsidising

or gifting of land, however the UCC in its basic form will not reflect this factor.

Land prices (economic rent) have increased at a faster rate than wages growth and CPI

depending on the locality, and this creates an additional difficulty.

It is apparent that to be a fair system, an alternative or supplementary method for allocating resources

is needed that deals with the varying cost factors identified. The consequence of not doing this will

be considerable distortion in supply, including a migration to locations and sites which offer lower

initial capital cost, which also might have the unintended consequence of higher servicing costs and

reduce the financial and non-financial benefits of family support.

Options to address this issue are discussed later in the document.

4.10.2 Reasonable Contribution by Clients

The DHF assumes a reasonable contribution from clients is 25% of DSP plus CRA as is common in the

social and affordable housing sector. In the case of social housing, it is acknowledged that the landlord

will pay outgoings (e.g. rates, insurance, maintenance, body corporate costs). Given the low income

of most occupants of SDH it is logical to apply this principle, thus the gross contribution is 25% of

income plus CRA.

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If a person living with a disability or an NFP chooses to borrow against the income stream, then the

cost outgoings will need to be deducted to calculate a net cashflow used to service the loan

repayments. After that banks will typically apply a buffer. The assumption used is $25,000 which is

consistent with anecdotal evidence. Refer to Table 4 following:

Table: 4 Estimated Accommodation Contribution

Assumed Entitlement

Fortnight Weekly Annual

Disability Support Pension 782 391 20,337

Energy Supplement 14 7 367

Pension Supplement 0 0 0

Total Income $796 $398 $20,704

Capped Accommodation Cost, 25% 199 100 5,176

CRA (Median Entitlement) 104 52 2,704

Total Capacity to pay for Accommodation $303 $152 $7,880

Estimated Borrowing Capacity based on Net Cashflow

Total Capacity to pay for Accommodation $303 $152 $7,880

Estimated Outgoings (Rates, Insurance, Body Corporate etc.) $127 $63 $3,300

Net Cashflow (available to service debt) $176 $88 $4,580

Estimated Borrowing Capacity based on Net Cashflow $25,000

4.10.3 Identifying a Funding Gap

The UCC, strictly calculated is 12% of the individual entitlement package for people with level 16

disability or above.

People with a level 16 disability have an allocated package of $168,000 while people with a level 24

disability (the highest level) have a $280,000 package, thus the UCC accommodation subsidy ranges

can range from $20,160 to $33,600 (12% of the respective packages).

Table 5 shows the estimated amount that could be borrowed, serviced by this cashflow, for a person

with the highest, average and lowest package that includes the 12% UCC. 17.

17 The amount is indicative. Actual borrowing costs will depend on prevailing rates over the term and a risk assessment of the borrower.

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Table 5: Estimate of Borrowing Capacity

Overall NDIS Package UCC UCC Borrowing Capacity

Level 24 (Highest) $280,000 $33,600 $345,000

Median $25,000 $256,000

Level 16 (Lowest) $168,000 $20,160 $207,000

Using the estimates of SDH prices in Section 4.10.1, funding gaps are identified in Table 6 below.

The only case where the borrowing capacity is sufficient to cover the accommodation costs is for a

client on the highest package in a regional area.

While this is a very simplistic example, and it doesn’t consider the bank’s lending practices as well as

tax advantages of borrowing or being a NFP, it demonstrates that even a person with the highest

package is likely to only be able to access accommodation in a regional area, and will need to leave

their family, friends and health and support service connections behind.

Consideration needs to be given as to whether this trade-off is consistent with the aims of the NDIS.

Table 6: Variation in Accommodation Costs

Metro Area Regional Area

NDIS Package with 12% UCC Highest Average Highest Average

Price of a SDH unit (rounded) $ 532,000 $ 258,000 $ 385,000 $ 385,000

less Borrowing capacity $345,000 $ 256,000 $ 345,000 $ 256,000

Funding Gap $ 187,000 $ 2,000 $ 40,000 $ 129,000

5. Understanding the Roles of Stakeholders

The potential stakeholders in this project include the private sector, institutional investors, Not-for-

Profit organisations, individuals/NDIS clients, NDIA, NDIA Delivery Group, States and Territories. Their

likely roles and responsibilities are outlined below, and summarised in Table 5.

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Table 7: The Roles of Potential Stakeholders

Stakeholder Owner Developer Financier Builder Operation

Private Sector

Institutions

Not-for-Profit

Individuals

NDIA

Delivery Agency

States & Territories

5.1 The Private Sector

History suggests that the architects of large public expenditure programs must engage effectively with

the industry that it intends to deliver the program. Assumptions that the private sector, in particular,

will respond to efficiently deliver the intended results are not evidence based. Such assumptions in

the past have led to sub-optimal outcomes, for example:

National Rental Affordability Scheme. When the NRAS was first proposed there was not

sufficient consultation with banks, institutional investors, developers or investors. Despite a

good financial concept and generous size of the incentive, there was poor take up of the first

two rounds, and it was not until the third round that the scheme gained any real traction.

Banks were wary of the product, and institutions such as the super funds have not taken up

the opportunity as was intended.

Had there been greater involvement of delivery and financing stakeholders in the design of

the incentive system from the outset, the outcome could potentially have been much better.

Nation Building and Jobs Plan. The NBJP created a valuable stimulus in response to the GFC;

however there was little engagement with industry about how the stimulus would be

delivered, how value for money could be achieved, and how quickly the funds could be

utilised. As the Hangar Royal Commission into the Home Insulation Program concluded,

better planning and engagement with the industry could have avoided some of these

outcomes.18

Ownership

Because of the specialist nature of the units, private investors are unlikely to want to own the

properties. Because of the non-standard nature of the units, resales and re-letting are more difficult

than standard real estate. Also, persons living with disability require long term rental security, and

this is contrary to the private rental market where typically a long lease is 12 months. There would be

a small market for philanthropic investment.

Developers and Builders

18 Report of the Royal Commission into the Home Insulation Program, Report by Ian Hanger AM QC, Page 5.

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Developers will be unwilling to produce units on a speculative basis due to the specialist market,

especially during times of economic uncertainty. If a high degree of pre-commitment is provided, the

role of the commercial developer is not required.

Developers have consistently resisted including specialist units integrated in their developments

unless there is an incentive or regulatory requirement (e.g. inclusionary zoning). The reason is that a

‘standard’ unit is more economical to produce, there is a wider market, and there are more options

for the unit, reducing risk; e.g. rental rather than sale, sale to overseas investor, homebuyers v’s

investment sales.

The private sector is not expected to play a major role in the process, other than construction where

it has proven performance.

Financiers and Banks

There is an established funding method between NFP’s and commercial banks that is used for social

and affordable housing projects. This formula could be used for the financing of NDIS delivery,

however the scale of financing poses a problem.

Banks will recognise that it is not practical to use NDIS units of this type as security because it is

impractical to foreclose as mortgagee in possession. Accordingly, the real security of the loan is the

cashflow that units of this type will generate. Most persons living with disability earn less than $30,000

pa. Housing providers will need to create a pool of assets that can be used for security in order to

create sufficient cashflow to underwrite the loan. The pool will need to be large since a number of

units will be 1 to 4 or 1 to 6, and the units used for security will need to be clear of any other loans or

security.

In Section 2 it was identified there will be a significant funding gap between the development cost for

each unit and the loan that a bank is likely to advance.

For example, consider the example below of a funding gap of $62,727 from its equity reserves:

Table 8: Estimate of Equity Requirement for NFPs

Weighted Average SDH Cost $410,000

less NFP Tax Advantage $37,273

Total SDH Cost $372,727

less Borrowing Capacity Based on Average UCC $285,000

less Reasonable Client Contribution $25,000

Average Funding Gap/NFP Equity Contribution $62,727

Based on a 16,000 new SDH units in the first decade, the funding requirements are estimated at:

Debt: $ 4,363,000,000

Equity Gap: $ 1,003,632,000

Security: Unencumbered dwellings used as loan security, average 5:1, based on cashflow:

Number 80,000 dwellings

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Based on the social housing formula, it seems unlikely that banks will advance such a high level of debt

to NFP’s. It is also unlikely that NFP’s collectively will this much free equity to invest, or indeed have

this many unencumbered properties under ownership to use as security.

If the NDIA, the Commonwealth or the States and Territories were to provide guarantees, that would

permit a greater involvement, however banks are reluctant to go into finance arrangements which

rely heavily on 3rd party guarantors, rather than the capacity of the borrower.

Operations

The private sector has made inroads in recent years into the delivery of human services in such areas

as prisons, detention centres, aged care and hospital care.

There is room for greater private sector involvement in disability care, however this is not expected

to be a major growth area having regard to the desire to de-institutionalise and disperse the

distribution of disability care centres; time will tell, but it seems more likely that private care will be

closely associated with NFP’s.

Institutional Investors

Institutional investors are not likely to directly own or finance SDH. However, they may engage in

financing through bond buying. See Section 2.4.

5.2 Not-for-Profit Organisations

Ownership and Operation

NFP’s currently undertake a substantial role in the care and operation of disability services and this

capacity is expected to underpin delivery. They are also likely to own a large portion of the stock,

because the potential for many NDIS recipients to borrow enough for full home-ownership is limited,

as many rely on the DSP and CRA, and it is highly unlikely that the private sector and institutions will

want to own SDH, due to its highly specialised and illiquid nature posing substantial investment risk.

Development and Building

The role of the developer, therefore, is likely to be assumed by the NFPs.

While NFP’s have developed significant capacity in recent years, NFP’s will face many practical

difficulties with a program of this scale, particularly if they rely on commercial banks.

Not only is the cost of constructing SDH higher than general accommodation due to the larger unit

size and special fit-out required, but there are considerable doubts that NFP’s can obtain mortgage

finance from mainstream banks on a case by case basis at the scale required.

Referring to the discussion in Section 5.1., it is unlikely that the banks will support a formula which

Housing Associations commonly use. Banks require security over the income from a pool of

unencumbered properties owned by the borrower or a guarantor. Based on the formula, the security

pool would need to be about 80,000. Also, the debt limit and the equity contributions would exceed

the capacity of the NFP sector.

While there are examples of individual NFP’s who can finance individual projects using this funding

method, for the reasons above it seems unlikely that mainstream banks and financiers will lend to the

NFP sector at the scale required to achieve the desired outcomes.

November 2015 of 35


The development capacity of NFP’s has increased in recent years; however this building program

would represent a step-change in the capacity of NFP’s. Building that capacity would take time and

be a key area of risk. NFP’s will carry out some asset management, but large scale construction work

is clearly out of scope.

5.3 Individuals

Individuals, including financial support contributed by the family, are likely to have a significant role

in the provision of disability housing, for instance through shared equity home ownership and ‘granny

flats’. However these solutions are likely to apply to persons with a lesser level of disability than the

cohort that is the subject of this funding.

5.4 NDIA

The NDIA has made clear statements that it will not participate in ownership, construction or

operation. Its role in funding is key.

5.5 The States/Territories

Some States have indicated their intention to substantially reduce its direct involvement in this area.

The main practical contribution to finance is expected to be in the form of land, which will have a very

positive effect.

6. Funding Scenarios

6.1 Direct Funding

As discussed there is a question mark over a system of funding based on individual NFP’s borrowing

from commercial banks, or by the private sector using development or investment finance. Thus the

options for funding need to be reconsidered.

One scenario is for the NDIA to directly fund individual projects, assessing finance applications and

generally taking on the role of a bank by providing capital directly. However, as the following table

indicates, the NDIA finding stream is not likely to be sufficient to achieve the targets through direct

funding, with a shortfall estimated to be at least $1.3b over the first 10 year period.

November 2015 of 35


Table 9: Direct Funding Shortfall Total Y10 Y20 Y30 Y40 Y50

Decade ending…

2019 2029 2039 2049 2059

New SDH Units 12,000

Programmed Renewal of Existing SDH 4,000 4,000 4,000 4,000 16,000

Renewal Workflow: Number of Units 16,000 4,000 4,000 4,000 16,000

Capital Cost of Renewal $15,400 $5,600 $1,400 $1,400 $1,400 $5,600

Asset Management Costs $9,562 $2,744 $2,086 $1,806 $1,526 $1,400

Total Program Cost (Millions) $24,962 $8,344 $3,486 $3,206 $2,926 $7,000

Funds Available (Millions) $35,000 $7,000 $7,000 $7,000 $7,000 $7,000

Shortfall (-)/ Surplus Funds $10,038 -$1,344 $3,514 $3,794 $4,074 $0

An option would be to slow down the program in the first 10 years, keeping within the funding limit

assumed to be $700m per annum, and transferring funding into the second 10 year period.

The following chart shows this option graphically. Using this deferred program, it would take just less

than 20 years to direct fund high priority group. Obviously there would be some loss of value to those

participants who were at the end of the waiting list.

Diagram 6: Cashflow for Direct Funding Scenario

6.2 Housing Bonds

Another option is for the NDIA to raise finance via a bond issuance.

November 2015 of 35


There are a number of precedents for such a mechanism, with the scale of bond issue in the United

Kingdom similar to the scale of the NDIS housing challenge19.

In principle a bond issue is relatively simple. Capital can be raised by issuing a bond in exchange for a

promise to repay principal and interest over a period of time. In practice there are many financial

considerations which are beyond the scope of this paper, such as the stability sought by investors,

government backing of the repayments and how that is guaranteed, how finance can be ‘rolled over’

for long term borrowing. Some of those issues are considered in a recent AHURI paper.20

In the case of NDIS, part of the $700 million funding could be used to meet the coupon (interest) and

principal payments. Institutional investors are potential NDIA bond holders. Table 9 below provides

an indicative scope for such funding.

Table 10: Example Funding Gap

Average Cost example $410,000

Reasonable Client Contribution -25,000

Not for Profit Equity (approx. 5%) -23,000

GST Benefits -37,000

Finance Requirement (rounded) $325,000

Number Required in the first 10 years 16,000 units

Capital Funds Required (bond raising) $5,200m

A bond issuance valued at $5,200m would attract a payment of principal and interest at a coupon rate

of 5% pa equivalent to $338m pa for a term of 30 years. The rate is assumed based on scale and rating

with Government underwriting of the payments (4.4% assumed), and also the need for a provision for

an administration (0.1%) and a guarantee premium (0.5%) identified the AHURI paper.

19 Housing associations raise £4bn with bonds Ed Hammond, Property Correspondent Capital Markets http://www.ft.com/cms/s/0/95312e02-779e-11e2-b95a-00144feabdc0.html

20 Housing Supply Bonds—a suitable instrument to channel investment towards affordable housing in Australia? May 2012 AHURI Final Report No. 188 Australian Housing and Urban Research Institute RMIT Research Centre UNSW-UWS Research Centre. P 6

November 2015 of 35


Adopting the principle of full depreciation lifecycle costing, the loan period would be structured as

principal and interest with a term less than 40 years. This will facilitate decommissioning and renewal

of the SDH at the end of a 40 year cycle, resulting in sustainability of the portfolio.

Table 8 identified that the main pressure on funding would occur in the first 10 years. A hybrid funding

method combining Housing Bonds in the first 10 years with direct funding in other years is an option.

The assumption is that asset management will be directly funded out of annual funding as it would be

unusual to borrow to pay for recurrent costs.

Table 11 following shows a scenario where there are unalloacted funding in a particular year. This

headroom could potentially be used to finance other NDIS priorities.

Table 11: Illustrative Funding Cost Allocation $m per annum

Bond Servicing Payments (Principal and Interest) 375

Asset Management 225

Funding Headroom Available for alternative priorities 100

Total Annual Funding Stream $700

Section 4.7 identified the issue that priority funding for the NDIS will only address the housing need

for a proportion of NDIS participants. Research indicates there are between 33,000 – 53,000 additional

NDIS participants whose needs will not be met within the current planning, which would be a logical

application of funding. Refer to Table 11 below.

November 2015 of 35


Such investment could have a focus on creating financial and economic benefits using a Social Return

on Investment (SROI) approach. For example, targeted investment could:

Lower the barriers to employment, thus facilitating productivity and economic participation

Encourage co-investment from families and community groups, leveraging NDIS funding

Facilitate investment in shared equity and similar concepts that will retain value for the NDIS

and recycle capital over time

Refer to Diagram 7a following:

The above analysis assumes that funds would be made in the form of grants to NFP’s. An option would

be to recycle funds in future by attaching shared equity to the funding, however this is apparently

contrary to the preference of the NDIA to not be an owner of property.

There may also be capacity for a partial recovery of costs: e.g. a bond that pays a coupon of 5% might

be made available to a NFP ‘free’ for 10 years, and then perhaps at a rate of 1% or some other figure.

Diagram 8 following illustrates the principles outlined above for a 50 year timeline. For comparison

the direct funding scenario shown in Diagram 6 is shown alongside.

November 2015 of 35


In Diagram 8 it is assumed that delivery is coordinated through NFP’s, which will result in savings to

the NDIS from favourable tax treatment and leveraging against cashflow collected as a reasonable

contribution from tenants shown in Table 8 and Table 10.

Diagram 8: Bond Finance Scenario Cashflow Diagram 6: Direct Funding Scenario

7. Mechanisms for Delivery

The DHF understanding is that the NDIA does not plan to provide a housing delivery function.

7.1 State Housing and Public Works Departments

The States have demonstrated capacity in program delivery, however the approach and the appetite

for delivery and funding of NDIS programs will vary from State to State. Some States may wish to exit

the space, while other States may see this as an opportunity to become more involved.

7.2 Not for Profits’ Delivery Capacity

As the preceding stakeholder analysis shows, there are financial and operational advantages with Not-

for-Profit organisations undertaking the delivery role. This could be in addition to the States or as an

alternative as the case may be.

Despite capacity-building in recent years, it will be a significant challenge for the NFP sector to develop

16,000 SDH dwellings with the required geographic diversity with consistency and efficiency in 10

years.

An important question is whether it is efficient, or even good risk management, for each NFP

independently to create the delivery capacity, only to then substantially unwind that function within

a few years.

November 2015 of 35


7.3 A Delivery Entity

There would be advantages for NFP’s to pool resources into a centralised delivery agency, including

retaining the financial benefits of the charitable tax benefits not generally available to the States.

Such a delivery entity could engage staff directly, but it could also procure that capacity through 3rd

party suppliers by competitive contract (project management firm, managing contractors) with

selection based on the capacity to deliver development outcomes on a large scale.

In reality, each project will have individual circumstances and assessment of each project will require

individual review. Perhaps a Delivery Entity could oversee best practice design and tendering

standards bringing regulation, consistency, expertise and learning to the equation.

Such a body could also carry out program planning on a basis informed by delivery in the field,

including capital works, cashflow and bond issue forecasts.

Such a system is an effective way to overcome a fundamental challenge for the NDIS, which is that

there are unique demand and supply factors in locations across Australia, and there are constant

changes in market conditions and building costs, interest rates and many other factors.

A body such as this is not inconsistent with State housing and public works bodies, and the two groups

could work in parallel or jointly in a formal structure (e.g Statutory body or an ALMO). There are a

number of options for structuring such an entity: two suggestions are shown in the following diagrams:

Diagram 9: Example of an Independent Statutory Authority to carry out the Renewal Task

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Diagram 10: A Hybrid Structure to carry out the Renewal Task

7.4 Planning for Outcomes - An Allocation System

In Sydney development costs are very high, whereas in regional NSW costs are much lower. Without

some form of active management, this factor alone might result in people living with disability

migrating to areas where building costs are lower, not necessarily where people want to live, or where

it is cost effective to provide services.

One way of addressing this issue would be to create Allocations for different areas and classes of

support.

The NRAS system provides an example of such a system, determining need with reference to

geographic location. The NDIS would however require a system with greater flexibility. However, just

because an allocation is made, it does not mean that the economics of delivery, or indeed demand

will be represented in each locality. One of the practical difficulties in the design of NRAS was that

because the incentive was flat-rate, allocations were not generally taken up where it was uneconomic.

This suggests that the rate of subsidy should be calculated based on a range of factors which include

the locality and the type of dwellings proposed, and that the capital allowance should be varied in

different locations and different circumstances.

Of course second guessing the market is problematic (as per the AER example), but if there is clear

evidence that a flat rate will result in market failure, then an allocation system might be useful,

provided care is taken to design a system that does not reward inefficiency.

7.5 Direct and Indirect Funding

Under the NDIS, there are two options for funding: funding can be directly to clients, or funding can

be to providers of specialist disability housing.

November 2015 of 35


The DHF considers that there is considerable scope for direct action by many persons living with

disability and their families, however in the high-needs cohort which is the target of NDIS, it is

considered that NFP’s will form the backbone of delivery. The main reason for this is that providers

will need to borrow for 30 or 40 years on the expectation of receiving consistent income. Anything

that increases the risk of this cashflow and the possibility of vacancy, will add to risk that will need to

be priced.

The DHF strongly recommends that ownership models are available to NDIS recipients, including

shared equity and shared ownership for those persons who live with a disability who aspire to a more

self-reliant form of accommodation.

Note also that many people who live with a disability will continue to place pressure on the Social

Housing waiting list, and a reasonable resident contribution that varies too much from the Social

Housing formula could lead to anomalies.

8. Information for Decision Making

The numbers used above have been obtained from a variety of sources across different timeframes.

This highlights a critical issue for the NDIS, which is the shortage of high quality information resources

concerning disability and housing.

This is surprising given the amount of public money proposed to be invested, and the financial

implications of getting the planning wrong based on poor data.

An example is the lesson taken from the NDIA trial in South Australia21.

When the Weatherill and Gillard governments signed the agreement it was thought there'd be 5,000

children who qualify for the trial; the real number is thought to be closer to 10,000. The 2012

agreement says any cost overruns will be covered by the Federal Government, however the Federal

Government says that error by the State Government that has caused the backlog doesn't constitute

a cost overrun.

Which view is correct, is not relevant to the point made in this section. The lesson is that poor data

will inevitably result in unplanned outcomes, and that the private and NFP sectors have a low

tolerance for this type of risk. This situation has sent an unfortunate and unintended message to

private and NFP stakeholders about the risks of NDIS funding, especially lenders and borrowers who

will need to make long term commitment to debt. Ultimately those risks will affect the participation

of the organisations upon whom the NDIS depends, as well as how risk is priced.

21 Fed Govt. refuses to cover NDIS funding shortfall in South Australia. Natalie Whiting reported this story on Tuesday, July

14, 2015 12:34:01 for ABC The World Today.

November 2015 of 35


9. Abbreviations

Abbreviations

SDH Specialist Disability Housing DHF Disability Housing Futures

Work Group

NDIA National Disability Insurance Agency UCC User Cost of Capital

NDIS National Disability Insurance Scheme NFP Not for Profit organisation

SHI Social Housing Initiative DSP Disability Support Pension

NRAS National Rental Affordability Scheme NAHC National Affordable Housing

Consortium

ALMO Arm’s Length Management Organisation: in

this context a delivery body that facilitates

government and non-government joint

delivery.

d h isability ousing futures work group

Documents