The UK government tasked a team of experts with finding ways to boost housing options for older people earlier this year. The group must overcome cultural, structural, and regulatory challenges if it is to be successful.
The UK's senior living sector enjoys a raft of demographic tailwinds.
The proportion of renters across all age categories is rising due to a mixture of affordability constraints in the sales market and a desire for more flexible lifestyles. Meanwhile, the UK population is aging at a pace that dwarfs the number of purpose-built homes available.
During the last decade, for example, a little over 70,000 new retirement units have been built in the UK - just 1% of which were built for market rent. The number of people aged over 75 has swelled by more than 700,000 during the same period. The shortfall of Housing with Care units currently stands at about 487,000 and is set to keep growing, according to our estimates.
Those numbers have fuelled plenty of interest among investors, but there remain several challenges that are preventing the sector from reaching the kind of maturity that we've seen in other specialist rental markets. The government has acknowledged the problem, and in May formed the Older People's Housing Task Force, a group spanning charities, housing associations, home builders, academics, and local government leaders.
The task force is seeking new methods to boost housing options for older people, and we believe must overcome challenges that can broadly be grouped into three topics:
The demand problem
Only a third of over-55s plan to move to a smaller home at some point, according to a 2019 study by Nationwide. That reluctance only grew during the pandemic as older homeowners became more attached to the extra space and the communities they already lived in, a 2021 study Legal & General suggested.
That’s even though renting makes sense for this cohort – perhaps more so than any other. Downsizing often unlocks a large amount of housing equity that can be redistributed across age groups or used to top up pensions. Developments are often close to amenities, and sometimes public transport, cutting down the need to drive. Outgoings become much more predictable - maintenance is no longer a burden, for example, and care is often provided on site. There is even a growing body of research that suggests older people are less anxious, more active and less likely to fall in retirement communities, which can delay or reverse the onset of frailty.
Yet meaningful numbers of homeowners still have deep-set, cultural reservations about selling up and downsizing to rent, perhaps in part because senior living has an image problem. For many older homeowners, the term conjures images of care homes or poorly built 1960s properties that are a far cry from the quality schemes of this era. Others are just unwilling to leave homes owned outright for a tenure that many perceive to be less secure.
Time will provide solutions. More people are renting for longer, so word will spread as larger cohorts of renters age. New developments consistently register high levels of customer satisfaction and ‘try before you buy’ schemes are working well for some operators. But these aren’t quick fixes. The task force will require new ways to make renting in later life a choice to aspire to, rather than what many view as a last resort.
The regulatory problem
Senior living is an umbrella term for developments that take several forms. Some have care on site, others don’t. Some are regulated, others aren’t. That discourages investors who favour simplicity.
Models that include merely collecting rent plus a service charge are easy to understand and are favoured by new entrants. On-site care is a significant draw for tenants, yet it raises the prospect of regulation that few investors are prepared for.
Partnerships could be the solution. We’re beginning to see joint ventures between operators and investors that allow each party to play to their strengths. Operators have systems up and running that can be deployed in comparable schemes quickly. The initial investment, plus a commercial agreement and a lease structure are all that’s required, but most ventures are still in their infancy. Finding new ways to bring operators and investors together should be a priority if the industry is to scale at the pace required.
The planning problem
There are as many as four types of senior living developments in the eyes of the UK planning system. Which class a given scheme falls under can have dramatic implications for viability.
A typical downsizer product for sale in England would be classed as ‘C3’, for which planners expect a chunk of affordable housing and potentially funds committed via the Community Infrastructure Levy (CIL). As more communal facilities are offered, developments begin to fall under ‘C2’, or ‘Residential Institutions’. These don’t attract affordable housing or CIL payments, so draw resistance from local authorities. After all, planners say, these are self-contained homes with their own front door, why should councils settle for less?
Senior living clearly needs its own use class, and the task force have already suggested that it’s a possibility, but it is early days. Recent efforts by the government to reform planning haven’t been smooth sailing, so whether there is the appetite among ministers is another matter.
Reasons to be optimistic
Despite the challenges, the weight of capital targeting the sector is growing and output is rising. The number of units delivered in 2022 rose 22% compared to a year earlier. There are draws beyond merely demographics that make the sector attractive, too. Attention on Environment Social and Governance (ESG) investor criteria has brought the social aspects of the sector into sharper focus, for example. The opportunity to provide a community for people previously living alone, while simultaneously releasing housing into a nation with a severe shortage has clear social benefits – research from industry body ARCO suggests an average 1.25 bedrooms are released every time a homeowner moves into an Integrated Retirement Community.
Those community benefits will keep drawing capital. Indeed, developers of larger schemes are increasingly including senior living in masterplans for the societal benefits they provide - a mix of tenures and demographics are essential for thriving communities.
But tackling these barriers – particularly via legislative support - will be crucial. In New Zealand, where the senior living sector is underpinned by the Retirement Villages Act of 2003, 5.5.% of over-65s live in IRCs, according to ARCO. Similar legislation exists in Australia, where 5% of the same cohort live in IRCs, and in the US, where 6% live in IRCs. In the UK, where there is no legislation, just 0.6% is estimated to be.
Proper support could set the foundation for growth to accelerate. The UK government’s 2014 task force aimed at supporting the private rented sector underpinned a period of enormous success. Indeed, just the acknowledgement from government that the senior living sector will need its backing to be successful is a vital starting point. We’re confident that the task force has the strength and depth of skills to do the rest.
