A buoyant retirement village sector has positive flow-through effects on housing more generally, but over-regulation is stifling new investment.
THE retirement village sector is at a bit of a crossroads.
Its demographic is continuing to trend towards older residents who stay for longer, which, over time will fundamentally impact the service model and payment models.
What’s more, as retirement village stock ages and adjacent sectors compete for the more aspirational baby boomers, some would argue the sector has become the residential aged care diversion.
Not so much the next step in an inevitable journey entry into residential aged care, but a choice made by many to avoid or delay residential aged care altogether.
On the one hand, there is cause for optimism; occupancy remains steady at 90 per cent (unswayed by COVID-19) and the sector is adapting well to the increased demands of the last of the pre-boomers as operators develop a ‘last home’ approach and more flexible payment models.
The reforms arising out of the royal commission have highlighted opportunities in terms of service model and infrastructure and the demographics don’t lie.
The sector will continue growing over the next decade, as the boomers come of age and demand for seniors living accommodation expands.
Even a small piece of a very big pie is big, right?
Yet there are some significant headwinds threatening a sector where market penetration has stagnated and sits well below 10 per cent.
The Australian dream of home ownership came about in the 1950s and ’60s when the boomers were growing up, and the ‘lease for life’ product doesn’t sit well with that idea.
Already I have seen several ‘retirement village’ developments pivot to offer a freehold title (outside the Retirement Village Act) because of the level of concern raised by their markets.
The sector is stifled by paternalistic regulation and while consumers drown in complex disclosure requirements, operators drown in over-egged administrative regimes.
Mandatory buybacks in tight timeframes have been implemented in many states and are proposed in Western Australia.
If a 75-year-old person buys a serviced apartment and then changes his/her mind, they must wait like the rest of us to sell the apartment before getting their money back.
If that person does the same in a retirement village, then the operator will have to give them the money back even if the apartment hasn’t sold.
On the infrastructure side, land that might be used to create dynamic mixed-use community value or to raise capital for the much-needed refreshment of the sector’s ageing stock is effectively sterilised by the memorials placed on them under the Retirement Village Act.
For prospective operators, sold on the boomer demographics and considering the development of a new seniors living community, it would be quite sensible to consider whether the merits of such an investment stacked up.
Conversely, why wouldn’t those operators look at a model outside the retirement village legislation, unencumbered by over-regulation with a simple product that is easy to understand and easy to sell?
A strata-titled community or a serviced apartment model, for example.
This is indeed the discussion being had in many boardrooms right now in WA. Retirement village developments are stalling, as are new entrants to the market.
We are seeing other models are giving the sector a run for its money, all regulated by a much lighter touch.
However, it would be a significant policy failure if the retirement village sector was allowed to stagnate or fail.
You see, the thing that makes the retirement village model different from most other seniors living models is that operators have skin in the game from start to finish.
They are incentivised to make ‘community’, which is the magic sauce when it comes to giving older Australians a good shot at meaningful, connected ageing and a significant delay, or even avoidance, of residential aged care.
In turn, this relieves pressure on mainstream housing, social and affordable housing, public health budgets and aged care services budgets.
There is a real lack of recognition across governments at all levels that this is a market-driven solution, which provides a significant social and economic benefit at no cost to the taxpayer.
My hope is that this can change in time for our boomers.
- Amber Crosthwaite is a commercial lawyer specialising in seniors living, aged care and disability