The great group home fallacy

Why are there so many vacancies in group homes operated by large not for profit organisations under the NDIS - when under block grants, finding a vacancy in a group home was harder than pinpointing the location of the Holy Grail?

I have a theory....

But first, what do McDonald's and the NSW State Government have in common? (Stick with me here, it’s kind of important to know).

Well for starters, the NSW Government was cluey enough to know that FaCS would never achieve the same revenue under the NDIS for their group homes, as they did from State Appropriations Bills. Mainly because their operating cost was too high, but also market demand under an NDIS model was impossible to predict (anyone who thought it was predictable was dreaming). And of course, if you are going to lose revenue, you need to make some decisions, fast! So what did they do? They got out of the business.... kind of. Same as McDonald's.... kind of. (Hold that thought).

McDonalds has been experiencing a decline in total annual revenue (sales) now for quite some time. See below from 2014 on.

Figure 1. Changes in revenue by quarter (source: Macrotrend.com)

But their net income (profits) haven’t suffered the same fate (mostly). See below from 2015 on.

Figure 2. Profit by quarter (Source: Macrotrend.com)

So what did they do? Well apart from sales promotions, trimming their menu, and more efficient technology, they partially got out of the business - forget about the burgers, Maccas is fast becoming a real estate business!

What they did was convert a significant number of their company owned and operated stores into franchise outlets (sound familiar to our friends from the NSW Government? - though they got out of the business of group home support, they retained the underlying property asset, complete with income stream). Not only has McDonald’s transferred the risk impact of lower sales to the franchisees, McDonald’s corporate shielded itself from swings in the fast-food market and its impact on profits by the income from lease payments made by franchisees.

It’s a pretty sound business model, no?

So what can we learn?

I know it’s hard to admit, but we have to concede the NSW Government made a pretty shrewd business decision (on this issue anyway). All of the security (and income) of a real estate asset and none of the risk of the swings in the group home market.

See - and you didn't think Maccas and the NSW Government had anything in common....

And wow, what swings in the market there have been!

The NDIS, with its focus on the individual has not surprisingly, lead to different expectations of participants (very much ‘consumers’) in this case. In short, a lot of younger people with disability (and their folks), don’t seem to be as enamoured with living with 4 other strangers most likely aged between 40 and 70 years old. Go figure....

Not only that (and I’m not going to do it for you), but click on the website of any medium to large group home operator in NSW and you will find swathes of group home vacancies. All showing the same type of photos (mostly), of drab and dull rooms - and facades of houses belonging in 70s sitcoms (if you’re old enough to remember, think Kingswood Country).

It was a fallacy to think that peoples choices would be the same when they could only take what they could get, to now when there is promise (but not yet readily available) of so much better. To reiterate my smartphone analogy from my last post, there are not too many Nokia 3110s floating around these days.

Back to group home operators and the NSW Government - a lot of NSW group home operators (in some instances the same ones with the vacancies mentioned above) were only too happy to take on this market risk (complete with enshrined high overheads) from government. And in my view, unless they do something fast, these homes will become enormous financial millstones for them over time. They can’t sell the property asset, but they are lumped with falling sales due to the decline in demand. For the uninitiated, it is almost impossible to achieve staffing efficiency - the major cost factor - as it costs the same to staff a house for 4 people as it does for 5. To surmise, they have nothing in common with the NSW Government or McDonald's in terms of business decisions. Noble? Maybe.... I have some other words - but hey, maybe time will tell that it's me that is wrong - prediction is a risky business after all.

So, in case you haven't been reading my diatribe too closely, I'll sum it up here - there are 2 major components to the current group home conundrum:

1. The NDIS needs to fund according to market forces (part of the problem is it is not really a market from the NDISs perspective, it's a monopsony - look it up). I should of said the NDIS needs to make a social justice decision to provide for truly normalised and inclusive options. I get they are reluctant to go there because of cost, but really, they were happy to beat the drum when it suited them. It’s time to have the rhetoric match the reality. A lot of people (notice I didn’t say people with disability as we are all the same) either want to live on their own, or with 1 or 2 other folks max. Preferably with people of not too disparate an age and who at least, have some common interests.
2. As for providers, give yourselves an uppercut and for goodness sake, sex it up a bit! Seriously, look at your own websites FFS (apologies for the profanity, but I feel strongly about this). I mean c’mon, would you want to live in the places some of these photos depict? Would you want your kids to live there? They are called group homes (not group houses) - make them look and feel like a home! Now before y’all get your collective knickers in a knot, I know some good work is being done by some providers and I know that there is also a lot of contemporary stock. And I also know (from personal operational experience) it is hard to make a silk purse from a sow’s ear, but that should not stop you from trying. 

I'll say it one last time, it was a fallacy to think that peoples choices would be the same when they could only take what they could get, to now when there is promise of so much better.

But unless we are going to fail the market through having market failures, there is a lot of work to be done.

NB watch out for next week's post: Footy scores and the danger of using the past to predict the future.

PS someone please employ me ??