June 17, 2024

Retirement housing won’t grow until oldies are offered a product that they can trust, says head of ARCO

By Michael Voges, CEO of the Association of Retirement Community Operators

The leasehold system in retirement housing is flawed and ensures that consumers taken on all the risk of future costs at a site, Michael Voges, the CEO of ARCO told the APPG on 27 March 2023.

“ARCO commissioned a YouGov poll and found that while respondents would have liked retirement housing to be cheaper, an even greater concern was on-going costs.

“What Sebastian (above) has just said – that the service charge is not controllable – the research bears out. They want control over these costs, that they are not going to be hit by things like expensive new electronic phones, new roof or whatever.

“It is very clear that people do not want to take on that risk.

“What does the leasehold system do? It means that the residents are liable for all the risk. So the leasehold system does not provide what older people really want which is control over ongoing costs.”

ARCO is a trade body representing 35 members which house 30,000 residents, of which the largest part of the sector – two thirds – is for affordable rents.

On the other hand, 70 per cent of older people in the UK own their own home so that is what attracts private operators and where the growth of this sector is coming from.

Mr Voges said: “ARCO buyers typically stay for 6-8 years, but we are selling older people leases of between 120 and 999 years. And when those leases sell they sell under exactly the same terms as thatthe first owner accepted.

“Will the lease actually be uptodate in 100 years time? We don’t know. So it is a very inflexible system.

“ARCO on the other hand has always been calling for more consumer regulation. Because every country that has a mature market in retirement housing, as Sebastian said, they have something equivalent to a retirement villages act.

“We have very little in terms of sector specific regulation here.

“The Consumer Rights Act only applies to the very first person buying a lease and not in subsequent resales. And a lot of people do not realise this It is insufficiently evolved.

“What our members are trying to do – or, rather, the emerging thinking – is move on from a service charge to a management fee: basically this pays for the cost for providing the services, but operator takes on all the liability to run the scheme for the long term including capital costs and repairs.”

This means that older people can pay less for these services in return for a larger percentage exit fee when the property is sold.

“When older people are asked whether they want to halve their service charges and you want to doub;e the fee that you pay at the end – figures differ at different sites – but overwhelmingly people prefer to pay at the end with a larger fee when the flat is resold.

“There will be a three way transaction. Someone coming into one of our schemes gets a new lease so the whole issue of a wasting asset is no longer relevant because the new lease with be for 125 year or 150 year lease or however long … but your consumer rights apply not just to the first customer but to every customer at the site.

“Covered by a statutory code of conduct both in management charges and disclosure of fees.

“The fee paid at the end does not go to an external freeholder as was the subject of the OFT investigation: a person entirely unconnected to the running of the scheme.

“We are talking about fees that go back into the pot to pay for services.

“The retirement market is evolving into more long term operators like our members we are evolving further and further away from the leasehold system.

“We would like a Retirement Community Act for the UK.

“But as a minimum have the ARCO consumer code put on a statutory footing.

“Reputationally, our members recognise that this sector can never grow if we can’t offer the customer a product that they can really trust.”