COMMENT: Earlier this summer the Leasehold Reform (Ground Rent) Act 2022 came into force, putting an end to ground rents for most new long residential leasehold properties in England and Wales.
When these changes to restrict the payment of ground rents were first mooted by the government, some developers and operators in the retirement living sector pushed for an exemption from the proposed legislation. There was concern that removing ground rents would negatively impact the much-needed supply of retirement housing.
As retirement communities tend to have large communal areas and facilities, developers need to recoup the costs associated with the initial construction of these and also the loss of sales income from giving over significant floor area to amenity space. Ground rent was one way of achieving this.
There are no exemptions, though. The government noted that older people should be protected from what they have coined “uncertain and rip-off practices”. The only concession the sector has received from government is that retirement properties will be in scope of the legislation from the 1 April 2023, rather than 30 June 2022.
The later living sector is now viewing this legislation as an opportunity to deliver positive change. The Associated Retirement Community Operators notes that it “supports the government’s efforts to modernise the leasehold system and make it fairer and more transparent for customers”.
Developers and operators are modifying business plans and looking again at income streams, resulting in useful diversification within the retirement living model, as operators look more to pure rental and shared ownership models.
Diversification of tenure
New research from JLL recently indicated that over the past 10 years there has been a 200% increase in retirement living schemes offering market rent as a tenure, and a 400% increase in the number of market rental homes available. It is estimated that the later living rental market will grow by £2.65bn over the next five years.
This diversification of tenure could result in more institutional investment flowing into the retirement living sector, with investors attracted to the rental income streams. In addition, it presents more options for the consumer, opening up retirement living communities to those who do not have the equity required to purchase outright.
This is also an opportunity to move away from some of the more negative connotations that have sometimes been associated with retirement living schemes with regard to hidden fees and costs. These associations have made some people nervous about making the move into a retirement community. However, it’s clear that integrated retirement communities can bring many benefits – providing a winning combination of lifestyle, wellbeing and care for the consumer, while being proven to lessen the load on local NHS services.
Since its formation in 2012, ARCO has done much to promote confidence in the retirement living sector and raise awareness of the integrated retirement community model. ARCO’s consumer code for the sector has as its key principles as transparency and fairness.
One hopes that the combination of the abolition of ground rents and the government’s commitment to putting in place an older people’s housing task force in the Levelling Up white paper will build on this to ensure that developers and operators soon have a more regulated framework to operate within, resulting in greater consistency and stability across the sector. And ultimately, better choice and options for an ageing population.
Amy France is head of later living at Forsters
