With recent ONS figures predicting that in 10 years’ time the proportion of the UK population over the age of 60 will reach 27%, the need to address the significant undersupply of retirement housing has never been greater.
Developers and investors are rising to the challenge. Recent equity investments by savvy funds such as Oaktree and Moorfield in strong management teams (Pegasus and Audley respectively) is evidence of the growing momentum in the retirement housing sector. This looks set to be further boosted as weak post-Brexit vote sterling provides short-term encouragement to foreign investors looking to invest in the sector.
Significant challenges are posed by the Community Infrastructure Levy and affordable housing requirements, which are likely to be even more keenly felt in London in light of the mayor’s recent pledges on affordable, and continued fierce competition from housebuilders focused on five-year housing supply targets.
Alternative retirement housing models
Retirement living has traditionally focused on the downsizer and institutional care markets.
However, the decline in the construction of bungalows and the struggles of leading care home operators, weighed down by huge debt burdens, to get to grips with diminishing local authority subsidy and an increase in wage bills has led to the establishment of alternative retirement housing models.
Taking their cue from successful models developed in mature markets such as the US and New Zealand, the growth of the retirement village model is particularly interesting, as it seeks to meet the lifestyle and care aspirations of an increasingly articulate and demanding client group, with recreational facilities that allow clients to enjoy an extended middle age, and care facilities that support those same clients as their care needs change.
The focus on the delivery of this high-quality living environment chimes with a private rental approach, and it will be interesting to see whether retirement village operators embrace this model.
Given the increasing pressure on families to free up wealth to help ‘generation rent’ get onto the housing ladder, the flexibility of a rental model is likely to appeal to their client base.
It will however be imperative to ensure that any tenancy arrangement gives the client sufficient security of tenure and one solution may be some form of ‘annuity lease’ with a capital payment securing the accommodation for life and, possibly, time spent in an associated care home.
For those developers and operators willing to listen to and anticipate the needs of this rapidly expanding client group and embrace innovation and creativity in their model, there is an awful lot to play for in this fast-growing sector.
Guy Sackett is real estate partner at Irwin Mitchell