The impact of the changing age demographics in Australia will be felt across the whole economy but no greater than in the retirement village industry. In many ways retirement village operators will feel the brunt of these changes as demand for their accommodation increases along with the age of their residents. Ageing residents will demand more services including home care, particularly the baby boomers who are used to paying for what they want. Traditional funding models for retirement villages are being challenged as demanding residents stay longer.

According to a report Who Lives in Retirement Villages; are they wealthy enclaves, ghettos or connected communities?, by Lois C Towart University of Technology Sydney, there are +-2,000 retirement villages with an unweighted average age of village for residents of 79.39 years, the youngest village average age observed was 61.6, while the oldest village average age observed was 90.7. Towart says the unweighted average of the percentage of village residents that are full pensioners was 57% while self-funded retirees were 9%. Historically retirement village residents were not wealthy, they would have had to sell the family home to buy into a retirement village in the first place. Many older residents are living on the proverbial 'smell of an oily rag', with care being funded by the government and family members.

According to a recently published report by Colliers International, Health Care and Retirement Living (2015), the average age of new entrants to retirement villages is over 70. Some 184,000 people live in retirement villages or about 5.7% market penetration of persons over 65 (USA 12%). Over 29% of all village accommodation is owned by large corporate operators and they account for 52% of the development pipeline. About 60% of operators are commercial (for profit) while 40% are not-for-profit.

Fifteen years ago buyers of retirement village units were excited about beautiful gardens, recreation facilities, social events and all the benefits of downsizing. Those that bought back then are now in their late 70s and 80s and still going strong. New buyers are generally a lot older and the focus is turning towards whether they will be able to stay in the village until … pretty much the end. They don't want to have to sell up again and move into a nursing home. The greatest stress of moving into a nursing home is most often the splitting up of couples that have been together most of their lives. Few nursing homes offer couple's accommodation at an affordable price.

According to research performed by Professors Gill North and Eileen Webb, reported in the Property Observer, older people who are secure in the knowledge that they can stay in their accommodation for an extended period – or permanently – exhibit demonstrably better physical and psychological health than those in less stable accommodation.

Insecurity in one's home environment heightens the risks to physical and psychological health in the short and longer term, including feelings of powerlessness, says North & Webb

The fear of the unknown, having to move to a nursing home, is just such an example.

Of course, some people, especially those with advanced dementia or Alzheimer's have little choice but to move to a high care facility. This is simply because their requirement for care at home is beyond what their family or spouse can provide. Difficult behaviour often associated with dementia will also have an impact on the other residents of a retirement village.

For those more fortunate to progress happily towards their final years, there is no reason why they should not be able stay in their village unit to the end. The problem with this is that it plays havoc with the traditional retirement village deferred management fee financial model which relies on resident churn.

A natural stress is developing between the demand by residents for longer stay and more services, with the financial needs of village operators to churn residents in and out.

The recently arrived baby boomers are more focused on staying in the family home for as long as possible. This means that new buyers of retirement accommodation are generally a lot older. These buyers are more interested in services and care provision, or more correctly, wellness and reablement, than the tennis court, swimming pool, library and dance hall.

In many ways great facilities are taken as a given in the minds of buyers, what they want to know is "how will you look after me when I need help as I grow older?", and, "will I have to sell up to move into a nursing home?".

Cashed up baby boomers are likely to drive up the percentage of residents that are self-funded retirees, while increased building costs and property values across the market will make it more difficult for prospective residents with modest means.

The reality is that the vast majority of commercial retirement village operators were spawned by the property industry. They were focussed on things like investment yield, discounted cash flow, resident churn and all the things needed to 'bank' a project. Most retirement village contracts are a form of delayed payment and operators aim to make a slim development profit on the original sale and then share in any upside in the value of the property.

The new focus on care and services is providing challenges that village operators that many have not yet been required to handle. Some operators are already building care options into their products, some real some notional. Savvy buyers can see through 'smoke and mirror' marketing offers, they are looking for substance, believability and sustainability, after all, this is the beginning of the rest of their lives.

In the USA they have a concept called the Continuing Care Retirement Community. A continuing care retirement communities (CCRCs) and fee-for-service continuing care retirement communities (FFSCCRCs) are residential alternatives for adults that offer, under one contract, an independent living unit (an apartment or cottage), residential amenities and access to a continuum of long-term care services, as residents' health and social needs change over time. CCRCs fit both the commercial and not-for-profit models.

The CCRC model may be something that can be adapted for Australia as it ensures a financial return for the property developer that meets the residents demand for services.

The CCRC's services and associated charges are contained within a contract that specifies if and how charges will change as a resident's health and social needs change over time. An estimated 65% to 75% of CCRCs offer contracts that include a lump-sum initial payment (entrance fee). This fee is traditionally a lot lower than the cost of purchasing a retirement village unit in Australia. A large majority of contracts offer some degree of refundability or repayment of the entrance fee to the resident if the resident moves out of the community or to the resident's estate if the resident dies. These refunds are not linked to the property value and are, therefore, small as they are designed to amortise through the individuals expected life.

In CCRCs the amount of the entrance fee typically varies based on the size and type of living unit. Residents also pay a monthly fee. The aggregation of services through the CCRC increases efficiency and drives down costs. The CCRC offers a lower initial financial impact and the provision of services at prices much lower than available in the market.

The entrance fee, if required, and monthly fee give the resident the right to live in his or her unit and receive services such as meals, housekeeping, in-home care, repairs and maintenance, and the use of community facilities, activities, and other amenities. Access to limited or unlimited medical and nursing care can be included in the monthly fee or available on a fee-for-service basis, depending on the contract. While most CCRCs offer one contract type, some offer two or three and a range of refund options.

The essential difference between the CCRC and the Australian deferred management fee is that the resident needs a lot less money upfront but a higher monthly fee to cover services. The services cost less because of aggregation. The developer keeps most of the entrance fee as part of their return. Entrance fees do escalate with property values over time and monthly fees have CPI escalations. The result is that the resident gets the security of long-term accommodation (hopefully until the end) with great services and facilities without the future financial impact and emotional upheaval of moving into a nursing home.

The prospect of having to move out of their retirement village, leaving behind close friends and a spouse, weighs heavily on older Australians. This is especially so where options for accommodation elsewhere are limited and expensive.

Its time for retirement village operators to seize the day, reset funding options, offer affordable long term care and services - it makes sense for everyone.
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