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Phil Schmid, Director in JLL's Healthcare team examines the state of the retirement living and care home sector
5th December 2016 - With no reform or extra funding for social care in the Autumn Statement, we will see more of the same which is an underfunded care system on its knees. However, for some investors and operators this represents a chance and an opportunity to develop alternatives and drive innovation in a sector ripe for change. The NHS remains a key concern of the voting public and central government continues to prop up an ailing system which is in desperate need of an overhaul. As home care providers, such as Mitie and Mears continue to withdraw from Local authority social care contracts it is expected that the pressure on the NHS will only escalate. Politicians will be faced with increasingly unpalatable choices. The one constant is that politically the NHS is likely to remain ‘free’ at the point of service. Any new charges for doctor’s visits, missed appointments, accommodation in hospital etc will remain politically unacceptable, at least in this parliament. The failure to find more funding and the past inability of the NHS to show it can make efficiency savings means that next year is likely to be dominated by several trends in the health and social care sector. It is likely that key features of the health and social care landscape over the next year will involve further rationing, reducing the scope of services, tariff reduction and abandonment of targets such as waiting times. For care operators reliant on local authority funding the future is bleak. Record numbers of care home businesses are becoming insolvent as wage inflation continues to outpace fees and the standards demanded by the regulator continues to rise. The Social Care Precept and Better Care Fund are welcome but these measures are simply plasters which will be unable to provide a long term sustainable solution to the social care funding gap. Private payers, already nationally accounting for around 40% of the market by revenue, will continue to grow in importance given the rise in housing equity held by the over 80s, in part fuelled by Thatcher’s 1980s right to buy policy. Far from being restricted to premium pay, they encompass all those with assets over c£23,000. Value for money will be a key consideration for this demographic. As the Urban Land Institute emerging markets survey 2017, healthcare and retirement housing is top of the pile for future opportunities for investment. This is due to an elderly and richer demographic and the opportunity to innovate and rethink provision. The shifting mentality and acceptance that we need to take charge of and provide for our own care is providing operators and investors with significant opportunity to innovate how care is provided and where. This is clearest in the mid-market who are seeking more cost effective and better value provision. This is where the opportunity presents itself to shift the focus to prevention and not cure. Focusing the efforts on preventing care needs, tackling isolation and providing alternatives to the current merry go round of care system by making better use of real estate and the built environment is where opportunity lies. Our recent work in the retirement housing market is where we are seeing real innovation and change. New designs, new provision, new concepts and new services are being developed and offered as developers, providers and investors interact with a new generation with new needs. This is the party generation, the first that didn't get on a plane to go to war, of civil rights, package holidays and automation, not the make do and mend inter war generation that went before who put up with things and didn't complain. The shifting desires means we have to develop real estate that is aspirational and draws people in to make it a choice not a last resort.As the proverb goes ‘If you do what you've always done, you get what you've always got.’ Now is the time to turn real estate on its head.
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