Senior housing mythbusters

Providing homes for our older generations is an emotive topic. It is no wonder that the media in the UK has taken hold of certain situations to pass comment on the sector. But whilst the media has an important role to play in exposing bad behaviours and protecting the public, as the saying goes, we should be careful that a few bad apples don’t limit older people's housing options. Or something like that. Enter, the seniors' housing mythbusters!

Myth 1: exit fees are a scam!

The greatest euphemism in the sector creates the biggest headline. "Exit fees" (also known as "event fees", "assignment fees", or "deferred management fees" (DMF, which is the term we will use, for reasons which will become clear)) are payable when a resident sells their retirement housing lease, sometimes requiring a repayment of up to 30% of the property's value to the freeholder. They are commonly accepted in other jurisdictions with mature seniors housing markets. 

The Truth: Delivering and operating seniors housing is not cheap. There are few, if any, cases where the true cost of delivering a home with communal facilities and 24 hour on site staffing would be equivalent to the cost of a similar "regular" home. Rather than deny people the option to live in their choice of home, with the support that they need, a DMF offers residents the option to "buy now, pay later". That is not to say that operators are not making a profit, many are, but that is the nature of commercial businesses, without which, supply of such housing would be even more limited than it currently is. This also means the operator has funds that can be made available to continually update, change and modernise buildings and services to appeal to their market rather than just maintain the status quo. The mistake we make is to think that older people are automatically vulnerable or incapable of understanding this. No doubt, there have been occasions where certain operators of seniors housing have granted leases with DMFs without the resident fully understanding what they are signing up to (and we believe that this should never happen). But on far more occasions, they have been critical to providing suitable and aspirational housing for older people at an affordable level, particularly for those who may have little or no cash income but are asset-rich. 

Yes, the Office of Fair Trading did investigate the use of certain kinds of transfer fees (another term used) in 2013 and found that they may be potentially unfair. As a result, in 2014, DCLG asked the Law Commission to investigate. The Law Commission published its review in 2017, setting out several recommendations to make the DMF structure clearer for prospective purchasers. Ultimately, they concluded that charging DMFs is legal, but made a series of recommendations to improve transparency and fairness. In 2019 the UK Government agreed to adopt these but as yet this has not happened. The recently published report from the Older People's Housing Taskforce has called again for such measures to be implemented. In the meantime, there have been attempts to move in this direction through self-regulation in the sector. More recently, the Freehold and Leasehold Reform Act 2024 has set out the first definition in English law of a DMF, paving the way for development of dedicated consumer protection for event fees. 

Myth 2: seniors housing is only for the rich!

Anyone who has visited a high-end seniors housing scheme would agree that the provision of amenity is akin to a five-star hotel, with beautiful décor, spas, bars and restaurants.

The Truth: There are indeed some truly luxurious seniors housing products on the market that are out of reach of the average Joe. However, it is important to recognise that around two-thirds of specialised seniors housing in the UK is actually provided as affordable housing. This is traditionally where the supply of such housing has come from. In addition, some developers are starting to offer a mid-market product. This may have fewer amenities and be a more dense design (e.g. high rise rather than bungalows), but for those moving in, it is often still an aspirational lifestyle and by all accounts, lifts are better than long corridors (and even better than stepping outdoors) for older people on their way to communal spaces.

The mid-market offer still has a way to go, but it has the potential for enormous growth and we predict that sector-specific regulation will give operators, investors and consumers additional confidence to grow this part of the sector. 

Many operators also offer residents a fixed or discounted service charge/management charge, typically again alongside a DMF. This allows those with index linked pension incomes certainty at the outset of what their budgets can be, so that they can relax and enjoy their new lifestyle. ARCO research suggests that the customer base responds very positively to this approach. 

Another option for increasing affordability and which is becoming more and more popular is rental. The benefit of renting is that a resident is able to release the capital tied up in their existing property but is enabled to move into a community which can deliver the lifestyle (and possibly care) that a resident is looking for as they age. The released capital can then be used to fund living expenses, holidays, or in many cases, to help family and friends. Barriers to entry are also low – sign a tenancy and move in! 

Myth 3: they don't retain their value!

Another media scandal is around the value of homes on resale, which are slated to lose value like driving a new car off a forecourt. This is of great concern to potential purchasers, as well as to their families. 

The Truth: The Older People's Housing Taskforce report reports evidence that the greatest falls in value were for new build properties bought between 2004 and 2008.  The reputational damage done to the sector during this period is not insignificant and it is right that we should consider why this was the case. The report points to factors such as local competition, new build premium, availability of services, sales practices and ongoing charges playing into the puzzle on resale values.  The good news story is that from 2009 onwards, resale values appear to increase. This will vary from place to place, and operator to operator, but there are operators who can demonstrate increased resale value. These tend to be the operators who retain a long term interest (such as with the IRC model, with an existing evidence base that IRC/ARCO member units perform better – particularly those with a DMF model) and reinvest in the services and facilities to keep them fresh, contemporary and attractive.