Institutionalisation of RE: retirement living

Retirement housing in the UK has evolved over the last 30 years to meet the changing care needs of older people as they live longer, such that the stratification has deepened.

Modern ‘retirement living’ homes aim to provide an alternative to private residential housing and traditional care homes, for older people who want a balance of independence, care on-demand and a community. 

The structural headwinds which support the sector are similar to the healthcare sector and include: aging population, rising care needs while state funding likely to recede, supply and demand imbalance, and rising affluence of over 65s.

JLL says that the outlook for the sector will be shaped by three main factors.

  • The significant growth of over 65s by 2025 (14.3 million – a 22% rise);
  • £800bn of housing wealth in the retiring cohort gives them significant capital; and
  • Increasing care and support needs of the over 65s that can be managed outside of institutional care settings.

Legal & General entered the retirement living sector in 2017, first time institutional money entered the UK sector.

Phil Bayliss, head of later living at Legal & General Capital, said: “Comparative to market penetration in Australia and New Zealand, in the UK, we are still in infancy of the market.  Yet, with the highest proportion of our population aged 65+, the investment opportunity is clearly vast.  To meet just 10% of the current demand for appropriate later living housing, a £90bn investment is required. 

“When it comes to defining the maturity of the sector, this really comes down to its liquidity, and the accessibility to high quality data to allow the investment eco system to analyse the risk and reward.  For the later living sector to make the shift from nascent to mature it will need large scale, long-term capital investment.” 

To attract this investment, Bayliss says there needs to be three shifts in the way the sector is legislated and regulated:

  • A new specific planning use class for retirement housing, this would help the planning process, facilitate development and encourage expansion in the sector.
  • The introduction of legislation and overall regulatory framework for housing-with-care.  This would build consumer confidence while simultaneously providing longer-term certainty for operators and investors.
  • Consider alternative models to leasehold.  The 125-year lease is outdated.  New Zealand has introduced a right to occupy/lift time lease, which allows you to re issue new leases each time someone moves in.  This allows you to refresh the contract you have with the resident. UK leasehold will cause schemes to age from a legal perspective, this deters large scale M&A. 

Bayliss continues: “This type of housing should become part of the local authorities’ specific housing targets.  The National Planning Policy Framework has been a success for wider housing targets, but thus far has overlooked the requirement that a substantial number of homes need to be later living housing.

“Ultimately, it’s the customer proposition that will drive forward success in this sector.  Opting for the operator and developer model (as ARCO members), alongside the likes of AXA and Goldmans, means that we are looking for long-term, predictable, stable recurring returns, as opposed to the one-off profit you get in the development space.”

james.wallace@realassetmedia.com