What student housing can teach the retirement sector

What student housing can teach the retirement sector

As a property refurbishment company providing services to the student accommodation and care sectors we found this article on Property Week incredibly interesting. We have noticed a surge of growth and investment in the education industry and agree that this should also be considered in care and retirement businesses.

In December last year, Property Week held its 11th annual student housing conference and there were many lessons for the retirement communities sector.

Both sectors have suffered from historic structural undersupply and a lack of investment. While this remains the case for retirement, it has been addressed for students.

As the event noted, student accommodation has provided the best returns in housing for 15 years. It has undergone a radical transformation over the past 15 years and is now a thriving market, with more than 31,000 units delivered in 2018. The sector has grown 50% over the last 10 years, taking it to 610,000 units.

In contrast, supply remains unaddressed for retirement communities – we estimate that just 6,000 retirement units will have come to market in 2018 versus demand for 20,000 to 30,000 units a year, according to Knight Frank and Savills.

Growth in the student sector has also been achieved without mass public subsidy. Instead, 77% of new student development projects were supplied by the private sector in 2018 in a market with transactions worth £3bn in that year alone.

The key driver to increasing supply of student housing has been the involvement of long-term institutional investors that see the yield potential from the student rental market. This has transformed student housing into a major investment asset class.

We believe there is potential for similar transformation in the retirement sector.

Prior to the launch of our new strategy in September 2018, our business model was predicated on a single tenure of outright purchase of apartments with 999-year leases. But this model lacked flexibility. We are now introducing multi-tenure offerings and in future a large proportion of our apartments will be offered on a rental or shared-ownership basis. This is based on research showing half of our customers would consider a rental proposition.

If rental takes off in the retirement sector, we will take the assets off our balance sheet and create investment funds that will open our business to the kind of institutional investment that has transformed the supply of student housing.

We are potentially going further and exploring a rent-to-rent model where we will help our customers rent out their current owned property and use the proceeds to pay for a smaller rental proposition with us, using any additional income to help pay for living or care costs. This has the added benefit of helping people fund their long-term support needs.

We are also looking at the affordability of our products and are developing a streamlined, contemporary and compact range of designs that we can fabricate to drive mass-market appeal.

As part of this, we are exploring another key parallel with the student market: the potential of modern methods of construction (MMC). MMC works well for standardised and repeatable layouts. It reduces build costs, speeds up development and is both high quality and environmentally friendly.

These are not complex solutions. Learning lessons from the student housing sector could help unlock the potential of the retirement housing industry. They have precedents and proven investor support and offer the flexibility that customers and investors want. Learning these lessons would also deliver the specialist housing that so many of our ageing population so desperately need.

John Tonkiss is chief executive of McCarthy & Stone – read the full article on Property Week here >