Retirement Housing in 2019: A Sector in Flux

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In the latest UK200Group blog post, Mark Benham, Partner, Lester Aldridge discusses the Retirement Housing industry

Mark Benham
Retirement housing in context

Housebuilding levels generally remain low compared to previous years. In 2018, just over 165,000 new homes were built, against the Government’s target of 300,000 per year by the middle of the next decade. Specialist retirement housing accounts for less than 3% of housing in the UK; fewer than 750,000 retirement homes have ever been built.

Currently, there are approximately 12 million people in the UK aged 65 and above. In 50 years, this number is expected to rise to about 21 million. Of those 12 million, some 5% live in specialist housing.

The benefits of the elderly downsizing into specialist accommodation are undisputed and oft-quoted (have a look next time a planning application is submitted for retirement housing in your neck of the woods). Those benefits include:

• Releasing large family homes (with vacant bedrooms) onto the market;
• Removing the burden of property maintenance;
• Helping to overcome social isolation through communal areas and social activities, as well as
proximity to local shops and amenities; and
• Promoting the health and wellbeing of the elderly, leading to savings on the cost of health and
social care.

In late 2018, Sir Oliver Letwin published his review of build-out rates, intending to increase the speed of delivery of housing. He concluded that the lack of variety in the types and tenures of housing on offer in larger development sites were the fundamental drivers of the slow rate of build-out, rather than institutional land-banking; the market can only absorb similar products at a certain rate without a material impact on values.

The ongoing Use Class debate – has PINS popped the C2 hybrid bubble?

Whilst the nature and models of retirement accommodation become ever more sophisticated and varied, the legislative framework dealing with planning use classes for residential or quasi-residential schemes is now over 30 years’ old and is lagging behind. Various Government policy documents have attempted to fill in the blanks, but this approach has been widely criticised.

Grey areas and inconsistencies abound where the residents of the housing have access to the provision of care (often referred to as “extra care” or “assisted living”), which becomes of particular relevance in respect of the provision of affordable housing (or the payment of an off-site contribution) and payment of the Community Infrastructure Levy, as many developments falling within use class C2 benefit from exemptions. In broad terms, use class C3 covers residential dwellings whilst C2 captures (amongst other things) residential care homes and nursing homes.

2019 began with an interesting appeal decision in respect of a scheme of 30 age-restricted bungalows, to include warden’s accommodation and community facilities. Although the appeal succeeding in terms of the grant of planning permission, the inspector agreed with the local planning authority that the development fell within use class C3. The age restriction was over-55s, lower than most extra care accommodation, and the minimum care package was two hours per week. The nature of the care on offer was also deemed to be “little different from many other forms of support available to older persons living in other C3 accommodation, albeit that they may be more easily accessible.”

A few months later, in June, the Government published new national planning guidance on housing for older people. Although the spirit of the guidance was welcomed by the industry, in particular, the “critical” need to provide housing for older people and a suggestion that local authorities should be doing more to deliver specialist housing, commentators at the time argued that the guidance did not do enough to effect any meaningful change in policy. A (very) brief reference was made to use classes C2 and C3, stating that local authorities could consider “the level of care and scale of communal facilities provided.”

Earlier that month, the Planning Inspectorate had issued a decision described as a “blow to the retirement sector”, particularly in London, when LifeCare Residences’ appeal was refused. The inspector acknowledged the “worthwhile contribution” that the proposed development of 81 extra care flats and 15 care home beds would make to Camden’s housing supply, along with the “very high standard” of accommodation and operation. However, he also noted the harm that would be caused, including the provision of affordable housing.

The inspector decided that the development was a mix of C2 (nursing home) and C3 (dwellinghouses), despite the appellant’s submission that the whole development should fall within C2, and thus be exempt from the provision of affordable housing. The inspector went further and decided that future deferred management fee income (event fees) should also be taken into consideration in the viability assessment. Developers had previously managed to argue that such fees should be excluded from the calculation.

This judgement reinforced the Mayor of London’s decision in April to refuse an application for 142 extra care homes in Kensington, as they failed to provide sufficient affordable housing (only 5 affordable homes were being proposed). The scheme had been criticised locally as a “caviar care” complex but had been recommended for approval by the authority’s planning officer. Expect an appeal decision in the new year.

Consumer choice and the decline of the traditional model

In March, following months of negative press reporting widespread misuse by housebuilders of leases for houses and onerous ground rents, a long list of developers (including some specialising in retirement accommodation) signed a public pledge to effect positive changes to the leasehold sector.

A couple of months later, the Ministry of Housing, Communities and Local Government published its response to a Government committee report on leasehold reform, which confirmed that retirement accommodation would be provided with an exemption from the ban on ground rents, due to the income lost from the higher proportion of non-saleable communal areas.

This endorsed the recommendation of the consultation published in October 2018, which recommended that the exemption was essentially conditional on choice and transparency; buyers will need to be given the choice of paying a higher purchase price with no ground rent or a lower price with a ground rent, with clear explanations made to the buyers, independent legal advice being provided and the developer putting in place a complaint mechanism.

The MHCLG confirmed that the exemption would be introduced on that conditional basis.

Ground rents have long been used by traditional retirement housebuilders in respect of their apartment schemes, and the publication was welcomed by the HBF’s Retirement Home Builders Group (whose members include McCarthy & Stone and Churchill). This did not, however, reflect the view of the entire industry; ARCO, the main body representing the private and not-for-profit retirement community sector (including developers operating rental and event fee models), did not oppose a ban on ground rents “on the basis that they are not essential to ensure the current operation and future growth” of the sector.

What does seem fundamental to the growth of the sector is the increasing availability of retirement housing on a rental basis. In June, Hamptons reported an increase of 61% in the number of over-50s renting properties, whilst in November McCarthy & Stone announced that its new rental offering is “gaining momentum”, with its newly introduced multi-tenure options available at more than 70 of its developments, following a successful trial introduced in September 2018 which demonstrated “a real appetite for the rental proposition.”

Another recent trend has been the rise of what Prince Charles once referred to as “homogenised boxes.” Whilst developers have been filling their boots with help to buy subsidies, and with planning policy promoting higher-density development, only 2,418 new bungalows were built in 2018, compared to in 1986/87 when this number was about 29,000.

In October, a poll of over-65s commissioned by McCarthy & Stone provided that 60% would consider moving to a bungalow, with 70% wanting the ease of being able to live on one level. This follows the company’s announcement at the end of 2017 that it was building its first bungalows in more than 20 years and that they formed part of its future housing strategy, starting with 200 bungalows across 13 schemes.

Away from the development of affluent urban areas, the University College of Estate Management and the Central Association of Agricultural Value released a report in October on retirement housing for farmers in the UK. This report identified a number of practical problems and assessed the measures needed for farmers wishing to retire from the agricultural industry and also to ensure that younger skilled farmers have access to on-farm housing.

Investment and technology in the retirement sector

Historically, there has been a notable lack of institutional investment in the retirement living sector in comparison to other sections of the housing industry. The reasons are extensive but include the attitude of retirees to homeownership – many of whom view their homes as an investment asset – and a perceived lack of Government support for specialist accommodation.

Legal and General appears to be grasping the opportunities in the sector, investing billions of pounds through brands such as Inspired Villages (acquired by L&G in 2017) and Guild Living, which it launched in May with sites in Bath and Epsom.

Schroders and Octopus Healthcare followed suit in August, announcing a JV with Audley Villages to fund the development of 4 retirement villages totalling 500 units with a GDV of £400m. In the same month, Riverstone Living, owned by Goldman Sachs, agreed to forward purchase a £300m scheme of 190 flats in Kensington, it’s second of up to ten planned London projects.

Three months after it secured a £525m loan to refinance and grow, PegasusLife and Renaissance Retirement announced a merger with London developer Anthology to form Lifestory in October.

Following the announcement by the Government in November of Mark Farmer as a “Champion for Modern Methods of Construction”, the retirement housing industry is, it appears, keen not to be left behind when it comes to utilising offsite manufacturing techniques to allow housing to be delivered more quickly and efficiently. Not-for-profit housing and care provider Housing 21 announced in October that it used offsite construction methods for new retirement schemes in Shrewsbury and Brighouse, whilst in November McCarthy & Stone confirmed it intends to use volumetric and panelised systems for some of its schemes, starting in 2020 with a new development in Hexham.


With the UK’s annual social care bill exceeding £21 billion, a static secondary housing market and the nascent nature of investment in the retirement housing sector, it perhaps comes as no surprise that the industry is ramping up the pressure on the Government to assist in the delivery of increased levels of specialist housing and help last-time buyers (referred to in September by McCarthy & Stone as “Generation Stuck” – those over 65 who want to downsize but cannot). 61% of over-65s favoured a stamp-duty exemption, although this might not be palatable among first-time buyers who do not consider it equitable for last-time buyers, who have benefited from the exponential rise in house prices since the late 1990s, to have their cake and eat it.

2019 has been a year of significant change in the direction of travel of retirement housing. The general election on 12 December will undoubtedly be a huge influence in what 2020 has in store for the sector.

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