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 Boomers, some would argue that 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% (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 finally, 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 that threaten a sector where market penetration has stagnated and sits well below 10%. The Australian Dream of home ownership came about in the 50’s and 60’s when the Boomers were growing up and the ‘lease for life’ product doesn’t sit well with that idea. Already I have seen a number of ‘retirement village’ developments pivot to offer a freehold title (outside the Retirement Village Act) because of the level of concern raised by their particular markets. The sector is stifled by paternalistic regulation and whilst consumers drown in complex disclosure requirements, operators drown in over-egged administrative regimes. Mandatory buy-backs in tight time-frames have been implemented in many states and are proposed in WA. If a 75 year old buys a serviced apartment and then changes his mind, he must wait like the rest of us to sell the apartment before he gets his money back. If he does the same in a retirement village then the operator will have to give him his money back even if the apartment hasn’t sold. On the infrastructure side, land which might be used to create dynamic mixed use community value or to raise capital to for the much needed refreshment of the sector’s ageing stock is effectively sterilised by the memorials placed on them under the Retirement Village legislation.
Now, if you were a prospective operator, sold on the Boomer demographics and considering the development of a new seniors living community, it would be quite sensible for you to ask, why would we? Or conversely, why wouldn’t we 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? Say for example, a strata-titled community or a serviced apartment model? This is indeed the discussion being had in many board rooms right now and here in Western Australia, retirement village developments are stalling, as are new entrants to the market. We are seeing other models are giving the RV 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 and, as the saying goes, ‘happy residents, happy life’. 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 tax payer. My hope is that this can change in time for our Boomers.