Having a senior moment? The growth of retirement communities in the UK

It is estimated that over the next two decades, the number of people aged 65 and over in the UK will increase by more than 40 per cent¹ and by mid-2039, more than 1 in 12 of the population is projected to be aged 80 or over.²

An ageing population, coupled with the increasing demand for homes across the country, has created a unique set of circumstances which will challenge the way we have traditionally thought of residential and care development schemes, encouraging an overhaul of housing development strategy in the UK. This raises important questions for the built environment sector, both in terms of the development of and investment in housing and care structures to cater for the ageing population.

The trends in the UK housing market have meant that older members of the population have benefited from rapidly rising house prices. It is estimated that in the UK the over 50s hold 66 per cent of all housing wealth, equalling about £2.5 trillion.³ The UK’s retirees have significant equity wrapped up in under-occupied properties; properties which are not equipped to serve their owner changing community and care requirements.

The Associated Retirement Community Operators, the body representing the retirement community sector in the UK, estimates that 33 per cent of over 60s would want to move if suitable properties were available but there is a huge shortage of supply of suitable retirement communities;⁴ with Knight Frank noting in 2016 that only 3 per cent of new housing which had been granted planning permission was specifically for elderly or sheltered accommodation.⁵

The older population have huge potential spending power if suitable and appealing retirement properties were available: properties which would not only allow their owners to realise the equity that has built up in their current homes but also cater for a range of ever-changing and growing healthcare requirements; providing a supportive community within which to live and participate. Could the development of retirement villages and specialised senior living housing address the increasing costs and demands of community care and offer an answer to the housing crisis in the UK?

Breaking the mould

The market for US style retirement “villages” has huge potential for growth in the UK and offers many social and economic advantages. The concept is centred around self-contained houses and apartments (which can be purchased or rented), with additional shared amenities, leisure facilities and activities available to all. On-site care provision would also be available if required and could be used to a greater or lesser extent depending on individual needs, thereby increasing the likelihood that residents in the villages would be able to stay in their own homes as they age rather than having to consider a residential care home.

Such developments are on the rise in the UK and this trend is likely to continue. In an effort to increase their appeal to consumers, developers are increasingly diversifying the products which they are able to offer.

In order to create a sufficient “pull” for people to consider moving, developers are seeking out unique and aspirational locations; often choosing stately homes as the centre of their schemes. There has also been a notable rise in mid-to high-end and luxury retirement properties aiming to capitalise on the increasing affluence of the over 65s and the wealth of the next generation of retirees.

Leasehold and ownership structures

There is also an increasing awareness among senior living providers of the need to offer consumers a choice of ownership models to suit a wide range of financial situations and arrangements.

In the past it has been most common for senior living facilities to offer leasehold ownership to occupiers, with service charge and ground rent charged to leaseholders. The operator would also usually benefit from an Event Fee which would be payable when the occupier vacated the property.

The accepted leasehold model allows for an immediate return for a developer but may not suit a consumer who does not wish to reinvest their capital into a property, but would rather increase the money they have available to them in their senior years. Developers are increasingly offering private rental properties to consumers and shared ownership options are also on the rise. Care packages can also be purchased as necessary to prevent an increased cost for those who do not require substantial care. The increased flexibility around ownership and costing models is an important step forward for the industry, providing a variety of schemes to suit its increasingly diverse customer base which will encourage retirees to embrace the concept of retirement living.

The Government's response

The growing pressure to provide a solution to the housing crisis has forced the Government to look to the top end of the housing chain for an answer; by capitalising on the initiatives of developers and operators who have been working to increase the popularity of senior living schemes.

The Housing White Paper highlighted a commitment to improving options for older people by ensuring that there is a more consistent delivery of accessible housing and producing guidance for local planning authorities on how their local development documents should meet the housing needs of older people.⁶ Although the paper did not go as far as many in the senior living industry had expected or hoped, it did signal a clear indication that senior living was to be a focus area going forward.

Investor appetite

The focus on senior living has not gone unnoticed by investors who are well aware of the pressure on the UK housing market and the growing wealth of the UK’s retirees. Although investment in senior living has been slow in comparison to the huge growth in student housing and build-to-rent schemes, government funding cuts and the sharp demographic change make it increasingly difficult for local authorities to fund the needs of the growing ageing population.

Historically poor returns on such investments along with high maintenance bills and the unpopular event fees hindered investment, but senior living investment is seeing increased activity. Luxury senior living provider Pegasus Life, which is owned by Oaktree Capital Management, has an estimated value of £500 million and recently Impact Healthcare REIT raised £160 million through an IPO. Whereas the Moorfield Audley Real Estate Fund has raised £285 million of equity in recent years.

Conclusion

In a market where demand far outweighs supply and the fact that investors are seeking to diversify their portfolios and secure long-term income means that senior living is set to become an increasingly popular real estate asset. Whether the Government’s policy making will go far enough to revolutionise the top end of the housing chain remains to be seen, but the growing popularity of retirement villages with consumers suggests that they will become a key feature of the UK’s housing market and therefore a key asset for investment.

Co-author: Louisa Bradley, Associate

Ashurst and the Built Environment 

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