Rising investment to underpin increase in development of seniors housing

Key Messages: 

• The number of seniors housing units across the UK is forecast to grow by 10% over the next five years, taking total stock to more than 800,000
• Our forecasts show a projected 5% increase in the Retirement Housing market and 48% rise in the Housing with Care market over the next 5 years (2019-2024)
• Housing with Care, which includes high levels of services, care and support as an integral part of its proposition, has grown significantly, accelerated by increasing institutional investment
• The projected delivery of units will not keep pace with our growing senior population
• The areas of highest opportunity for private developers to deliver seniors housing are focused on the South East and London

The number of specialist seniors housing units across the UK is forecast to grow by 10% over the next five years, driven by increasing institutional investment in the sector.

In absolute terms, this will take the total number of seniors housing units in the UK to more than 800,000 by 2024, up from around 735,000 currently.

However, the rate of delivery is still dwarfed by the UK’s ageing population. By 2037, population projections suggest that one in four of us will be over 65.

It means that, even though total delivery is forecast to continue to rise, in real terms the number of seniors housing units per 1,000 individuals aged 75+ is expected to drop to 120 by 2024, down from 137 in 2010 and 129 currently.

A step change in new delivery is required if the huge imbalance between need and supply is to be reversed.

Supply Landscape

Seniors housing is a diverse sector comprising both ‘Retirement Housing’ (age-restricted market housing) designed with the down-sizer in mind, and ‘Housing with Care’ schemes which provide high levels of services, care and support as an integral part of their proposition.

There are currently more than 735,000 seniors housing units in the UK across more than 24,600 schemes. The seniors housing market has historically been dominated by retirement housing which accounts for 87% of existing stock. The remainder is made up by housing with care schemes, which provide services, care and support as part of their proposition.

The number of retirement housing units has risen by more than 21,000 units (16,000 private, 5,000 affordable) in the last five years (an increase of 3%). By comparison, 23,700 housing with care units have been built (10,000 private, 13,700 affordable) over the same time (an increase of 35%).

Strong growth within the housing with care market has been driven by increasing institutional investment. Currently there is a shift in focus towards larger schemes in an urban setting, mixed tenure and rental propositions, increased services and care, and both operators and developers having an increasing focus on producing stabilised income (and in some instances sacrificing development profit in the process).

We expect this trend will continue. Within our forecasts, retirement housing is expected to expand by 5% in the next 5 years, versus a 48% predicted increase in the number of housing with care units.

UK Seniors Housing Forecasts – Total units

In addition, our analysis of the planning pipeline suggests there will be a three-fold increase in the number of specialist seniors housing Build to Rent units delivered in the next five years, driven by a number of housing with care operators allocating a proportion of their pipeline to this market.

The size of schemes is also growing. The average number of private units in a housing with care scheme has increased by 39% in the last decade, from 41 units between 2000 and 2009 to 57 between 2010 and 2019, according to our analysis based on data from EAC (Elderly Accommodation Counsel) and Glenigan. We forecast this trend will continue, particularly given the large proportion of 150+ unit apartment schemes in the pipeline as developers seek to deliver scale.

Source: Knight Frank, EAC, Glenigan

Development Pipeline

The seniors housing market is still in a development phase. There are currently 570 schemes in the planning pipeline; either as standalone or as part of a wider mixed use development. This includes schemes with a planning application submitted, planning granted and under construction.

In total, if this was all built out, this equates to 31,000 additional units.

Delivery Challenges

Like all parts of the construction sector, seniors housing delivery has been impacted by the slow down and pause in building work as a result of coronavirus, though activity has since started to pick up.

Looking ahead, there are a number of challenges. Our recent joint research shows that only 18% of local authorities in England have clear planning policies and site allocations to support the sector. Over 50% still do not have either.

The current patchwork approach to local plans is holding back the development of the sector and needs to end. Developers require all local authorities to have an allocation of sites, a supportive planning policy, defined position on affordable housing and a supportive position on CIL.

Existing growth within the sector could be multiplied by just some degree of support from the government as either a change to planning policy or recognition of the sector’s role in delivering social care.

Currently, the variation in planning policy approach at a local level is undoubtedly a barrier to development. More widespread support through the National Planning Policy framework will help to boost supply. In the period beyond 2025, when there is projected to be an additional 120,000 75+ individuals per year, the sector could be very different from now. It will likely be characterised by bigger schemes, diverse tenure options, and significantly larger platforms. As such, the current emphasis for investors and operators, in what is a market with massive growth potential, is to secure a first mover advantage.

Development Hotspots - where to build?

We have identified opportunity areas for development of private seniors housing across England. In deciding the “opportunity areas” we have combined:

• Analysis of the local plans of each of the 321 local authorities in England, which have been graded according to their approach to housing for seniors.
• Data considering the wider demographic changes and economic indicators within these areas including the estimated number of individuals aged 65+ in each local authority, how this percentage will grow, the average value of a property owned by a senior, and existing provision of private seniors’ housing. These five metrics have been applied with an equal weighting.
• Geographical areas most suitable for private development – focusing on locations with average residential values in excess of £350psf.

This analysis highlights that the South East and London ranked the highest in terms of opportunity for development of private seniors housing. The main challenges are high land and build costs, in addition to staff costs (both care and ancillary staff) which are higher in these areas.

Private seniors housing opportunity areas and development pipeline areas

Source: Knight Frank, EAC, Glenigan

Whilst these metrics provide an accurate reflection of the demand and supply landscape in each local authority, there are a number of other key indicators to consider at a catchment level to fully understand affordability and likely success of a scheme.