Over the next two decades, the UKs older population is projected to grow substantially, with people aged 65 and over making up almost a quarter of the population by 2043 – 17.4 million people in total – and the number of over 85s expected to double to 2.6 million.
Despite this, there has been a historic undersupply of purpose-built retirement housing. In 2014, such housing made up only 2.8% of all new homes under construction in the UK. New care home construction is also failing to keep up with the growth in the older population. Across the UK, the number of beds only increased by 0.9% between 2014 and 2019, while the population aged 85 and over grew by 9.1%.
The sector also faces an issue with ageing property: according to the Elderly Accommodation Counsel (EAC), of the 730,000 retirement homes across the UK, more than half (52%) were built or last renovated more than 30 years ago.
The upshot is a serious shortfall of appropriate accommodation for the older generation and the retirement living rental sector could help fill the void.
Traditionally, investors associate the younger demographic with the rental market, but analysis by Paragon Bank shows that those in the 55 to 64 and 65-and-over cohorts of tenants are the fastest growing segments of the private rented sector, increasing by 118% and 93% respectively since the turn of the last decade. The number of privately rented homes in England where the homeowner is aged 55 or over has more than doubled since 2009/10 to 576,000.
With UK mortgage lending expected to slow sharply in 2023 due to rising mortgage rates and falling real household incomes, many more older people may decide to rent. But shifting attitudes towards retirement are also driving the change. Figures from the English Housing Survey show that almost 1.5 million people who are 65 or over are now choosing to rent, rather than being forced to.
Covid-19 is likely to have been a factor, too. New retirees don’t want to just stop work and sit back – they want to enjoy a more active, flexible way of living and renting keeps their options open. Most retirement rental properties are available on assured ‘lifetime’ tenancies, which give the same security of tenure as homeownership.
Those looking to rent in later life are also often attracted to a home that not only requires less maintenance, but offers lifestyle factors that modern apartment buildings can offer, such as gyms, swimming pools and communal areas. They value being part of a social community, having shops, health facilities and good transport links all within easy reach.
Although the retirement living sector is aimed at a different age range, with different healthcare and wellbeing needs, it nevertheless has strong parallels with the more established BTR sector, in that there is a shared aim of creating exciting new communities people aspire to live in.
For the BTR investor too, older renters may be seen as a reliable source of rental income. Older tenants typically stay in a property for longer, maintain the home well and benefit from stable income, usually in the form of a pension. The Paragon report found those over 65 were less likely to report any difficulty paying rent.
Investors are increasingly moving into the retirement living market. Knight Frank found 67% of respondents of leading investors across residential investment sectors said they expect to be invested in the seniors housing rental market in the next five years, up from 31% who said they were currently investing.
Knight Frank estimates that the number of private senior rental properties in the UK will increase by 114% over the next five years, from almost 5,000 to more than 10,500. However, it said seniors housing rental stock will still only account for 1.3% of the total number of specialist senior housing options.
The retirement living sector has clear room to grow and continue to make further inroads into the older demographic - and the opportunities could also help tide the property industry over when a downturn is being predicted.
Michael Lytrides is a director at property and construction consultancy McBains