Retirement home investment demand peaking as ‘silver tsunami’ hits

A housing sector that currently provides purpose built homes for 250,000 older Australians is effectively operating at full capacity.

Retirement homes are shaping as the sleeping giant in Australia’s residential housing market.

With 710,000 Australians intending to retire in the next five years, including 226,000 in the next two years, retirement homes will be in ever-increasing demand and with that will come higher property prices in retirement villages around the country.

The latest Federal budget ignored retirement villages even as it scrambles to address arguably the nation’s biggest electoral issue - the housing crisis - and to resurrect its faltering National Housing Accord target of building 1.2 million new homes.

The government’s own National Housing Supply and Affordability Council is forecasting a 300,000-home shortfall against its target, yet the 67,000 retirement dwellings required to maintain existing market demand would close that gap by an estimated  22 per cent.

Daniel Gannon, Executive Director, Retirement Living Council (RLC), said the number of people aged over 75 around the country will increase by 70 per cent by 2040.

“This should lead to governments prioritising what is required to house this silver tsunami,” he said.

Units in retirement communities are priced on average 48 per cent lower than median house prices in the same postcode, meaning these communities can help address retirement income challenges.

But the latest statistics from the Australian Bureau of Statistics (ABS) reveal that debt-laden older mortgagees are only going to increase in number while the industry is unable to keep up with retirement demand.

The main factor influencing someone’s decision about when to retire is financial security, according to the ABS, with the government pension remaining the main source of income for most retirees.

There are 4.2 million retirees around Australia, with 130,000 people retiring in 2022 and the average age being 64.8 years. Between FY2021 and FY2023, Queensland had the greatest increase in retirees (+32,000), South Australia had the highest proportion of retirees (46 per cent).

“Given household debt and financial security are impacting the age at which Australians are retiring, suitable and affordable housing options are more important than ever,” Mr Gannon said.

“Unfortunately, a rapidly growing number of Australians are retiring with mortgage debt while the aged pension remains the main source of income for most retirees.

“This spells bad news for a lot of older Australians who have recently retired or many of the 226,000 people intending to retire in the next two years.”

Village retirees less financially stressed

Based on the property Council of Australia’s Retirement Living Council division’s findings, the price of an average two-bedroom unit in a retirement village is anywhere from 32 per cent (TAS) to 53 per cent (QLD) lower than the median house price in the same area. The national average lands at 48 per cent lower.

Speaking to API Magazine, Nathan Cockerill, the CEO of Keyton, an owner, operator and developer of more than 75 retirement villages around country, said this accommodation sector had myriad housing and social benefits.

“More planning support for retirement living projects provides a double-edged contribution to the housing crisis – we build new accommodation for seniors which encourages downsizing and frees up existing housing stock to increase supply,” Mr Cockerill said.

“Greater supply helps put downward pressure on prices.

“Other important benefits for government to consider are in reduced burden on our aged care system and the health system generally as the health benefits of retirement village living – wellbeing programs, exercise facilities, social activities and connection, mean residents are happier and healthier and delay entry into aged care and reduce their demand on the health system.

“This can help reduce the cost burden on government and the taxpayer.”

If a further 49,000 units were built, it would reduce the housing supply gap by 67 per cent, according to the RLC.

Mr Cockerill acknowledged that construction costs that are up 30 to 40 per cent from pre-Covid levels were a challenge.

“We, like all retirement living operators, select sites based on several factors, including catchment supply/demand, planning constraints and opportunities, customer ability to pay, proximity to surrounding amenities (retail, health services etc.) and public transport.

“Investment decisions for new developments take into account both the cost to build and a customer’s propensity to pay.

“We see strong demand for newer developments which are usually in prime metro’ regions where customers have seen significant equity growth in their current home. 

“Like any developer, we need to be well informed and strategic in our development decisions.”

A national survey of more than 4,500 senior Australians carried out by Keyton showed that retirement village residents had fewer financial concerns than other retirees.

“On the financial front, this report showed that with the current economic environment, including the impact of rising interest rates and cost of living pressures, six in ten (59 per cent) retired Australians over 55 say they worry about the cost of living more now than they did in 2021, but conversely, for those living in a retirement village, over 50 per cent say they are now less concerned about the cost of living than they were in 2021,” Mr Cockerill said.

“Interestingly, the majority (54 per cent) of retirement village residents agree that the cost of entering a retirement village was lower than they originally expected, and almost half (44 per cent) say they wish they’d moved in sooner.”

One of the reasons for this is many of the wellbeing and lifestyle amenities are inclusive, saving residents incremental costs such as a pool, gym memberships or for movies shown in some facilities’ cinemas or community centres located on site.

Cost of buying, living in a retirement village

Entry fees can range from as little as $100,000 to over $2 million, depending on the village’s location, age and facilities.

The entry price of an independent living unit (ILU) is on average $516,000. Some 57 per cent of units are on loan lease, 37 per cent are on a loan licence and 11 per cent are on strata or freehold title.

Ongoing service charges — also known as the service fee, general services charge, recurrent charges or weekly/monthly fees — cover shared facilities and services. They are charged by all villages, regardless of title type.

This charge usually covers costs of services like maintenance and upgrades of facilities, grounds upkeep, village staff wages and communal area insurance.

Typically, operators are not allowed to make a profit on ongoing service charges. 

Ongoing service charges — also known as the service fee, general services charge, recurrent charges or weekly/monthly fees — cover shared facilities and services. They are charged by all villages, regardless of title type.

This charge usually covers costs of services like maintenance and upgrades of facilities, grounds upkeep, village staff wages and communal area insurance. 

The RLC is lobbying the federal government to change classifications to increase the eligibility of retirement community residents for the Home Equity Scheme and Commonwealth Rental Scheme.

Governments overlooking senior accommodation

The Queensland government has, for its part, recently unveiled a $350 million fund to support and cover known infrastructure costs of market-ready housing projects, which could include retirement community developments.

The RLC’s Mr Gannon said the South Australian budget released last week was all about first home buyers but said it was “radio silence” on retirement villages, as it was in the recent WA state budget.

“There is much needed cost of living relief for people on fixed income pensions, but no costed plan or initiatives for South Australia’s ageing population and the associated challenges with accommodation and care,” he said.

“The Treasurer himself acknowledged that more than 100 South Australians are stranded in hospital beds every day due to a lack of aged care and disability care places.

“This is where retirement villages can help do some of the heavy lifting for government given after just nine months living in a retirement village, older South Australians are 20 per cent less likely to require hospitalisation.

“People who live in a retirement village have better access to onsite health and wellbeing services that are shown to reduce interactions with GPs, leading to 14,000 avoided hospitalisations around the country every year.

“Given South Australia is tackling an escalating ramping crisis, it’s time government prioritised age-friendly housing through planning and budget measures before a bad situation becomes even worse.”