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Government incentives needed now for senior living investment

The Government needs to act now to include senior living development in the National Infrastructure Strategy, offer guarantees on loans involved in funding such projects and adjust REIT rules to encourage investors.

People over the age of 65 have been the highest risk demographic for covid-19 and are the fastest growing age group in the UK.  It is clear that densely populated care homes and other traditional models of retirement accommodation are no longer fit for purpose.  Modern senior living developments offer high-specification, safe and fulfilling communities but such developments are still few and far between in the UK.  This is in stark contrast to the U.S. and Australia, where such bespoke developments are commonplace and well-established.  The UK Government needs to urgently assist with accelerating the creation of these communities.

While residents of these developments may need access to some on-site care support services flexibly over time, they are typically independent when they first move in.  In addition to spacious private living quarters, developments feature communal areas in which residents can socialise with the opportunity of expert talks, art classes and cocktail parties.  There would also usually be facilities such as gyms and swimming pools, private dining rooms to host larger groups of friends and family, and concierge services with some even offering chauffeurs, beauticians and technology assistants.

Inclusion of senior living within the National Infrastructure Strategy would open the sector up to much greater levels of public funding than is available under the NHS and Social Care budget, under which it would otherwise logically fall.  The National Infrastructure Strategy is projected to include public spending of up to £100 billion (in just the first five years of a 30-year plan) on key infrastructure and transformational change projects.

The Government could also consider offering guarantees on loans used to fund development of senior living facilities.  By offering a level of guarantee, the Government would eliminate some of the risk, which would encourage greater lending from banks and other funders.

The tax-efficient nature of Real Estate Investment Trusts (REIT) makes them an attractive vehicle for investors.  REIT rules could be adjusted to have a special time-limited exemption to allow development projects of senior living facilities to be held in REITs (as opposed to just the finished development).  This would encourage more money into the sector at a point in the economic cycle when investors might be more risk-averse and less willing to fund property development.

Once the Government has laid the groundwork to stimulate investment, the senior living model should take off, delivering returns for both private sector investors and the taxpayer.  Upon achieving a certain critical mass and stabilised economic viability, subsidies can be withdrawn and rapid further growth would be expected akin to other property subsectors such as 'Build to Rent', which is now attracting large amounts of investment from institutional funds.

This article first appeared in CoStar on 10th July 2020.

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