The baby boomers are here. Home ownership amongst them is high but nationally the UK has recorded an overall increase in renters, and trends suggest there will be an increasing pool of renters in later life in the future.
Generally across later living there are not enough quality homes for older people. The UK lags behind other major developed countries in this aspect. According to ARCO (Associated Retirement Community Operators) only 0.6% of over-65s currently have the opportunity to live in an Integrated Retirement Community in the UK, compared to at least 5-6% in New Zealand, Australia, and the US.
BNP Paribas Real Estate Analysis shows a shortfall of 487,000 units in the Senior Living sector.
There are some very tangible and far-reaching societal benefits in providing housing with care to people in the retirement stage of life including to improve health and wellbeing, strengthen the housing market, relieving pressure on the NHS, and boosting local economies. Additionally providing suitable housing for retirees who wish to downsize, can put existing, often underutilised housing stock, back into the market, in-turn improving housing supply.
According to the English Housing Survey, 80% of over 65s own their own home (either with a mortgage or outright). However, in the latest Housing Futures, a consumer survey published by Strutt & Parker, 48% of those over the age of 66 would prefer to rent their next home. It is not anticipated that the current baby boomers who have hit retirement will easily be swayed to become renters, as they are likely to have been home owners most of their adult life. However, the benefits of renting in retirement should not be overlooked. The freedom from property maintenance and mortgage payments, in addition to the simplicity of a consistent monthly rent, can all ease stress on individuals at this later stage in their lives. Importantly, the sector desperately needs to plan ahead, looking to the future, and create homes for the growing percentage of life long renters.
A severe undersupply of Housing with Care
There is a severe undersupply of Housing with Care communities in the UK. ARCO estimate around 70,000 Housing with care Units in the UK housing 90,000 people. There are 12.7m over 65s living in the UK (source ONS Population Projections 2020-based) and this is expected to increase to 16.5m by 2036. Assuming demand for housing with care is c. 5%, in line with other developed countries such as New Zealand, and adjusting for the number of beds per unit, BNP Paribas Real Estate estimate a shortfall of 487,000 units which need to be built. Assuming 150 units per community, that’s 3,245 communities needed to account for the shortfall. Moreover, this doesn’t account for the 31% projected increase in 65 years plus over the next 15 years.
(NB the government target for the whole housing market is to develop 300,000 per year; a target which is yet to be met.)
A decline in home ownership
Home ownership has steadily declined from 70% in the early 2000’s to 64.9% today. A slight increase on a low of 62.6% in 2016-17. Meanwhile, the private rented sector doubled in size from 10% to 20.3% in 2016-17. It has since declined marginally to 18.5% (2020-2021). There are a number of explanations given for this decline, including landlords exiting the sector due to more stringent regulatory and compliance conditions, and government support measures to assist first-time buyers through schemes such as Help to Buy. Nonetheless, home ownership unaffordability continues to ensure demand for rental property is high, yet the number of available homes has declined. The rising cost of living and increase in interest rates is anticipated to impact on affordability further, driving more people in to the rental market.
Generational Cohorts
As you move down generations, the numbers show an increase in the proportion of renters, with the average age that people get on the property ladder steadily increasing and now sitting at 32 years old according to Halifax. The challenges to get on the ladder include the growth in average house prices and difficulties in saving for a deposit.
As a result of challenges in the housing market, and as the data suggests, the proportion of the over 65 renters is set to increase.
According to the 2020/21 English Housing Survey, 75% of households, where the age of household reference person is over 65, own their homes outright, with an additional 4.7% owning their home with a mortgage. Only 5.6% of over 65s are private renters.
However, when you look at the same stats for households where the household reference person is between 55-64 year olds, these trends start to shift, with a higher presence of mortgage use, and a doubling in the proportion of privately rented households to 11.3%.
Looking specifically at those aged 45 – 64, over the last 15 years there has been an upward trend in the proportion of households with the reference person in that cohort, in the private rented sector.
Between 2010-11 and 2020-21 the proportion of households with the reference person aged 45-54 living in the private rented sector, increased from 11% to 16%.
Between 2010-11 and 2020-21 the proportion of households with the reference person aged 55-64 living in the private rented sector increased 6% to 11%.
These figures can also be viewed in absolute numbers, and in doing such, highlights the need for investors to consider the rental option within housing for older people. There will be far fewer (-2,476,000) owner occupied households reaching retirement in the next decade than in the last decade, and more private rented households (+103,000) reaching retirement than ever before.
And whilst it’s fair to assume that most owner occupied households would want to continue to be owner occupiers in retirement, the 9th edition in Strutt & Parkers Housing Futures series (Life Moves: Reimaging Our Homes) suggests that this is not necessarily the case, with 48% of those over the age of 66 indicating they would prefer to rent in their next home.
What does renting in retirement offer?
The idea of renting in retirement can make existing home owners nervous. Understandably tenancy agreements can be a daunting prospect if you have never rented before, and some home owners may see the rental market as offering a lack of security and stability. However, there are a number of benefits that should outweigh this nervousness and with the right regulations, this should reassure potential residents that renting in retirement can be the better choice. Aside from the well-publicised benefits of living in a retirement community, including:
- Maintain independence and enjoy the benefits of a community
- Reduces loneliness
- Improves quality of life, physical health and mental well-being
- Care at hand
Renting removes the burden that can come with being a property owner, for example, uncertainty of mortgage payments and property maintenance, flexibility, freeing up of equity, and no event fee.
So where does the sector go from here? We are living in increasingly challenging economic times and yet this cannot stand in the way of the growth of supply in the senior sector. Demographic changes will continue on their expected trajectory, whilst issues of affordability in home ownership will ensure continued demand for rental property is high. The government, local authorities and the real estate industry desperately needs to plan ahead, looking to the future, and create future-proofed homes or free up alternative housing options. Whilst they must consider the growing percentage of life long renters, all tenure types must be delivered, catering for all levels of affordability amongst our older population, today and in the years ahead.
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