Changes afoot on retirement living
With the publication of the government’s housing white paper – "Fixing Our Broken Housing Market" – in February 2017, experts in the funding and development of senior housing detect something of a change of tone, with more emphasis on the market for older people’s housing, and in particular, to point to alternative ways of stimulating activity.
"A transformation in thinking around senior housing is definitely required," says Kyle Holling, projects and real estate partner at Trowers & Hamlins. "There is a huge potential to unlock value in this sector – where the UK lags far behind many other developed economies – but it requires a number of market actors to start thinking differently."
One of the greatest opportunities is in an embryonic part of the sector - rental.
"People in the UK are very wedded to home ownership," says Holling. "And people in retirement are sometimes more wedded to it. If their house is their only real asset, giving it up to go and live in a rented place might be unthinkable. But in fact it might be a much better way of doing it, giving them a much better standard of living and less worry about the upkeep of a freehold property."
Tim Nye, corporate partner, feels the lack of very visible schemes showing how attractive this option is remains a problem.
"There is a lack of attractive schemes, particularly outside the South of England," Nye admits. "Without examples of what this type of living looks like in practice, seniors don’t consider it. And without seniors considering it, many funders and developers don’t see that there’s a market. It’s chicken-and-egg." Nye feels the answer for developers might be to look at the finances and an opportunity for investors looking for a reliable income-stream with the possibility of some crystallisation of capital down the track, rather than the usual invest-build-dispose model.
"Part of the problem for equity investors investing in a for-sale scheme is that they have to wait until units are sold to recoup their investment," he says. "The advantage with the rental model is that steadier income-stream and – if you can achieve sufficient scale – then the way is open for longer-term investors, such as pension funds, which will bring additional capital into the sector."
"There is a culture-shift needed in senior housing, so developers and funders start looking at the potential of rented units or entirely rented schemes, as the market matures and individuals are looking at different ways of living in retirement. If renting is available in sheltered housing why should it not be available in retirement communities?"
Holling also sees another potential wrinkle in the structure of funders. "This stuff doesn’t quite fit into healthcare, doesn’t fit in general housing," says Holling. "There are a few teams among the funders who understand, but all too often it falls between two stools."
"But there is enormous potential, and there is precedent," he adds. "Housing for sale starts as a developer model but ultimately is an operational model so people get the services they need. If you’re doing it for rent, that too is clearly an operational model."
Positioning rental as a serious option could also have a powerful effect on the housing market, Nye reckons.
"If more seniors could be persuaded to move into new rented units as part of retirement living developments, that would free up a lot of larger, family homes at the upper end of the market and get the chain moving. It could also free up a lot of equity currently locked in those houses to be invested into opportunities such as senior living."
Holling, a New Zealander by birth, notes that New Zealand is 10-15 years ahead of the UK in this regard. There, the market is a mature one, with a number of listed companies and significant interest from private equity providers.
"It would be good to have some kind of awareness-raising campaign in the UK, led from the centre," says Nye. "People need to be made aware not only that this kind of thing exists as an option, but how it works, and how it might benefit them. That would get capital providers moving as well. For example, in Age UK’s Housing options guide, retirement living is only mentioned as an option to buy rather than rent."
"Too many people still think of moving into rented accommodation as a downgrade, but if you’re moving from your own, private house into a retirement village with enhanced facilities and some kind of care support, it’s more of a lifestyle upgrade!" he adds.
There are, of course, issues. Lifetime affordability is one, but Holling and Nye see ways around this. "Any senior just wants to make sure they have enough money for the remainder of their life, but there are ways of doing this, to give that assurance, and as the model matures it may be seen as a safer option," says Holling. There may be particular opportunity in a smaller market focussed on the ‘older old’ who see less value in the need for ownership as part of a last move.
To date, the focus across the residential sector has primarily been around building housing units for sale, and one of the complications is siloed thinking among providers, funders and others within the industry.
"There are real opportunities in this sector if everyone can start thinking a little more creatively," says Nye.
"Funders, government and those going into retirement housing would all benefit if there were more focus on the possibility of rental providing people with the right home for their needs."