The senior rental campus is relatively rare in the UK. Ellie Jukes and Imogen Ebbs explain why it could offer solutions to an ageing population
Senior housing spans a broad spectrum, from age-restricted independent living units all the way up to retirement villages encompassing nursing homes and dementia wings. These facilities differentiate themselves from traditional elderly care provision by offering a blend of accommodation and hospitality – a lifestyle offer compared to the more institutional-style or ‘mom-and-pop’ homes.
These community-style developments first evolved in the US in the 1960s, built by charitable trusts as a response to an ageing population. It was the not-for-profit sector that also pioneered these types of villages in Australia and New Zealand in the 1980s.
Senior living developments are deeply embedded within both the local communities and national psyches of the US, Australia and New Zealand. There is specific legislation and regulatory bodies to protect the interests of residents and operators, and it is much more culturally acceptable to live in these facilities than here in the UK. As a result, Arco estimates that in 2014 between 5% and 6% of the New Zealand, Australian and American populations lived in some form of retirement living scheme. The corresponding figure for the UK is 0.5%.
The senior rental campus is a specific sub-sector of the retirement living market. These are lifestyle rather than care-orientated facilities and targeted at the over-55s. Importantly, they are developed within existing urban areas in high-density formats due to the scarcity of residential sites and rising land values.
The campus-style development is intended to be the first point of entry into the care system but also acts as a local hub, providing services to the wider local community alongside residents. This brings life into the scheme; residents can still be part of the local community and renting out of multi-purpose rooms can provide an additional income stream for landlords.
The rental model is a lifestyle preference, not dissimilar to the multi-family model prevalent in the US. It allows the resident to live in age-appropriate housing without the upfront financial commitment or delayed management fees of the ‘for sale’ model. The rental package usually includes a base level of hospitality, with residents able to top up with payable extras as required to ‘age in place’. Medical services can also be hired from third-party providers.
Research from AEW suggests that average monthly rents in the US are in the region of $2,500-3,000 (€2,202-2,643) per month. From a landlord’s perspective, the majority of revenue is derived from rental fees with a small premium included for hospitality services.
Senior living communities do exist in the UK. However, village-style developments are typically lower-density and located outside major population centres. This means they are away from key infrastructure and services, and it is harder for residents to integrate with the local population.
The majority of units, particularly on top-end schemes, are available via the for-sale model, where units are sold on a leasehold basis. Deferred management or exit fees are sometimes included, which have proven controversial due to the opaque nature of select contracts.
While this may work for some, it is not suitable or attainable for all elderly people in the UK. Despite this, JLL estimates that only 3% of retirement living units built in 2015 were available on a rental basis in a ‘housing with support’ environment. This is down from 42% in 2000.
Structural and cultural reasons are behind why the breadth of UK senior living options has not evolved as quickly as in other western markets.
The level of home ownership and propensity to take on a mortgage is higher in the UK, making it more complicated to sell the family home to release equity. There is also a lack of transparency about the funding of care options, and the sector currently has something of an image problem following the demise of Southern Cross, once the UK’s largest care-home provider.
Alongside these cultural headwinds, the supply of purpose-built senior living has lagged other countries. The first wave of units were converted family homes as corporate groups did not have a major presence in the market until the 1980s. Even today, many elderly care homes in the UK are residential conversions. Much of the existing provision of lower- and mid-market senior living schemes was developed by affordable providers with the support from social services in the 1980s and arguably is no longer fit for purpose.
Is the UK ready for rental? Urban, campus-style developments and the for-rent model of senior housing have been proven to work in a range of western economies. However, we believe that the UK has a demonstrable lack of retirement living options across financial models and price points. Private capital has a role to play here; aligning institutional capital with long-term macro trends provides a compelling investment case for social infrastructure because assets are underpinned by the pervasive needs and demands of society.
Retirement living as an asset class fits comfortably within this investment case, with potentially far-reaching social impact. This sector offers an asset-led solution for tackling the UK housing crisis by freeing up large family properties, thereby boosting the UK economy, improving housing affordability and generating benefits across the property market. It would also go some way to addressing the long-term housing and care needs of an ageing population.
Age-appropriate housing can deliver a number of benefits, such as safer accommodation, smaller energy bills, reducing loneliness as well as increasing life expectancy. By tackling the cultural and structural headwinds that have historically stymied the growth in this sector, we believe this product will be attractive to downsizers and ultimately make modernise retirement housing.
Through clever design and efficient construction methods, high-quality schemes can be provided at affordable prices.
Integrating these homes into the community with access to public transport, amenities and intergenerational interface is critical to creating a successful model. The financial structure is also important, with a need for greater choice in tenure for older people. Much emphasis has been placed on owner occupation, yet the business case for a private rental model is becoming increasingly compelling. This approach gives the resident freedom, flexibility to relocate and security of tenure.
Finally, we believe that to make a real impact in this sector the product needs to target the widest, underserved mass-market rather than catering for only the most affluent buyers, which is what is offered with the rental model.
Our continued association with improving the public estate ensures that Legal & General is seen as a socially responsible, long-term investor. Leveraging on this reputation is an important component when building confidence with residents and establishing a trusted brand within the retirement living sector.
Ellie Jukes is property strategist and Imogen Ebbs is senior asset manager at LGIM Real Assets
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