This report explores the development of a model of social finance for the Summer Foundation’s Housing Demonstration Projects for young people in nursing homes.
Two key questions about NDIS housing payments are addressed, summarising the responses financial institutions made to an EOI. The Summer Foundation also provides a view on potential ways forward in each of these areas.
Investment term issues: What elements of the housing payments scheme are critical to get right to make investment work? Ability to lend against NDIS housing payments Management of occupancy risk (cash flow risk) Length of housing contracts Adaptable design for a range of abilities (alternate use of assets)
Exit strategy and scalability: How are we going to move from individual deals to a national scale? Reputational risk and exit strategy Working towards national scale and a mature market Our consultations assumed that the cost of housing people with disability is shared between people with disability and the NDIS, and potentially also with other stakeholders in the community. This creates three primary sources of funds to service debt:
Disability Support Pension: The Commonwealth Government provides income support to people with disability who are unable to work through the Disability Support Pension (DSP). Community housing rents usually require around 25% of a person’s DSP payment to be paid in rent to the housing provider. This would provide around $5,300 per annum in income.
Commonwealth Rent Assistance: In addition to DSP, the Commonwealth Government also funds Commonwealth Rent Assistance (CRA) to people on DSP in properties with rent above a specified level. Financial models assume this payment would be made to the housing provider. This would provide around $3,600 per year.
NDIS payments: The financial models used to estimate how to finance NDIS housing assume that these payments are the most significant contribution towards the cost of housing. The estimated NDIS contribution required for a $550,000 capital cost ranged from $36,000-$50,000 per annum (based on a 6%-8% return for investors).
CRA combined with 25% of DSP alone is generally sufficient to cover operating costs for housing (tenancy and property management, rates, insurance, owners corporation fees and the sinking fund). This is based on CRA and DSP generating around $8,300 in yearly income to cover the cost of operating expenses ($7,000 p.a.) and contributions to a sinking fund ($1,000 p.a.). There is little left over to materially support principal and interest repayments. Any financial model is unlikely to rely on these amounts to make a substantial contribution to the principal and interest repayments. However, surplus CRA and DSP funds could be captured for upgrade or unforseen capex (e.g. sinking fund).
Importantly, discussions with financial institutions have highlighted the risks that including DSP and CRA pose to projecting the long-term financing of housing. All housing models assumed that tenants would contribute to the cost of housing through 25% of DSP and also that CRA was available. Decisions by the Commonwealth to change eligibility, payment rates or indexation of DSP and CRA present a risk to financing housing for this cohort. This risk is especially high when considering a 20-year financing time horizon.
This report was developed by the Summer Foundation. Housing Hub is an initiative of the Summer Foundation.