UK senior living rentals: an untapped market?

COMMENT Although private senior housing is popular in countries such as the US and Australia, in the UK, comparatively, it hasn’t yet had the same impact on the housing market. Is it because the English coastline doesn’t have 30°C winters, sandy beaches, and world-renowned golf courses for retirees to enjoy like in Florida? Senior living is housing, other than care homes, that is suitable for the needs of an ageing population, and ranges from independent living to homes with 24-hour access and on-site staff. Aspects like safety, social activities and a community are brought to the forefront. Only 0.6% of over-65s in the UK live in integrated retirement communities, also known as “housing with care”. This compares with at least 5-6% in the US and Australia. It’s well known the UK, like many other nations, has an ageing population. Almost one in five Britons are aged 65-plus. It’s forecast that by 2040 this age group will increase from around 13m to more than 16m, representing 23% of the population. As the UK demographic is changing, it sparks the question if the real estate offer too should change? Generational challenges The success of senior living rentals in the UK to date may have been limited by the generational and cultural apprehension of both moving away from their family home and renting. The shift of the baby boomers moving into the upper senior age demographic should be a positive sign for senior living rentals. They are the wealthiest of all generations, having benefited from house price growth of some 215% since 1970 (adjusted for inflation), and three-quarters of over-65s own their home outright. In addition to this, compared with the silent generation (the one before them), the baby boomers are also typically less apprehensive about renting. Similarly, they tend to have more of a positive attitude about spending a higher portion of their wealth on enjoying life. In the UK, the number of older private renters is at an all-time high. Between 2007/08 and 2020/21 the number of private rentals where the household head is aged 55 or over more than doubled to 867,000. This could suggest a shift away from older people prioritising owning their home and moving towards a more open attitude when it comes to renting. Many older people in the UK prefer to stay in their family home for nostalgic, as well as inheritance-related, reasons. However, there are numerous issues that often arise. Firstly, they may not have access to the care they need or have someone to help them out with day-to-day activities, especially if they are living alone. Secondly, loneliness is an issue that is becoming more prevalent than ever; it’s forecast that as many as 6.2m older people are set to live alone by 2040. Thirdly, the UK has a housing crisis where house prices are inflated partly due to the older generation holding on to housing stock way beyond what they can manage. Reducing inheritance tax Although renting in your older years is a way of spending your wealth, it’s also a way for wealthier families to reduce the amount of inheritance tax payable on their estate. In the UK, if you live in your family home until your last days, your children and loved ones will have to pay tax on their inheritance. A way to avoid or reduce inheritance tax is to sell your home, gift some of the proceeds and move into a rental property. This could help the younger generation get on the housing ladder in this financially challenging market. The average house price now stands at more than eight times the average annual salary – an all-time high. One important consideration for investors and developers of senior living rentals is operating cost inflation, particularly staffing and utilities, depending on the level of care offered and if bills are included in the rent. Some senior living rentals offer lower levels of care, slightly reducing exposure to this risk, compared with care homes that are more staff-intensive as well as employing higher-paid staff. It’s hard to ignore the many supporting reasons outlined for the prospects of growth in the UK senior living rental market. This is an exciting market to follow closely in the years to come. Sara Lindblom is an operational real estate research analyst at Colliers