Market focus
pay market as development finance is easier to obtain for projects that are going to be mostly privately funded. Operators with more modest budgets are favouring refurbishment options or building on existing sites where land is available. Average refurbishment costs per bed range from £3,000 to £4,000, while a full refurbishment, such as adding an en-suite, could cost £10,000 to £15,000 per bed. Refurbishment takes less time than new build and can add value to a care home by providing better quality accommodation. A number of operators are constructing new care homes on land adjacent to older care home buildings, where land is available, or replacing them with assisted living apartments to complement the care home. In terms of planning, the different types of care provision in the market still cause difficulty, particularly in the extra care sector. Difficulties in classifying planning applications for extra care housing are currently one of the most significant barriers to the development process. At present, planning applications for extra care housing fall into either the C2 (residential institutions) or C3 (dwelling houses) categories. As there is no distinct classification for ‘extra care’ housing, this can frequently lead to planning appeals or disputed planning applications, causing delays and in some cases preventing schemes coming forward.
Extra care
Extra care housing differs from a traditional care home where residents benefit from meals and other facilities provided within a communal setting, as residents have self contained accommodation combined with communal facilities and personal care is available if required.
Schemes that fall under the C2 classification are bound by fewer planning constraints and planning is increasingly being granted for C2 retirement housing on sites where market housing would not be permitted, including town centre sites and in protected countryside, such as areas of outstanding natural beauty. In addition, under the CIL, local authorities are imposing a fixed charge per square metre of floor space for C3 developments, which can be up to £500 in some areas. However, there is currently no charge for C2 development. Many local authorities are increasingly allowing schemes under C2 classification if a minimum care package of two hours per week is secured in a Section 106 obligation prior to planning permission being granted. National planning policy
Local authority provision has seen an increasing rate of activity as councils seek to redevelop ageing stock
has also changed to support the delivery of retirement housing. From March 2015, local authorities were required to use population projections to assess requirements by age group and to use this information to meet housing needs.
Supply and demand
The care home development pipeline has been growing for the past five to six years and the market has seen a fairly consistent number of new care beds added at a rate of 5000 to 6000 per annum. Over the next five years, demand for care home places is expected to increase by 36,000 new places from 2016 to 2017 and from 465,000 to 501,000 in 2020 to 2021. This equates to 9000 new places that will be needed each year until 2021 to satisfy demand in both the public and private care home sectors. During this period, independent sector provision is expected to continue to increase as demand for public sector places declines.
In terms of new stock, it is expected that the rate of new care home development will remain relatively static in the short term. Despite an upturn in the economy and the increasing availability of development funding, care home operators/developers face increasing competition for land from providers of housing, student accommodation and hotels. However, there is a discrepancy between current annual rates of bed space additions (5500) and future annual demand (9000), which is expected to widen significantly and by 2025 there will be an estimated shortfall of 28,000 bed spaces, rising to 45,500 by 2030. The upturn in the economy and the increasing availability of different types of funding should increase development; however, factors continue to restrain the sector with care home operators/ developers struggling to compete against alternative land use.
Planning data in the year to June 2017 suggest a continued upturn in care home planning activity and the market is seeing a sustained increase in activity, reflecting the wider availability of development funding and financing. In the first half of 2017, 244 applications were submitted for care home developments, with levels expected to remain similar to those of previous years for 2017 as a whole.
January 2018 •
www.thecarehomeenvironment.com
The value of schemes submitted for planning continues to rise as the availability of land for new care home developments becomes increasingly constrained. Competition from residential developers, which typically pay more per acre, is particularly strong, contributing to rising land prices and an increase in overall project costs. Despite the challenges currently facing the sector, with staffing and payroll issues a major concern and at risk of being exacerbated by uncertainty over freedom of movement following Brexit, the private care home market continues to attract new investment and the value of sterling has also made the UK market more attractive to overseas investors. In the longer term, the care homes sector is expected to outperform the wider healthcare market due to an acute undersupply of appropriate accommodation together with increasing demand from an ageing population. TCHE
Keith Taylor
Keith Taylor is a director and the founder of AMA Research, a leading UK provider of market research and consultancy services specialising in building and construction. Keith has senior marketing management experience in international building and home improvement, having worked for companies including Kohler Mira Showers, Philips Electronics and Granada TV Rental. Keith also has a technical background with a degree in engineering and has extensive research experience in the construction, environmental and industrial markets.
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