Senior housing: why the UK should look at New Zealand

The UK needs to become more like New Zealand, experts agreed at Real Asset Media’s SHHA In-Depth: Best Practice from the UK – Integrated Retirement Communities webinar, which took place online this week.

“The largest housebuilder in New Zealand, Ryman Healthcare, does retirement villages just like we do, but they’re a listed company and have been very successful in attracting capital,” said Nick Sanderson, CEO, Audley Group. “It will happen in the UK as well, but it will take time.”

The retirement village concept has long been embraced in New Zealand and the sector was regulated back in 2003, which has given both residents and investors confidence in the system. In the UK it is not regulated.

“With regulation, IRCs became more valuable in New Zealand and therefore more investable, creating a virtuous circle,” said Michael Voges, executive director, ARCO. “But in the UK we are 20 years behind.”

That virtuous cycle has yet to start in the UK, as institutional capital is still not convinced and the sector does not have enough of a good track record to persuade them.

“When it comes to senior living with an additional element of care we’re way behind in the UK,” said Freddie Wonnacott, director, fund management, M&G Real Estate. “Until now it’s attracted the more high-octane investors, comfortable with taking risks in exchange for double-digit returns. What is required now is more core capital.”

Looking at the number of beds in senior accommodation that are delivered, it is a fraction of what is delivered in student housing in the UK. Yet they are both living products that are in demand but require operational capabilities.

“In New Zealand it started with care home operators moving down the acuity scale, while in the UK it’s been housebuilders trying to sell flats with a few services bolted on, but it doesn’t work,” said Voges.

Getting the operational side just right is crucial. “Retirement living is a deeply operational asset class,” said Domas Karsokas, investment director, Octopus Real Estate. “There are so many different levels of expertise needed to make it work. We don’t just sell real estate, you need to get the customer offering right. Our goal is to improve older people’s quality of life.”

Prospective customers already have a home, which they are in most cases reluctant to leave. What they need is a desirable alternative that provides community and companionships, and that offers care and support when needed.

“What New Zealand’s Ryman group is interested in is the long-term income from the operational side rather than the house building side,” said Sanderson. “But in the UK, some investors are afraid of operational risk, so they are just not interested in operational platforms. Institutional capital is not yet ready to commit, while our customers, who sell their homes and invest their own wealth, are believers. They are ahead of the curve.”