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Senior housing will mushroom from 10,000 units a year to 30,000 by 2025, and growth after that will be exponential. David Thame talks to Phil Bayliss, the Legal & General boss who is leading the sector’s expansion.
If ever a property product suffered from misunderstanding, it is senior living.
Specialist housing for later-life hasn’t so much swept into the UK as seeped in, and the slow-motion arrival has left plenty of room for muddle.
‘These are not care homes,’ says Phil Bayliss, the softly spoken Australian who is leading the brace of well-funded senior living business owned by Legal & General. ‘And it’s not quite build-to-rent either.’
L&G is anxious to clear the muddy water because their two operations – Inspired Villages and Guild Living – are making a market that could, by 2025, be as talked-about and hyped as the build-to-rent apartment scene. The difficult is that the handful of developers and operators are having to battle misunderstanding and some profoundly unhelpful government policy. Once those two blockages are removed, an exponentially increasing flow of senior housing development promises to transform the UK housing scene.
So, what is senior living? Unlike care homes these are own-front-door properties in which healthy active people live out their senior years: the emphasis is firmly on health, not nursing. And unlike BTR schemes this for sale and is a full-service amenity offer focused on creating and sustaining a full–time community. Where BTR developers assume light-touch amenities for younger and perhaps transient residents, senior living operators assume a great degree of engagement and much longer residency. (The typical L&G senior living resident will stay ten years).
Inspired Villages currently operates six later living communities across the UK and is set to add to the portfolio with a further 2,500 homes over the next six years. Its seventh village, Ledian Gardens in Kent, is set to open in 2021, with construction already underway on an eighth village, Elderswell in Bedfordshire, and works due to start on a further four schemes during the coming year. By 2025 there will be 50 communities.
Today the L&G brands have a modest but appreciable pipeline: soon it will be considerably larger. The Inspired Villages brand has secured 24 sites ranging from about six to 20 acres, and each capable of between 150-300 homes. The Guild Living brand, which is targeting at a more self-consciously urban demographic, operates closer to the 150-unit limit (the minimum at which economies of scale work for amenity provision) and has four sites. This year the combined businesses will have created around 250 units but that is expected to double next year, triple the next, and be reaching serious scale by 2025.
L&G’s brands will track a threefold expansion in the entire sector. L&G calculate that there are 12 million over 65s, of whom a quarter are actively looking to downsize. Yet the total annual output of all forms of retirement living from the managed communities of L&G through to the Macarthy & Stone-style town centre blocks, adds up to barely 10,000 units a year.
‘It’s a yawning gap,’ says Bayliss. ‘We don’t expect to be delivering 100,000 a year any time soon but a reasonable supply line might be 30,000 a year from the sector, and by 2025 I expect the sector will be reaching that. And we know that’s true because we can already see capital being committed to the sector and investors lining up to buy.’
That, at any rate is the premise for Bayliss’ plan. Bayliss is a buyer: he was head of transactions before moving into the hotseat at L&G’s senior living operation. Feathers in his cap include the funds’ first two build-to-rent schemes and he is bringing the same zingy confidence to senior living.
‘What makes me so confident? The difference I’ve seen to people’s lives. The impact, time and again, when people move into our communities, such as the health and social benefits, the stimulation,’ he says. ‘You hear of residents who, before they moved in which us, didn’t see people for weeks on end.’
Which sounds like the Big Sell, warm words not to be taken too seriously, but this declaration of the benefits of senior living comes with two big practical spin offs.
First, L&G really don’t see this as a property venture. They see it is about lifestyle and hence about amenity. ‘That sense of community is the most important thing about our whole offer, which is not a real estate offer its about delivering great services so people are living at their best, and designing a community so people can opt in and opt out as they choose.’
Second, the word ‘design’ is key. As Bayliss explains, one of his touchstones for success is ‘Can every resident feel like they have a personal trainer?’ The answer depends on having a community big enough to support such expensive amenities, but not so big it stops feeling bespoke, and a physical and social layout that means both the required numbers, and required sense of exclusivity, can be maintained.
Residents benefit from all the facilities on offer at each Inspired Village, which include a Clubhouse with a wellness suite, swimming pool, gym, Pilates studio, treatment rooms and a hairdresser; along with a restaurant, bar, shop/cafe, library/cinema and a craft room.
But several obstacles need to be overcome before growth can accelerate beyond the 30,000 units a year that Bayliss envisages for the senior living sector. The first is the indifference, sometimes amounting to hostility, of central and local government planning policy.
Legal & General took a cool view of the planning white paper published by the English government in August 2020. ‘We would also encourage more focus on the UK’s ageing demographic, with one in four of the population being over-65 by 2035. Amidst the coronavirus pandemic, retirement communities have proven their vital role in ensuring older people are safely and securely provided for and protected. With evidence that they take a huge strain off the NHS, we hope government can align housing with the health and social care agenda to provide a holistic cross-departmental solution,’ a statement said.
‘There is a risk that the new ‘growth’ or ‘renewal’ areas would serve as a barrier to new retirement communities and would be overlooked in favour of traditional development.’
Bayliss is a little blunter. ‘The policy landscape is unhelpful to our sector, and we’re growing not because but in spite of government policy,’ he says. The National Planning Policy Framework makes no reference to demographics or to elderly housing. At a local level, some local councils do not see elderly housing as an issue at all: They literally do not want it.
The second problem is about the way senior housing is sold and answering it could also help overcome the policy problem. The issue here is that the retirement homes sales process has picked up an unfortunate taint: slightly high pressured, involving high up-front costs, an illiquid asset that may or may not be easy to sell on, and then a bet (which isn’t always fulfilled) that the management company will deliver the promised amenities.
Bayliss does not mention any of these well-known problems, but he does suggest a solution which has been proven to clear the air – and stimulate the market.
‘I’m looking at examples like the Australian legislation. The UK doesn’t need to copy it, there are other approaches, but they passed a specific Retirement Communities Act which made sure operators delivered on their promises, gave consumers some protection and regulated the sector. That created a big bang in the market because it gave investors a solid legal framework on which to invest, and the sector is in need of that here,’ Bayliss says.
A new regulatory framework could (and should, says Bayliss) be combined with a new approach to selling senior living.
‘Suppose you were buying a car, and you were told the dealer only accepted cash and everything had to be paid upfront, you’d think that was out of date, because you know there are other financial solutions,’ says Bayliss, with a hint of despair at the upselling models of some in the senior living world. ‘Maybe we could defer fees, or go for part-buy part-rent? And once you change the way this is done, the consumer starts to think less about the transaction, and more about whether they want this property or not. That is a change I want to make.’
Legal & General has already launched homes to rent to the later living sector through Inspired Villages. It’s a sign of the way the market is moving.
If these policy and transactional issues can be overcome the rate of growth in the senior living sector could accelerate. For now, this is a slow burn. But there is little doubt that before the decade is out it will be a major component of the housing market.
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