Two of the nations biggest retirement house builders suggest prices of their homes may have to rise following a government ban on imposing ground rent
The government’s announcement to abolish ground rents on new retirement homes as part of its leasehold reforms has sent shock waves through specialist housebuilders writes Jane Slade.
Two of the country’s largest retirement property providers McCarthy Stone and Churchill Retirement Living, say they will have to raise the prices of its homes to manage the shortfall.
“Today’s news is disappointing,” said John Tonkiss, Chief Executive of McCarthy Stone which charges its homeowners around £400 a year ground rent.
“Our ground rents have always been charged on fair, transparent and stable terms and fixed for 15 years. They have been used … to fund the construction of shared spaces within our developments which provide a clear and substantial benefit to all our homeowners.”
McCarthy Stone (formerly McCarthy & Stone) which offers homes to buy, rent and part-buy part-rent, has been hit hard by the pandemic with revenues down 79 per cent, and is in the process of being bought by a US private equity firm Lone Star.
“While we are supportive of Government efforts to protect the elderly,” Tonkiss adds, “this decision will likely have the opposite effect. It could lead to higher purchase prices and adversely affect the supply of specialist retirement accommodation at a time when it is needed more than ever.”
Churchill Retirement Living, which has 100 new schemes under construction, newly launched or awaiting planning, says there will be an impact on its business too.
“Our ground rent is typically between around £400 and £600
a year depending on the size of the apartment, and it helps to fund the construction of all the communal areas that form an essential part of our developments – Owners’ Lounges, Guest Suites, Wellbeing Suites,” explained CEO Spencer McCarthy.
“I am shocked and disappointed at this Government’s U-turn on its own previous recommendations by the last two Housing Ministers for the retirement housing sector to be exempt from the ground rent ban.
“We have been working since 2017 on ways to give older people a choice, with the option of paying a reasonable ground rent rather than the higher purchase prices that will be needed to fund the extensive communal areas that are so essential to our type of development.”
However the leasehold changes have been welcomed by housing-with-care operators such as not-for-profit provider AnchorHanover.
“We’re very supportive of government efforts to reform property law to make home ownership fairer and more secure,” said director of sales, Phillip Hulme.
“Anchor Hanover was among the first organisations to stop charging ground rent on new developments and we haven’t done so since 2018.
“If the government’s reforms force all providers to take a similar stance that can only be a good thing for consumers and the industry.
It’s now crucial that the government takes a similarly proactive stance to reform planning rules so developers of much-needed retirement housing are freed-up to meet the high levels of demand for our homes.”
Nick Sanderson, CEO from Audley Retirement Living which has built 19 high-end villages in the UK agrees. New homeowners no longer pay the £500 a year ground rent it previously levied.
“Reforms to leasehold are welcome and the creation of a taskforce underlines the government’s intent to make continued change in this part of the property market,” he said.
“In housing-with-care schemes, leasehold has been used where there is intensive operational management including services beyond just property management.
“The lease clearly describes those services and how they are paid for. Providers are responsible for being completely transparent on the different fees that property owners pay and ARCO (Associated Retirement Community Operators), with the support of the retirement living market, has worked hard to create a consumer code which we fully support.
“If leasehold is modified we will need to ensure it allows for provision of a full range of services.”
He also does not foresee that prices of properties should have to rise. “I don’t believe that prices will have to rise due to the changes to ground rents,” he says. “It will be the market that sets the pricing rather than developers. Those developers who rely on ground rent to make developments viable will be looking into other ways to create value. This could include providing a fuller range of services that can generate income.”
ARCO also welcomes a rethink of leasehold legislation.
“It has always been clear that leasehold legislation – some of which dates from the 18th century – is not ideal for providing housing, leisure, care and support services in the 21st century,” said Michael Voges, ARCO’s executive director.
“We welcome the opportunity to work with the government to develop bespoke alternatives that work better for residents and operators of retirement communities alike.
“If the Government makes the most of the opportunity this could be the start of a revolution in housing and care: it’s time to level-up for older people.”