The UK needs to change the narrative so that consumers feel confident that an IRC would be a sensible financial move for them at that time of their life, and one they can feel genuinely excited about.
In countries where retirement living is more developed, aspirations are supported by clear planning frameworks and transparent financial models and this creates a positive growth opportunity, rather than a high-risk challenge.
Later living in the UK, on the other hand, has been framed rather differently. It is too often spoken of as a downsize and a cost to the resident, a burden on their family and a liability to local authorities. It is presented as something that happens to you, rather than something you choose. That framing suppresses consumer demand, which suppresses investor confidence and in turn constrains supply.
In the US, many municipalities have specific zoning for retirement communities, providing developers and investors with the certainty they need to commit capital confidently. Local governments have come to understand that later-living developments bring active, financially independent residents who generate tax revenue and reduce pressure on public services.
Financial incentives are aligned with the social outcomes.
New Zealand has gone further still. Its Retirement Villages Act 2003 provides a comprehensive legislative framework that protects consumers while offering the regulatory certainty that operators and investors require. Equally important is New Zealand’s highly standardised deferred management fee model, under which residents acquire a licence to occupy and upon departure the operator deducts a fixed percentage of the original purchase price. This is understood by consumers and creates predictable revenue streams for operators and investors.
Adopting this model in the UK would go some way to addressing the issues that the sector has in terms of image, particularly the negative stories that we often read about in the press, focusing on hidden fees and stressful outcomes for residents and their families. We need to shift the dial in the UK to ensure consumers feel confident that an IRC would be a sensible financial move for them at that time of their life, and one they can feel genuinely excited about.
There are signs that things are changing.
ARCO’s Parliamentary Champions Group for integrated retirement communities (IRCs), shared that new prime minister Andy Burnham cares deeply about both housing and social care. Indeed, he has already set out his plans for social care reform.
In another encouraging sign, Taylor mentioned that her department was working on a response to the Older People’s Housing Taskforce report – something the IRC sector has been waiting for. This is good news for the later-living market.
As the Commonhold and Leasehold Reform Bill makes its way through parliament, the industry will be hoping for a similarly tailored policy approach from the government. It is clear that commonhold won’t work for all types of housing, including IRCs.
Others in the industry are currently considering how the IRC sector can work better for key stakeholders. Gus Wiseman, director of UK product at Patrizia, has been talking about what needs to happen to make IRCs more attractive to both investors and consumers. He makes the point that in New Zealand, retirement communities are seen as social infrastructure and the index-linked returns mean they are seen as a dream asset class for patient capital, like pension funds. Ultimately, his message is that this is a truly investable asset class, but we just need to tweak a few things here in the UK.
Then there are ongoing conversations around new forms of tenure. Since last year, ARCO has been working on proposals for what it calls the ‘retirement occupancy lease’ (ROL). The ROL is a modern, flexible tenure that ARCO believes should be replacing traditional leaseholds for housing-with-care communities. The ROL provides several key benefits: fixed monthly management fees that end after a set time after the resident is no longer living in the property; clear and transparent exit fees; and the resident not having to take on the financial risk and responsibility for long-term maintenance, investment and refurbishment. The ROL should play its part in ensuring the IRC sector can fulfil its potential as an attractive long-term asset class for investors.
This article was written by Amy France, head of later living at Forsters, and was first published by Property Week.