Last week, Bisnow held an interesting panel event regarding the trends in the senior living sector in the UK.
When considering this sector, there must be a differentiation between two separate markets for senior living: before and after trauma.
People of retirement age tend to consider downsizing for a long period, but delay this until after trauma, when they are forced to move to any available and appropriate retirement community within their local area. Lord Richard Best discussed the potential of SDLT relief when downsizing to encourage retirees to move before this stage; statistical analysis indicates that providing SDLT relief to “last time buyers” would result in a domino effect, by opening up new chains of sales and purchases of residential properties, and actually be positive for the Treasury.
Even if the attitude of consumers shifts, there is still a lack of stock in the market. The panel discussed three potential reasons for limited investor and developer interest in the sector to date:
Planning policy currently focuses solely on affordable housing, but planning officers need to have a wider perspective on community needs and support the senior living sector as well.
Sir Oliver Letwin’s radical proposals were briefly touched on, including the benefits of local authorities taking a more proactive and constructive approach such as through a Local Development Company or a Local Authority Master Plan.
However, Mark Derbyshire of Bidwells noted that planning teams are currently very under-resourced and this fundamental issue needs to be resolved as a first step.
The problems with planning are exacerbated by retirement housing straddling two use classes (C2 and C3) and inconsistent interpretation regarding both what level of care is required to qualify as use class C2 and whether or not affordable housing is needed alongside C2 use.
Lord Richard Best noted that house builders do not move into the senior living market as it is not sufficiently profitable, although this was challenged by Kevin Beirne of Octopus Real Estate.
The panel were in agreement that it is much harder to sell to elderly purchasers, with Gary McNamara of Legal & General's Inspired Villages noting that it usually takes approximately four years and seven visits before a retiree eventually downsizes.
3. Event fees
The Bisnow panel discussed the importance to institutional investors of event fees. This is where, on resale by residents, a percentage of the price is paid to the landlord or developer.
There has been much debate about event fees recently, and some have strongly advocated their abolition to protect vulnerable older consumers. However, in March 2019, the Government accepted the Law Commission’s proposals to regulate event fees through a code of practice, rather than prohibiting them.
Helen Jones of Amicala highlighted the importance of event fees for operators’ recoverability. Gary McNamara noted that event fees allow developers to recover development costs through the life of a property, although Eleanor Lindsay of LaSalle was concerned that over reliance on event fees for investment return would be too lumpy and unreliable to attract some to the sector.
The adoption of the Law Commissions proposals is seen by Kevin Beirne as monumental and a green light for institutional investors to enter the senior living sector.
It will be an interesting period to watch this area and see whether the growth anticipated by Savills and Knight Frank is realised, despite the continuing issues regarding planning policy and profitability. We are already seeing increased interest, with Legal & General recently announcing its establishment of Guild Living (a £2 billion developer and operator of urban later living communities).
Rules are still being written across this sector and a more investable market is beginning to emerge.