Market focus
An overview of the long term elderly care sector
Keith Taylor, director and founder of AMA Research, provides an overview of the long term care market, which includes care homes, nursing homes and residential homes, and considers the opportunities for new build and refurbishment in the sector
There are almost 19,000 care homes, nursing homes and residential homes providing adult and elderly care throughout the UK, of which most are operated by the independent sector (private for profit) or voluntary (not for profit) organisations. In 2017, 76 per cent of all care homes - and 81 per cent of care home beds - in England are provided by the private sector, with 19 per cent of care homes operated by the voluntary sector, four per cent of homes and three per cent of beds controlled by local authorities and just one per cent of homes and beds owned by the NHS. The long term care sector provides a variety of forms of residential care, which include sheltered accommodation, nursing care, single care home accommodation and care village themed complexes. The requirement for good quality, purpose built care homes continues to outstrip supply creating unprecedented levels of demand for new facilities.
Over the next five years, demand for care home places is expected to far exceed the number of bed spaces available. This undersupply of care beds is being underpinned by an ageing population and a healthy private sector
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1,342 1,244 1,135 753 650 418 265 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 1. Care home planning applications by number and value (£ m) – 2007-2016 20
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market in the south east, which is the key driver of new build construction, leading to growth focused specifically in the ‘for profit’ sector.
New build
Care home operators and investors are now seeking sites and homes in strong regional locations. The growth in purpose built care homes is largely concentrated in the south east due to a growing number of wealthy self funding residents, with Kent emerging as a key centre for new developments, although the rest of the UK is also seeing an increase in new build care homes.
Care home developers face stiff competition from residential house builders due to development funding and financing now being more widely available. The competition for land, particularly from the residential development market, is reducing the number of readily available opportunities, especially along the M4 corridor.
Developers of modern care homes often require around one acre of land for a new scheme, which means they are regularly competing with house builders for available sites. House builders often
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800 700 600 500 400 300 200
have higher profit margins so they may be able to pay more for a site, with care home developers left at a disadvantage. If land acquired doesn’t already have planning permission, projects can be delayed for up to two years before they can be put out to tender – a process that can take another year before construction even begins. New build development may be constrained further following recent increases in land values and build costs. An increase in house building combined with skills shortages are driving up material and labour costs. As a result, construction costs are rising. In addition, the community infrastructure levy (CIL), which is charged on net additional floor space, is challenging the viability of care home development in some areas. In many cases, local authorities do not recognise that the additional costs associated with developments that have larger communal and non-saleable areas – such as common rooms, laundries and dining rooms –are not always recoverable in the rental costs of care homes as they are in other forms of residential development.
Refurbishment
The closure of facilities that are no longer considered fit for purpose are in some instances providing new opportunities, particularly where redevelopment of the existing site is an option. However, the resurgence of the residential property market has in many cases led to higher land values if a change of use can be obtained.
Local authority provision has seen an increasing rate of activity as councils seek to redevelop ageing stock. Much of this has been undertaken by the private sector, although some local authorities prefer to provide ‘extra care housing’ rather than traditional care homes. Most new build activity is focused on the private
www.thecarehomeenvironment.com • January 2018
Value of projects
Number of projects
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