Income, growth and impact: Why the SDA sector is the next big emerging asset class

Born out of a government program, the Specialist Disability Income sector has expanded into a robust private market investment opportunity for those with the expertise to navigate its unique characteristics.

The Specialist Disability Accommodation sector is not particularly well known, but it’s beginning to grab the attention of investors due to a confluence of factors that make it one of the most attractive emerging asset classes in Australia.

The SDA sector is a relatively complex and, to this point, underappreciated asset class founded on the provision of housing for people with profound disabilities. Typically, these properties are specifically designed for people who qualify for funding through the government’s National Disability Insurance Scheme (NDIS).

The sector was born out of the government’s desire to create a program that encouraged private market investment in housing that meets the needs of those with complex disabilities. The SDA Program, created in 2016, provides rental subsidies for the properties that meet the SDA Design Standards.

It has expanded rapidly since then according to a recent whitepaper from Barwon Investment Partners, Investing in the Specialist Disability Accommodation Sector. Estimated at $4 billion today, the paper states, expectations are that the SDA sector will reach $10 billion to $12 billion in the next ten years.

The demand for specialist disability accommodation driving this growth is expected to grow considerably. “To meet the current demand – which includes 24,000 individuals with active or eligible SDA funding – the sector needs to deliver another 14,000 places,” the paper states, noting that many of those new places are required for eligible people still needing to transition out of inappropriate legacy accommodation such as older group homes or hospitals.

For investors, that demand points to the potential for both growth and strong, risk-adjusted income. Such is the interest that investment groups from across the spectrum are making a play for the sector.

“Larger, more stabilised portfolios managed by specialist fund managers are now gaining the attention of institutional investors, who see SDA as a higher-yielding alternative to traditional residential and build-to-rent assets,” the paper states. “This trend is expected to drive further investment growth and solidify SDA’s position as a compelling investment opportunity.”

While the government has announced plans to audit the NDIS scheme, Barwon explains, several factors mitigate regulatory risk for the SDA sector. The SDA Program is well under budget (spending only $470 million of its $700 million budget), still representing only one per cent of total NDIS budget, and caters to the most severely disabled, who are unlikely to be targeted in the government’s cost-cutting exercise.

What’s before investors, then, is a prime opportunity to invest in a sector that can provide income and the potential for capital growth, as well as the chance to contribute to genuine social impact.

“Investing in SDA not only presents the opportunity for attractive financial returns but also creates significant social impact by providing high-quality housing for individuals with severe disabilities,” Barwon states. “The investment contributes to building SDA capacity and enhances the quality of life for some of society’s most vulnerable members.”