Demand for specialist disability accommodation (SDA) is on track for strong growth in years to come, with projections of a 60 percent increase from 2022 to 2042. This could offer excellent opportunities for both SME developers and social-impact-focused investors.

To fully maximise the potential of SDA projects — for developers, investors, and the occupants who urgently need this housing — it’s critical to have a solid understanding of market demand, and how to best avoid the risks and pitfalls of this rewarding, yet challenging, social impact asset class.

For SME developers, this understanding can be best sourced from a knowledgeable financing partner with deep expertise in the SDA sector.

Demand for SDA set to boom

SDA refers to housing purpose-designed for Australians living with extreme functional impairments or high support requirements. This housing must come equipped with special features that enhance accessibility and facilitate the delivery of support services.

Demand for SDA is expected to see robust growth in years to come as Australia seeks to improve the quality of life for people living with severe disabilities.

In its Specialist Disability Accommodation Pricing Review 2022 - 2023, the National Disability Insurance Agency (NDIA) projects that SDA demand will increase from around 22,900 participants in June 2022 to approximately 36,700 in June 2042, for an average growth rate of 2.4 percent per annum.

As well as being a social housing initiative, SDA is also an inflation-protected, low-risk asset, enjoying access to steady and reliable revenue streams thanks to government backing from the National Disability Insurance Scheme (NDIS).

“SDA gives investors the opportunity to gain exposure to an emerging asset class with high social impact that has the potential to provide really strong financial returns over the long-term,” David Ingram, CEO of CrowdProperty Australia, said.

As with any asset class, the rewards of SDA also come with risks, which developers need to understand in order to successfully deliver new specialist disability accommodation and maximise returns.

Understanding demand is essential

James Brooker, CEO of Social Impact Funds Management, emphasised that a deep understanding of market demand is crucial for success in SDA development.

“Clear research needs to go into this, including aligning yourself with a compliant SDA provider who has people on the ground that have relationships with supported independent living (SIL) Providers, hospitals and aged care providers within the region,” Brooker said.

“You must do your due diligence on the areas you’re entering to understand the demand where you’re planning to build and whether there are NDIS participants who are ready to be housed.”

With regard to location, Brooker notes that another critical requirement for SDA developments is close proximity to quality infrastructure and amenities.

This is because the heightened support requirements of NDIS participants make it even more important for them to have convenient access to key facilities.

“Being close to amenities is extremely important for SDA housing,” Brooker said.

“Residents need to have hospitals, shopping centres, restaurants and other facilities that are situated nearby.”

Building beyond criteria

Developers need to be well aware of the heightened quality requirements when it comes to SDA projects. Brooker said this often means going above and beyond the criteria set by authorities, which he said still falls short of the needs of many NDIS participants.

“The government has a minimum standard for SDA, but it still doesn’t work,” Brooker said.

“You need to build above that standard to ensure the homes are actually fit for purpose. It’s not just about building a home from the perspective of what looks good on an Excel spreadsheet.”

In order to fully cater to the demand requirements for SDA, Brooker said developers and investors need to ensure projects come equipped with the full range of facilities that prospective residents are likely to require.

“If it’s high physical support that you’re trying to achieve, you need to install hoists from bedroom to bathroom plus full automation of doors, blinds, fans, and air-conditioning with voice around the home,” he said.

“It may cost more to build, but it’s better to have a home that’s fully occupied, rather than build to a minimum standard in an area where people don’t want to live, that’s vacant.”

Expert finance partners help to avoid risk

Like any asset class that offers potentially strong rewards, SDA projects also come with risk. In Australia, this risk has already caused landlords and investors to sustain heavy losses due to the inability of fund managers to source tenants.

Investors can reduce the likelihood of such losses by working with financing partners who are fully aware of the risks and challenges involved with SDA, and can help ensure the projects meet the needs of tenants in areas where there’s proven demand.

“Vacancy is always a risk, because if there’s no one in the home, then there’s no income, it’s all about risk mitigation,” Brooker said.

“For this reason, you really need to do your due diligence with your SDA provider on where the demand is and then build above the minimum standard.

“CrowdProperty has completed several SDA developments with other developers before, so they know exactly what they’re doing.”

David Ingram said CrowdProperty is focusing on SDA development as an emerging area of opportunity for ESG financing due to strong investor demand and a lack of expertise from traditional lending sources.

“We’re a specialist loan and investment platform that’s already financed end-to-end development and provided investors with returns for SDA projects,” he said.

“Few development lenders have the expertise to support SDA development lending, but here at CrowdProperty, we have over 100 years combined development experience that our clients can draw on to get the best finance for their project. As we like to say, it’s property finance by property people!”

For this reason, CrowdProperty can serve as a knowledgeable and experienced financial partner for SME developers who want to tap SDA growth opportunities, while also mitigating the risks of a challenging asset class.