DISCLOSURE LOG
FOI 24/25-1795
DOCUMENT 1
47F -
Megan
Personal
From:
47F -
Samuel
Sent:
Fr
P iday, 19
l January 2018 1:16 PM
To:
47F -
Toni
Subject:
20
P 180117_
l NDIA SDA Memorandum DRAFT_v6 marked up [SEC=UNCLASSIFIED]
Attachments:
20180117_NDIA SDA Memorandum DRAFT_v6 marked up.docx
Can you take a quick look at changes before I send to Antonia?
1
Page 1 of 50
FOI 24/25-1795
DOCUMENT 2
47F -
Megan
Personal
From:
Sahil 47F - 47F - Personal privacy
Sent:
Friday,
P 2 March 2018 2:02 PM
To:
47F -
Antonia
Cc:
P
47F -
Samuel; 47F -
Toni; Meaghan 47F - Julian 47F -
Subject:
Fo
P r SDA h
l andover d
P iscussiol n
P
P
Attachments:
180219 SDA handover document (23 Feb).pptx; Co
nsultation summary - price (21
Feb) v2.xlsx; 180220 DRAFT SDA market communications w clean v4.docx; 20180206
Draft Management Response update (23 Feb - sent).docx
Hi Antonia
For our handover call, I’m re-attaching deliverables from our end of week email.
During the call, I suggest we could spend our time on:
1. Overview of the four deliverables (5 mins)
2. Deep dive on next steps, as set out SDA handover document (ppt) – slides 12-16 (40 mins)
3. Overview of the Management Response to SDA system controls audit (15 mins)
Speak soon!
Cheers
Sahil
McKinsey & Company
Ph:
47F - Personal
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1
Page 2 of 50
Executive Summary (1/2)
FOI 24/25-1795
1 There is some evidence to suggest that Specialist Disability Accommodation (SDA) funding under the NDIS has started
to stimulate new investment in a historically under-supplied sector, although data limitations create uncertainty in
estimating supply and demand of SDA under the NDIS
– According to Productivity Commission 2011 estimates, 12,000 out of the 28,000 people requiring SDA are not living
in fit-for-purpose accommodation. Productivity Commission 2011 estimates suggest that about half of these are
young people (under the age of 65) living in Aged Care accommodation
– The sector requires a significant amount of additional capital (estimated at ~$4.3-5.1b, based on high-level
assumptions) to meet historically unmet demand, and to ensure existing SDA meets acceptable standards
– To attract capital investment, the NDIA estimates Scheme expenditure on SDA will total ~$700 million annually by
2031, reaching ~$420 million by 2021
– For investors and developers, average rental yields and investment returns on SDA can be generous, though this
may vary by location and dwelling type
2 Although the NDIS has stimulated some new investment in SDA till date, investors and providers have raised concerns
that uncertainty (particularly on price settings and demand) may inhibit future investment
– To date, SDA roll out has been dominated by “existing SDA” dwellings and participants (those previously in State
schemes) – with 1,593 “existing dwellings” enrolled – rather than “new SDA” dwellings and participants (those not
previously in State schemes) – with 140 “new dwellings” enrolled.
▫ The relatively slow ramp up of “new SDA” may reflect the long lead time in new SDA dwelling construction, and
the relatively complex and time-consuming nature of SDA planning for “new SDA” participants
– Providers and investors have raised concerns (both through consultations and separately to Agency and
Government stakeholders) focused on four key risks that may inhibit future investment in “new SDA”:
▫
Price regulation: Scheduled price reviews have been raised as a source of uncertainty. Interviewees note that,
given the long lead time in construction of SDA, any downward adjustment in prices in 2021 would affect
investment decisions made today 1-2 years into their 20+ year investment horizon. Interviewees suggest several
options – including price guarantees and grandfathering – as potential solutions
▫
Pace of demand growth: the pace of demand for "new SDA" through the NDIS (i.e., not rolled over from states)
is limited by the speed of planning process. A slower pace increases the risk of initial vacancies in “new SDA”
dwellings that come online
Page 4 of 50
2
Executive Summary (2/2)
FOI 24/25-1795
▫
Dwelling enrolment: providers raised concerns that delays in the enrolment of SDA dwellings could lead to
delays in matching with and securing tenants, creating higher vacancy risk. Providers suggested pre-enrolment
of dwellings (prior to construction being completed) as a potential solution
▫
Lack of granular demand data: the lack of NDIA-provided granular supply and demand data make it more
difficult to anticipate potential SDA demand at the time of investment decisions. Interviewees note that third
parties have now commissioned demand studies that will be made available to the market
3 To address provider and investor concerns, the NDIA should: (a) provide an initial market update, in line with
commitments to DRC (b) work with DSS to inform the upcoming review of the DRC Pricing and Payments Framework;
(c) improve key SDA operational processes; and (d) and increase communications to the market
a) Initial communications: In line with its commitments to DRC, the NDIA should release a Market Communications
document to provide greater clarity to the market on key SDA topics. While an important first step, this is not
expected to address the full range of concerns raised by providers and investors
b) Price: Given the expected imminent commissioning of the upcoming DRC Pricing & Payment Framework, and the
lack of compelling evidence of market failure, the right path forward is to work with DSS to inform the scope and
timing of the upcoming DRC Pricing & Payments Framework Review
▫ The DRC Pricing & Payments Framework review is expected to include a focus on price risk and price review
cycles, and could lead to significant recommendations related to top-of-mind issues for providers and investors.
The NDIA should engage DSS to inform the review and present a coordinated approach to market
▫ In the meantime, there is insufficient evidence to suggest potential under-supply, which would necessitate an
intervention. Existing investments suggest the risk-return profile is attractive for at least some investors
▫ The pace at which “new SDA” participants are transitioning to NDIS is gradual, allowing the NDIA time to watch
how supply evolves before acting
c)
Operational processes: the NDIA should improve key SDA operational processes, flagged by providers, including
transparent and efficient SDA planning and timely processing of applications for dwelling enrolment
d) Ongoing communications: The NDIA should committ to regular communications with the SDA market in the future,
including the provision of more granular data on SDA demand and supply as it becomes reliably available, and
simple “how to” guides on key provider topics (e.g., payments, dwelling enrolment)
Page 5 of 50
3
1 To attract capital investment, the N
FOI DIA es
24/25-1795 timates Scheme
expenditure on SDA will total ~$700 million by 2031
Forecast annual NDIS expenditure on SDA1
NDIA estimates; A$ millions
650
640
623
606
600
590
573
556
550
539
519
500
492
459
450
Externally, the
418
NDIA has
400
communicated a
359
funding level of
350
~$700 million for
300
302
SDA at Full
Scheme to the
250
market
200
177
150
100
94
50 44
0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
1 Assumes 2.5% transfer from legacy to new and 1.4% growth in population; Based on demand of 29,000 at 2016 includes contingency of 5%
Page 8 of 50
Source: Scheme Actuary NDIA Pricing model 30 May 2017
6
2 To date, SDA roll out has been dom
FOI inated
24/25-1795
by “existing SDA”
dwellings and participants, with some new supply stimulated
SDA supply under the NDIS1
SDA demand under the NDIS2
▪ According to PC estimates, ~16,000
▪ According to PC estimates, 28,000
existing SDA places
people estimated to need SDA
Factors contributing to a slow scale
▪ 1,733 dwellings enrolled, which could
▪ 6,936 participants with active plans
up of “new SDA” could include:
house a maximum potential 6,906
with SDA committed
▪
SDA residents
Time consuming and complex
SDA planning process
–
▪ $63.1 million committed to SDA in
1,593 “existing” or “legacy” stock,
active plans
– Participants are individuals
transitioning from previous State
with complex needs
schemes of which 553 is
– Participants need to
government in kind
demonstrate they have
– 140 “new builds”, including 8
investigated non-SDA
refurbishments
options (e.g., in-home
▪ An additional estimated 860 dwellings
supports)
in the “enrollment backlog”, which has
– Planners often receive
a total of 116 applications
incomplete initial
applications from
▪ 541 registered providers, 117 of which
participants
have enrolled dwellings
▪ Long lead time for construction
▪ According to third party estimates (not
of SDA dwellings
verified by NDIA), an additional 380
– Finding suitable land can be
dwellings “committed”3
challenging
– 400 places (~140 dwellings)
– Lengthy dwelling enrollment
refurbishments
process, with significant
– 200 places (~70 dwellings) funded
backlog
directly by SA government
1 NDIA data as at end January 2018; 2 NDIA data as at end December 2017
3 Based on estimated from a third party report commissioned by the Summer foundation report – methodology has not been tested or verified
Page 10 of 50
Source: SDA Dwelling Enrolment Team, Scheme Actuary
8
2 To understand potential market conc
FOI
erns
24/25-1795 in making new
investments, we have completed 1-on-1 consultations with 20+
providers, investors and other stakeholders
Stakeholders consulted
▪ NAB
▪ CBA
▪ Macquarie
▪ Community Sector Banking
Financiers ▪ Social Enterprise Finance Australia
Questions asked in
▪
interviews included:
Cheyne Capital
▪ Allen Partners
▪ What has been your
▪ Social Ventures Australia
experience in the SDA
▪ Multicap
market to date?
▪ Summer Foundation & Summer Housing
▪ What’s working well, and
▪ Ability Homes
what are your concerns?
▪ Ability First Australia
▪ Independent Living Villages
▪ What information would
Providers ▪ Lifetime Homes
better help you make
▪ Montrose
decisions about
▪
investing in this market?
Housing Choices Australia
▪ St John of God Healthcare
▪ Scope Australia
▪
Others
Assistant Minister’s Office
▪ Department of Social Services
Page 11 of 50
9
3b Key considerations for upcoming F
FOI ramew
24/25-1795 ork and Price Reviews
▪
SDA Pricing & Payment Framework Review (Framework Review):
– Will consider the methodology by which the NDIA sets Benchmark Prices (e.g., formula for
dwelling costs, additional factors to consider including location, price inflation, etc.) and the
Upcoming
future timeline and cycle of Reviews
Reviews
– Currently scheduled for 2018-19
▪
NDIA Benchmark Price Review (Price Review):
– Will review Benchmark Prices, in line with methodology set out in the Framework
– Currently scheduled for 2021
▪ Consider acceleration of the Framework Review (e.g., completed by June 30 2018)
▪ Consider potential to bring forward the Price Review and complete together with (or directly after)
Framework Review. Completing Reviews together would help to:
–
Consider issues holistically, managing interdependencies between the two Reviews. For
example, Framework Review analysis on the best way to address geography specific costs and
prices will need to consider (a) how the NDIA may subsequently set location factors, and (b) how
the NDIA expects supply and demand to evolve by region
Timing
–
Reduce the period of uncertainty for the market. Accelerating the Framework Review but
leaving the Price Review at 2021 may not address market concerns regarding regulatory
rations
uncertainty. Completing the Reviews simultaneously would minimise the disruption the market to
ide
one event
–
Save time and resources. There is likely to be significant overlap in the participant, provider
ons
and investor consultations, as well as the quantitative analysis, required to effectively complete
ey c
the Framework Review and the Price Review
K
▪
Comprehensive scope: how much new supply is required (by region and over time), what’s the
right pricing construct, what are the right price levels (including inter- and intra-city dynamics), how
Scope &
should they be reviewed over time?
Approach
▪
Combined governance: joint DSS and NDIA Steering Committee and Working Team, working with
commissioned third party
▪
Consultation with participants, providers, investors, other stakeholders
Page 22 of 50
20
3c Currently, dwelling enrolment is tim
FOI e-cons
24/25-1795
uming, leading to
delays in processing and a significant backlog
Time taken to complete dwelling
Month-by-month processing of dwelling enrolment
enrolment
applications1
Days
Number of applications
Backlog2
Applications received
120
100
Ideal
30
80
60
Average
103
40
20
Worst case
384
0 Jul-
Jan-
Jul-
Jan-
16
17
17
18
1 Each dwelling enrolment application can have up to 50 dwellings for one provider.
2 It is estimated that there 860 potential dwellings in the backlog currently.
Page 23 of 50
SOURCE: NDIA Dwelling Enrollment Team data
21
Appendix
FOI 24/25-1795
Page 24 of 50
22
3a Price reviews are common practice
FOI acros
24/25-1795 s similar Schemes,
though they often include protections for existing providers
Detail to follow
Aged Care
NDIS Specialist Disability National Rental
Defence Housing
Accommodation
Residential Aged Care
Accommodation
Affordability Scheme
Australia
Supplement
Basic Subsidy
▪ Funds
participants to ▪ Funds
providers to
▪ Funds guaranteed rent ▪ Paid on behalf of
▪ Funds providers for the
lease disability
lease houses to
to lessors of DHA
eligible ‘supported’
care needs of individual
Funding
supported homes from
participants from
houses on behalf of
participants to
participants
Principles
providers
low/middle-income
residents.
providers
households
▪ Eligibility is based on
means test
▪ Amount differs on
▪ Annual payment of
▪ Commencing
▪ Amount depends on:
▪ Determined by applying
individual basis,
approx. $11,0001
guaranteed rent is
– If the facility has
the Aged Care Funding
depending on
– 75% in form of tax
determined based on
>40% supported
Instrument (ACFI) which
Funding
participant’s reasonable
offset from federal
market rent for the
participants
has three funding
properties factoring in
–
Amount
and necessary needs
government
Whether the facility
domains:
– 25% in form of
components such as
is newly built or
1) Activities of Daily
cash payment from
location.
significantly
Living
state government
refurbished
2) Behaviour
3) Complex Health Care
Price/
▪ Every five years
▪ Indexed annually
▪ Indexed annually
▪ Previous review in 2014 ▪ Funding changed in 2016-
funding
▪ Previous review in 2014
17 budget
reviews
▪ Implemented Jan 20175
▪ To be confirmed
▪ Review resulted in no ▪ Property is valued
▪ Changed eligibility
▪ Funding changes to
further funding rounds
annually and rent is
criteria to include
particular items in
▪ Existing providers were
indexed according to
income, in addition to
Complex Health Care
Review
grandfathered for up to
current market-value.
assets, of participants
matrix
outcomes
10 years2
▪ Rental floor applies to ▪ Grandfathering of
▪ Applied only to new
some DHA properties.3
previous rates for
appraisals or re-appraisals
participants in care
▪ Pause of annual indexing
before 1 July 20144
1 National Rental Affordability Scheme – NRAS Incentive (Indexation)
4 Aged Care Act 1997 – Subsidy Principles 2014
2 Australian Government Budget 2015-2016 – Budget Paper No. 2, Part 2: Expense Measures
5 DoH Factsheet: Changes to residential aged care funding arrangements – Budget 2016-17
3 Defence Housing Australia Lease Edition 6C
Page 25 of 50
23
3a Grandfathering in aged-care effecti
FOI vely m
24/25-1795 aintains previous
funding level for the life of existing participants
Implications for existing
Context
Funding review
participants
▪ Participant eligibility is means
▪ Review of the Accommodation ▪ Participants who entered
tested based on income and
Supplement in 2014 changed
care prior to 2014 continue
assets of participants.
eligibility criteria to include
to be eligible for the
Aged Care
participant income and assets
Accommodation
Accommoda- ▪ 40% of beds in each residential
(previously only assets).1
Supplement based on
tion
aged care facility must be for
assets alone.1
Supplement
‘low means residents’.
▪ This reduced the amount of
participants that can qualify as
▪ Future means-testing
‘low means residents’ but
reviews of these participants
maintained the 40% requirement.
only consider assets.
▪ ACFI has three funding domains: ▪ Review of ACFI in 2016 reduced ▪ Existing participants
1) Activities of Daily Living
scores for several common items
continue to receive base
2) Behaviour
(e.g. measuring blood pressure)
subsidy funding amounts
3) Complex Health Care
in the CHC domain. 2
based on previous criteria
Residential
(CHC).
until they are re-appraised.2
▪ This resulted in lower total CHC
Aged Care
scores residents with these care ▪ Appraisals do not occur at
Basic
▪ Residents care needs are
needs.
regular intervals for existing
Subsidy
assessed using scoring criteria
for each domain.
residents.
▪ Lower scores then reduced the
▪ Each domain is then allocated a
CHC funding level for these
funding level (low, medium or
participants and lowered total
high) based on scores
basic subsidy amount.
1 Aged Care Act 1997 – Subsidy Principles 2014
2 DoH Factsheet: Changes to residential aged care funding arrangements – Budget 2016-17
Page 26 of 50
24
3b Example SDA price calculation FOI 24/25-1795
SDA price = (Base Price) x (Location Factor) x (1+Fire Sprinkler Allowance)
Example SDA price calculation
Existing stock or new build
Select one
New Build
Base Price is calculated using:
Building Type :apartment, villa
Building Type
Select one
House, 3 residents
or house; the no. of bedrooms in
the building; the no. of residents
in the building.
Number of residents at full occupancy
Calculated value 3
Design category: Basic,
Improved Liveability, Fully
Design Category
Select one
Robust
Accessible, Robust, High
Physical Support.
With or without On-site Overnight Assistance (OOA) Select one
Whether there is
on-Site
With OOA
Overnight Assistance
Base Price
Calculated value $28,648
per participant per year
Breakout room (robust, 2+ residents only)
Select one
With breakout room
Breakout room price (if applicable)
Calculated value $1,205
Base Price + breakout room (if applicable)
Calculated value $29,853
per participant per year
Location
Select one
NSW - Sydney - Eastern Suburbs
Location Factor
Calculated value 1.96
With or without Fire Sprinklers
Select one
With Fire Sprinklers
Fire Sprinkler Allowance
Calculated value 1.9%
SDA Price ($ 2107/18)
Calculated value
$59,623.61
per participant per year
Page 27 of 50
25
3b There are 6 key inputs in determini
FOI ng pri
24/25-1795ce levels
Option 1
Option 2
Option 3
Option 4
Option 5
Option 6
Option 7
Option 8
Option 9
Option 10
Option 11
Existing
New build
Existing
NA
NA
NA
NA
NA
NA
NA
NA
NA
Stock or New
stock
Build
Apartment, Apartment, Apartment, Apartment, Villa/Duplex/ Villa/Duplex/ Villa/Duplex/ House, 2
House, 3
Group
Group
Building Type 1 bedroom, 2 bedrooms, 2 bedrooms, 3 bedrooms, Townhouse, Townhouse, Townhouse, residents
residents
home, 4
home, 5
1 resident
1 resident
2 residents 2 residents 1 resident
2 residents 3 residents
residents
residents
Design
Basic
Improved
Fully
Robust
High
NA
NA
NA
NA
NA
NA
Category
Liveability
Accessible
Physical
Support
With or
without On-
site
With OOA
Without
NA
NA
NA
NA
NA
NA
NA
NA
NA
Overnight
OOA
Assistance
(OOA)
With
Without
NA
NA
NA
NA
NA
NA
NA
NA
NA
Breakout
breakout
breakout
room (robust, room
room
2+ residents
only)
Multiple
Multiple
Multiple
Multiple
Multiple
Multiple
Multiple
Multiple
Multiple
Multiple
Multiple
Location
With or
With Fire
Without Fire NA
NA
NA
NA
NA
NA
NA
NA
NA
without Fire
Sprinklers
Sprinklers
Sprinklers
Page 28 of 50
SOURCE: SDA position paper on Draft Pricing and Payments April 2016 p21
26
3b Key assumptions for calculating inv
FOI estment
24/25-1795
required
Description
Range
Source or rationale
General
Investment horizon
20 years
Consultation with investors and financiers
Annual rental
$8,554
25 per cent Disability Support Pension + Commonwealth Rent Assistance (lower without CRA). Defined by framework.
Rental
contribution/participant
contribu-
Growth in rental contribution
CPI
Assumption
tions from
participant
Vacancy rates – group homes
3%-10%
Historic data indicates 3-7 per cent. Assume higher in group homes when choice available.
Vacancy rates – smaller forms
3-7%
Public housing vacancy rates around 3 per cent. Assume slightly higher when the dwelling is not a single occupancy.
Median land values
Varies by area State land agencies, aggregated to ABS statistical division.
Base $552/sqm Base = median price combined capital cities.
General
Long term land appreciation
5% p.a.
Literature and State data indicates long term averages from 5-10 per cent or more. Assume low end due to high current
market
property values.
information
Increase in building costs
CPI
ABS housing cost index similar to CPI over long term.
Gross market yield for existing
5.5% - 6.5%
Proportion of total property value. Based on RBA estimate of standard yield (4.2 per cent) plus 1-1.5 per cent additional
stock
cost for SDA based on review of State data. +1 per cent for apartments.
Maintenance and outgoings
15,000-$34,000 Depends on property type. Based on review of State data. Significantly higher than general (non-SDA) industry
benchmarks.
Cost of
ownership
Property management
0.4%
Proportion of total property value. From RBA analysis. Equivalent to industry benchmarks of 8-10 per cent of rental value.
Vacancy management
$4,000
Per vacancy. Equivalent to one FTE plus overheads for one month.
Build costs
0.4 - $1.6m
Varies by build type and design category. Advice from quantity surveyors with architectural design advice.
Additional breakout or staff rooms
30,000-$40,000 As above.
Major refurbishments
20-25 years
Consultation advice.
Property
Major refurbishments costs
40,000-$80,000 Consultation advice.
costs
Asset life of building
60 years
Consultation advice. Assumes property is well maintained and regularly refurbished.
Loss on building costs when sold
20% - 40%
Assumption. Loss of building value on sale because building is designed as SDA. Higher end represents loss on group
homes. Homes with higher specifications than platinum are treated in accordance with platinum homes.
Fees on sale of property
7.3%
Transaction fees, stamp duty, etc. Industry average estimated by RBA.
Debt rate
5.2%
Ten year Commonwealth Bond rate plus 2.5 per cent debt margin.
Financing
Equity rate (nominal after tax)
8.1%
CAPM, based on comparison with aged care and other health care investments.
Level of debt
60%
Comparison with financing assumptions applied in the aged care sector and other regulated industries.
Page 29 of 50
SOURCE: SDA position paper on Draft Pricing and Payments April 2016 p21
27
FOI 24/25-1795
ATTACHMENT 3
Specialist Disability
Accommodation
Market Update
DRAFT
March 2018
Page 30 of 50
