Developers and operators in the later living sector have always struggled to compete with housebuilders in the residential property market but since the Rectory Homes case of 2019/20, this struggle has been exacerbated. The nature of land transactions, increased build costs, and the impact of the current housing market on sales figures and growth, alongside the current planning system, all pose significant challenges to the industry and especially to our Integrated Retirement Community (IRC) clients.
The benefits on health and wellbeing for this growing sector of our population are recognised by experts and the population in general. The under use of the current housing stock as a result of the elderly population continuing to live in oversized family housing often unsuitable to their needs is perhaps less recognised and needs to be understood. Unfortunately government both at a central and local level has done little to assist the industry and delivery of this product. The need for change is urgent.
The Association of Retirement Community Operators (ARCO), the main body representing the Integrated Retirement Community sector outline three main types of later living product; retirement housing, IRC and care homes. Within each there are a number of products on the market. Viability varies across these three sectors but in all cases is a key factor in the delivery of housing for an increasing elderly population.
Planning for later living developments must consider various factors and is fraught with difficulties. In most cases local authorities do not specifically allocate sites for later living , more usually relying on relatively weak wording supporting its development. At the same time, following Rectory Homes, authorities will be seeking CIL and affordable housing contributions towards developments. Viability testing of local plans often does not fully consider specialist housing including that for later living and the IRC sector in particular is not understood by the authorities or their advisors as a result of which testing fails to recognise the issues. This results in operators and developers seeking land opportunities in locations which are less than ideal. Green belts and even Areas of Outstanding Natural Beauty in order to bring product forward resulting in an extended planning process and in most cases an expensive and unnecessary planning appeal.
While demand for retirement properties is steadily growing – highlighting the urgent need for suitable options – the government has done little to address the issue. There is a lack of understanding of IRC among Local Planning Authorities (LPAs), consultants, government officials, and potential buyers in the community. This leads to inadequate viability testing and LPAs prioritising affordable housing and Community Infrastructure Levy requirements. As a result, suitable sites for IRC use are often not allocated, and operators are forced to consider less desirable locations, from a land planning perspective, like greenbelt land to meet need.
Prior to Rectory, most local authorities did not require affordable homes as part of an IRC development evening up the playing field in the battle for land. Since this decision however and the requirement to deliver affordable operators and developers are more reliant on subject to planning deals as authorities push the decision on affordable down the road to the planning decision making stage. Allocated sites have become unviable for the IRC market and therefore one of the challenges faced by later living IRC operators is the dependency on off-market transactions with landowners. Housebuilders with larger market presence have more connections and visibility with landowners, however they are also able to bid on an unconditional basis, knowing that their product is viable even after allowing for full policy compliant making it harder for later living developers to secure key sites. This leads to intense competition for a limited pool of available development sites on the open market.
The general perception of retirement housing and particularly IRCs are that they are expensive and cost more than general needs housing. Therefore without a full understanding of the viability issues faced by the industry it is understandable how local authorities fall into the trap when considering this sector for their local plan work. It’s more valuable so why isn’t it more viable. There are a number of factors at play. Higher costs associated with development compared to typical residential schemes come about for a number of reasons.
The ‘efficiency’ of age restricted developments, the floor spaces of individual units which can be sold when compared with the total floor space of a development is significantly poorer than in general needs housing. Facilities such as swimming pools, wellness facilities, and restaurants are essential for the wellbeing of residents and are therefore all required. These facilities and the need to offset their cost mean there is a minimum size for delivery of around 125 – 150 units which in itself has a knock on effect as the site size required for such development is circa 10 acres, further reducing the number of suitable sites.
Sonning Common
These facilities not only add to cost and size of site required but result in significant start-up costs that are specific to later living developments. IRCs will be phased with the facilities within the first phase. Future residents will want these available from day one and also will wish to see the product built out and ready for occupation before committing to a purchase. The facilities in an IRC must therefore be fully operational before a single unit in the scheme can be occupied. Once developed the costs of running and maintain them are covered by a service charge, but until fully sold the operator has to cover these costs in addition to the costs of council tax for a significant number of completed units prior to their sale .
These start up costs are exacerbated by the length of time taken to sell an IRC scheme. By their nature, age restricted developments are limited to those over the age of 55 in the case of retirement housing by older in case of IRC’s which are aimed at older age group with a certain level of care requirement. As a result, this significantly limits the market for potential purchasers in comparison to general needs housing which carries no age restrictions whatsoever. Considering moving away from the family home is a sizeable decision and because of a prospective purchaser’s age and care needs, any sale is likely to involve additional family members, predominately their children, who will also need convincing that a property provides the best place for their parent(s) to live out their remaining years (and as importantly without eroding any inheritance). Accordingly, the sales rates of age restricted developments are much slower than those for general needs housing. This increase the sales costs, and increases their finance costs reducing the Internal Rate of Return of a project.
The current housing market which impacts the sales of residential properties, will have a knock on impact on sales rates for later living schemes. Higher mortgage rates discourage buyers who are considering purchasing a family home or a larger property, and this therefore impacts people who are looking to dispose of their residential properties to move to an IRC. This has a further knock on impact in terms of slower uptake of later living properties.
In conclusion, the later living sector faces significant obstacles in competing with housebuilders for development sites on the open market and local planning authorities and central government are doing very little to assist operators/developers in delivering for this growing sector of the market. We need change, we cannot continue to rely on operators investing significant sums in planning appeals in order to deliver for the growing sector of the market.
Newsteer has significant expertise in the market, understanding how it works, our clients requirements, their business models and the barriers they face when trying to deliver against the odds! We have successfully represented a number of operator and developer clients in the retirement sector at various planning appeals. Until such time as the current lobbying sees a change in the planning system this remains the best way forwards for those wishing to deliver in this sector of the market. An example of our work is a recent project with Inspired Villages at Sonning Common. We were appointed after the developer’s initial proposal for approximately 130 additional care units was rejected. Our instruction was to evaluate the viability of not only this specific project, but also the overall viability of this type of development within the current planning system. Our guidance and experience in the later living market resulted in a successful appeal, leading to the approval of a 133-unit Extra Care village in an area of Outstanding Natural Beauty in the beautiful Chilterns Area. This scheme is now being delivered! Find out more about Sonning Common here.
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