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LONDON, 27 March 2017 - JLL has the largest dedicated alternative investment team in the property industry, having been active in the market for over 30 years. In 2016, we were directly involved in nearly a quarter of all alternatives transactions, as well as our specialists providing consultancy and valuation advice. Our team comprises experts in sectors outside the mainstream property sectors, encompassing healthcare, student housing, hotels, self storage, private rented sector, renewables, higher education and data centres.The Retirement Living team sits within the Healthcare team and works with investors, developers and operators across the sector. Recent research by JLL into the sector can be seen
The adequacy of provision of homes for older people and the challenges people face in accessing housing which meets their needsMany retirees want to live in more appropriate housing, but there is a chronic under-supply of high quality housing that suits their needs as they age in the right locations. The over 65s are more affluent than those aged under 45 and many are looking for mid to high end developments fuelled by housing equity or good pensions. While the affordable end of the market counts for 75% market supply, it only accounts for 25% of total demand. As a result recent mid to high end schemes being developed across the UK are being fully sold off-plan, with long waiting lists for existing schemes.
JLL estimates that there will be a potential requirement for up to an additional 725,000 Housing with Care units by 2025 with the majority of these targeting the mid and upper ends of the markets.Whilst there are obvious difficulties in encouraging people to make what is an emotive move, helping them do something they may not have done for 20 or 30 years, the key issue remains the lack of choice and places for people to downsize to; appropriate and attractive homes in the right locations are of far greater importance.
The single biggest challenge facing older people is a complete lack of appropriate housing choices to suit their lifestyle, care or support needs as they age.The adequacy of current planning policy and Government initiatives in England in meeting the housing needs of older peopleAt present a key risk for developers and operators in the sector is the uncertainty over planning and the frustrating delays in securing planning. Purpose built retirement developments have a higher level of amenity and communal space than mainstream housing, and the cost to develop housing for this sector is therefore higher against the net sellable area.There potentially needs to be protection or classification of land allocated to retirement living developments to ensure that the right type of housing is being built in the right locations to enable older people to remain independent should they wish.Allocating developments as C3 rather than C2, makes many of them unviable once affordable housing requirements are included or punitive CIL rates applied and a review of its application or use in this sector should be considered. The current set up for charging Community Infrastructure Levy at a flat rate can fail to take into account the significant unsellable space (compared to mainstream housing) that is required to deliver the benefits sought by occupiers, planners and health bodies desperately want. At the very best, this one size fits all approach makes sales prices too high for the very market being targeted limiting the number of locations that are viable for retirement communities to the very high end of the market. The outcome is often the retirement housing providers are out bid by the main stream residential housing developers.Whether more housing designed specifically for older people could help address England’s wider housing needsIn the UK the vast majority of the over 65’s live in mainstream housing, in many cases their original family home. Aside from building more general needs housing to free up supply, provision of family homes can be increased by reducing under occupation in existing homes. Addressing the issue in the older owner occupier market by giving them more choice in downsizing and the specialist housing markets will help release larger and under occupied properties back into the market and effect a movement throughout the market. Indeed the Royal Institute of Chartered Surveyors estimates that this could release around 2.6 million houses, a figure that could help ease the growing housing crisis, equating to 10 years’ worth of housing supply. The extent to which improving specialist housing provision in England could improve people’s health and wellbeing, and deliver savings in public expenditureThe social care system is suffering under severe strain due to changing demographics and bed shortfalls. The widespread cancellation of council contracts by care firms recently uncovered by Panorama, is another demonstration of the state of emergency that the state funded social care system is in and the need to facilitate acceleration of retirement living developments as a means to deliver more cost effective care and support.Whichever way we look at it, social care funding is not working, and the problem is only going to get worse. Attempts at demand management have failed and are instead reducing supply. The upper threshold for social care funding has been frozen since April 2010. Since then, inflation has increased over 20% and house prices by almost 40%. The system already recognises wealth over income. The easiest way to ease the pressure on social care funding is to make it easier for people to release their wealth and save for their care in a tax efficient way. Let public funding be used for those in the most need of it.
JLL chart highlighting the unsustainability of the system. More and more elderly are falling outside the £23,250 thresholdAdvances in medical treatments means that many medical conditions are now manageable in residential settings and do not require support in the traditional care home setting. The principal aim of retirement housing is to provide an alternative to private residential housing and residential care for older households. It targets those older people requiring specialist-housing support or care (or will in the future) but who also wish to maintain their independence and can provide a community (with on-going activities and support provided), not just housing.Retirement developments offer more than just housing, they help combat loneliness and knock on health issues. A recent report from the International Longevity Centre, ‘Village Life,’ found that the average person in a retirement village experiences half the amount of loneliness (12.17%) than those in the community (22.83%). Furthermore, these developments enable tailored domiciliary care to be more efficiently delivered once again helping to reduce the burden on wider health services.There is real innovation and change in the retirement housing market. 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.Housing with Care is a diversification of retirement housing provision. It is an accommodation response to this increase in manageable care needs and desires of older people to remain at home for as long as possible, avoiding institutional care if possible. It provides housing that can be adapted and modified to their needs with care and support services available on-site in a flexible way, tailored to residents’ particular and evolving care needs. Staff are available 24 hours a day and there are a variety of facilities, depending on scale, that help facilitate an active and independent lifestyle. Housing with Care can therefore provide both independence and care provision. It will span a much wider care need and Accommodation spectrum. 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 will ensure that people’s care needs are more effectively met and will relieve pressure on the social care system.
Infographic from JLL research ‘Retirement Living, where is the opportunity?’ highlighting the various forms of housing options for older people (retirement living) The availability of finance to help older people 'right size' in retirement, and the impact of the cap on Housing Benefit from April 2017 on the development of specialist housing Recent analysis from the council of mortgage lenders showed that while those aged over 60 make up 21% of the total UK population, they account for only 9% of mortgage holders and hold a significant 14% of the total equity of the mortgage-holding population By the age of 60, the average mortgage holder has a debt of £90,000 but free equity of almost £150,000. This shows that many are sitting on the equity that they need to enable them to control their future. Those who can afford to fund their housing and care needs from housing wealth should be encouraged and rewarded to do so and the use of measures such as stamp duty exemption should be used. This may not be politically popular, but could be the only way that the system is made more sustainable.
Whilst many older people may have equity in their homes, for some portions of the market his equity would not be sufficient to cover the purchase of a new property. Use of equity release, growing rental choices or mortgage products for those that have sufficient pension income are other ways that can release individuals capital to afford to move; indeed the rental market offers significant opportunity to better cater for older people changing accommodation and care needs; encouraging people to live and move to the right property and is a market that would attract significant institutional investment in the same way we have seen in the student housing and build to rent market.It is time we recognised that there is simply not going to be enough public money to satisfy all the demands made on social care funds. Endless Government reports and commissions over the last twenty years have sought to avoid this conclusion and have come to nothing.
The Law Commission has recently undertaken some valuable and useful work into the issue of event fees which has brought much clarity to the market, and reduced the uncertainty over their use. Event fees are another tool that can be used by operators and developers to unlock sites on viability or reduce costs to a manageable and sustainable level.It is our view that the use of event fees helps marry and align the interests of the operator/owner with the individual property owner/resident to ensure the long term success and viability of a village. We would welcome the government’s implementation of the code of practice when the Commission’s final report is published. This will give more certainty to consumers, operators and developers alike. Whether a national strategy for the support of housing provision specifically for older people is neededThere is a vast supply imbalance in the UK retirement housing market particularly in the mid and upper ends of the market. Existing policy and guidelines could be easily modified to develop a coherent strategy to ensure the delivery of much needed provision up and down the country removing ambiguity and stopping councils from hiding behind woolly policy. The recent housing white paper included reference to introducing specific guidance for planning authorities in this area, however a single one size fits all approach is not necessarily appropriate.Whilst authorities should be forced to develop policy based on strong and clear guidance from central government, the exact wording and concepts around it should be left to the local authority. It should not be exclusively focussed on affordable provision where it has historically been and should be focussed on the genuine mix and make-up of the local market. As highlighted previously the vast majority of the older population will fall outside the remit of state funded support and therefore policy should look at ways to develop private led developments.Any strategy will also need to consider health funding. Policy will need to remove concerns of some authorities over older people moving into an area which increases the strain on health services either due to its proximity to services, or its attractiveness to older people as a destination.For investors and developers this form of housing is attractive as there is an enormous opportunity for investors and operators to fill the significant void for a mid-tier of care provision aimed at those excluded from public pay and the South East focussed prime market.The retirement housing market is buoyant as highlighted in recent research that we undertook into sales of managed retirement communities that are owned and operated by the Association of Retirement Community Operators (ARCO) listed members. This market is driven by longer term cash flows and success of developments which is where the majority of the institutional investment wishes to enter the market rather than the shorter term pure development profit model.Our initial research findings are very positive on the long term performance of the sector. It involved a review of approximately 5,500 sales of ARCO member properties, taken from the Land Registry which goes back to 1996. We have identified just over 3,000 resales that have occurred in this time. The total aggregate of all sales since 1996 (ignoring house price inflation of those properties) is well in excess of £1 billion.Our initial findings show that 80% of resales saw a price increase, with approximately 2% remaining the same. The remaining 18% saw a price decrease. The vast majority of those that fell in value fell by less than 5%.The average price change between sales was an increase in excess of £40,000 with an average of just under 8.5 years between each resale. This equates to an average price increase in the region of £5,000 per annum. It is our opinion that managed retirement communities, where the owner and operator has a long term vested interest in the management and success of the scheme, that resale values perform well, increasing in value or at least tracking the local housing market provided schemes are well managed, well run and operated like any other business.There is also the fact that due to the need for less intensive levels of care staffing for retirement living, the impact of the increase in the National Living Wage is less noticeable than for operators in the care home sector. More favourable planning measures will act as a further incentive for them.Conclusion
It’s clear that retirement living is crucial to reducing the strain on the burdened NHS and Social Care services, providing alternative settings for people to be looked after as they age. For investors and developers there are clear opportunities in building a more diverse range of retirement housing as there is a high level of demand beyond the affordable end of the market. The single biggest challenge facing older people is a complete lack of appropriate housing choices to suit their lifestyle, care or support needs as they age. Ensuring that local planning guidance recognises and facilitates this will stimulate more growth across this sector and will lead to more mainstream housing being freed up as older people are given greater choice and more suitable options in housing provision.
Phil Schmid, Director in JLL’s Healthcare teamAnthony Oldfield, Director in JLL’s Healthcare teamJames Kingdom, Head of Research, JLL Alternatives team
Lauren Keith, PR Manager, JLL UK
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