Ground rents need reforming, but not at the expense of vital retirement housing

The UK housing shortage is a complex issue that spans across many aspects, affecting many industries. In this current series of articles, we examine the various ideas and solutions being discussed from a cross section of the property industry.

Today's opinion from Clive Fenton: Chief Executive of McCarthy & Stone - The UK's leading retirement builder.

"The number of over-65s in the UK is forecast to increase by nearly 50 per cent to 17.3m by 2037, and the number of over-85s by 88 per cent.

This challenge is often seen through the prism of healthcare and social care, but the question of housing is equally pressing. Current provision is grossly inadequate, and relying on the already stretched health and care system is not an option.

Like any chief executive, my duty is to run a profitable business – but ours also fulfills a vital social purpose. We provide purpose-built accommodation for retired people, allowing them to downsize from family homes that have perhaps become too burdensome and lonely.

Specialist retirement accommodation is predicated on occupants’ varying levels of independence and their care and social requirements. Shared areas such as lounges, restaurants, wellbeing suites, laundries and hairdressers provide a bespoke response to individuals’ needs, improving their quality of life.

The benefits do not end there: every retirement property sold represents a family home that has been released to the generation behind, thereby helping to resolve the severe squeeze in housing availability felt at every point in the chain. Help to Buy has helped first-time buyers, but if the housing crisis is to be surmounted, we also need intervention at the other end of the market.

All private retirement providers rely on additional income to fund the construction costs of these important shared areas and to ensure the initial sale price remains affordable. The majority – 90 per cent – use capitalised ground rents, distributed to respected institutional investors such as UK pension funds.

The shared spaces account for up to 30 per cent of each site, and cost £1-2m to build, putting retirement developers at a disadvantage to mainstream developers, who can sell more apartments on the same piece of land. Investors purchase the revenue streams from the ground rents and allow us to pay for the shared areas and reinvest into new development projects.

Importantly, unlike mainstream housebuilders, we remain as the landlord, meaning all management responsibilities remain with us. All the investor has is the right to receive the ground rent.

Ground rents, of course, have been under intense scrutiny, thanks to the activities of some who have imposed aggressive increases on leaseholders. Quite understandably, the government wishes to act, and the new housing secretary James Brokenshire is considering a move to set all ground rents at zero.

We support action against unfair ground rents, including the sale of leasehold houses, but a blanket ban will unduly affect responsible developers in the retirement sector and reduce supply into the market.

Unlike leasehold developers, we do not treat ground rents as windfall profit. They are set at a modest level, averaging £460 a year, and are static for 15 years, with reviews linked to inflation.

We agree that responsible development requires thoughtful and effective regulation. I urge the government to ensure that any move on ground rents distinguishes between the greedy and the good, and enables our industry to continue to grow and meet the urgent needs of the elderly people in this country. "

Opinion written by Clive Fenton,