Written evidence submitted by McCarthy and Stone Retirement Lifestyles Ltd [LVC 028]

1.0               MCCARTHY AND STONE AND THE BENEFITS OF RETIREMENT HOUSING 

1.1              McCarthy & Stone is the UK's leading retirement housebuilder, having sold more than c.54,000 properties since 1977.  In the last year, it sold 2,302 specialist retirement apartments in the UK, with more than 90% of customers being prepared to recommend the company to a friend.  

1.2              Providing more specialist retirement housing will have a strong positive impact on the well-being of older people. In addition, it can help with two of the main domestic issues facing the country – addressing both the need for greater housing supply and releasing under-occupied stock, alongside helping to reduce public health and social care budgets by keeping people happier and healthier in later life. For this reason, the National Planning Policy Guidance (NPPG) highlights a “critical” need for this type of development

2.0               MEETING HOUSING AND CARE NEEDS AND THE BENEFITS OF DOING SO

2.1              Given the ageing population, there is significant under-supply of specialist retirement housing. Knight Frank states that there is enough demand for specialist retirement housing to grow from c.5,500 units a year to 30,000 units. This would help to increase overall housing supply towards the 250,000 a year needed.

2.2              Retirement housing can help with health and social care savings. The Government’s own research shows that each person who lives in specialist retirement housing saves £30,000 to £60,000 in costs over 25 years. Even taking the more conservative estimate of £30,000, a typical 40-unit retirement scheme averaging 60 people would save £1.8 million over this period.

3.0              RETIREMENT HOUSING AND THE CURRENT LAND VALUE CAPTURE REGIME

3.1              The November 2017 report by Demos and the House Builders Federation (HBF), entitled Unlocking the housing market: helping first time buyers by helping later life buyers[1], confirmed there are two main barriers to the supply of specialist retirement housing: lack of recognition of the housing needs of older people in local plans and a planning charges regime that renders retirement developments inherently uncompetitive against general needs housing and retail developments.  The result is that retirement developers are often out-bid for land for their sites or spend excessive amounts of time and money negotiating and appealing planning decisions and/or affordable housing contributions.

3.2               The report presented findings from economic modelling carried out to establish the impact of the current planning charges regime on different types of retirement development.  The findings were conclusive: affordable housing contributions, and CIL charges, fundamentally undermine the viability of retirement developments in all their forms. This is because of a number of reasons unique to specialist retirement housing, not least the substantial and unsellable communal areas that are integral to this form of housing, and its higher build costs which result from increased accessibility standards.  This is explained in more detail below.  Their presence also paves the way for protracted negotiations and costly appeals, local discretion and uncertainty in the market – regardless of the level at which they are set.

The Communities and Local Government Committee – Housing for Older People Inquiry 2017

3.3              The CLG Committee announced an inquiry into Housing for Older People in February 2017. McCarthy and Stone made representations to it on a number of matters including the current shortfall in retirement accommodation, the potential to boost its supply and the difficulties involved in delivering it, including those outlined above.

The inquiry’s Second Report of Session 2017 -19 was issued on 5th February 2018. Considering “Planning and Supply of Homes for Older People” concluded:

“We believe that the level of planning contributions on specialist housing, which are increased as a result of the non-saleable communal areas which are a feature of this type of housing, is impeding the delivery of homes. We recommend either the creation of a sub-category of the C2 planning classification (which currently applies to residential care and nursing homes) for specialist housing, which would reduce the contributions required from developers, or the creation of a new use class for specialist housing which would have the same effect”.”

3.4              As the Committee noted, there is a need to ensure that any proposed changes to the methods and ways of capturing any uplift in the value of land associated with the granting of planning permission needs very careful consideration in its application to the development of specialist retirement housing to ensure that the difficulties already faced as a result of the current methods are not exacerbated further. This would only serve to further impede the already inadequate supply of such housing to meet the country’s housing, social and health needs. Indeed, the CLG Committee’s inquiry into Housing for Older People recognises this and recommends that firm steps are taken to ensure that retirement housing is supported by reduced contributions from Retirement Housing developers.  We hope these findings will be repeated in your inquiry into land value capture. 

4.0              TERMS OF REFERENCE OF THE INQUIRY

Are current methods, such as the Community Infrastructure Levy, planning obligations, land assembly and compulsory purchase adequate to capture increases in the value of land?

4.1.1              Generally McCarthy & Stone supports the representations of the HBF in this respect.   As well as the need to ensure that the supply of retirement housing is not curtailed by onerous financial contributions, it is important that this is the case across all types of residential development. Not only does this prevent development to address the housing crisis but without development, there are no payments.

4.1.2              In respect of Retirement Housing, the planning obligation approach does allow for some acknowledgment of the marked differences with conventional housing  in negotiation (though how far this is recognised, and what the desire is to deliver retirement housing will differ considerably between and within authorities) Such negotiations are also predicated on the basis of viability as recognised and required by the National Planning Policy Framework (Paragraph 173).

4.1.3              However, discussions in respect of contributions are a regular source of tension between providers and local planning authorities who may not understand the need for retirement housing and the housing, social and health benefits it brings and importantly, its different viability and risk model, including lack of phasing, upfront build-out costs, significant shared and non-sellable areas (such as shared lounges, laundries, guest suites, staff offices and overnight accommodation, electric buggy (invalid) storage and charging points, well-being / treatment suites, hairdressers, restaurants and function rooms), slower selling periods (as fewer older customers tend to buy off-plan, and there is no appetite for bulk purchases from investment businesses) and the need for ongoing management regimes. 

4.1.4              To underline the point about the increased costs of building specialist retirement housing, our internal research shows that it typically costs us c.£1 million to build our shared spaces in our retirement living developments, and c.£2 million to build them in our Extra Care developments.  Our proportion of shared space is on average 30-33% of our total floorspace in each development, compared to an average of c.18% for a mainstream flatted development. 

4.1.5              Negotiations are often not given priority by officers until late in the process – typically around the 10 week mark in the statutory 13 week period.  This only serves to delay the provision of retirement housing and the opportunity for older people to move, at the most appropriate time in their life, into a form of accommodation that better meets their needs and aspirations.  This needs addressing in any revised arrangements that may be proposed, whether these are negotiation or regulation led.

4.1.6              However, payments to be made through the Community Infrastructure Levy in particular have  flexibility for dealing with this different model. This form of housing is unduly hit by the need to pay CIL as CIL obligations are based upon gross internal floor area and therefore specialist housing is unfairly disadvantaged.  As detailed, the characteristics of retirement housing differ significantly from conventional housing and as such the viability margins that impact delivery are much more finely balanced. Importantly, a third or more of the floor space in retirement housing is used for shared facilities and communal areas, which are not saleable.  As CIL is charged per square metre on new development, retirement providers pay a disproportionate level of CIL in relation to the saleable area. This does not create a level playing field at the point of land acquisition and prejudices the ability of retirement housing developers to secure good sites. 

4.1.7              Additional costs can also include abnormal ground costs because the best location for retirement housing is in town / urban centres, where residents wish to live because these sites are well-located relative to essential services (shops, medical centres, public transport etc.).  They can include decontamination, preservation of archaeological interests, flood alleviation/management, demolition, land stabilisation/complex piling solutions, protection of adjoining uses (such as railways) and heritage costs, particularly if the development is in a Conservation Area and/or adjacent to a Listed Building, which is very common. 

4.1.8              Many CIL charging authorities, have not tested the viability of retirement housing and simply amalgamated these forms of accommodation into a single residential rate. The effect is to make many schemes unviable which discourages delivery in this sector.  While McCarthy & Stone has on occasion, through its representations, successfully challenged and encouraged charging authorities to take account of the viability of retirement housing when setting CIL rates, it has been a constant challenge and many authorities are still reluctant, and occasionally hostile, in this respect.

4.1.9              Additionally, under current regulation, CIL does not provide flexibility to allow consideration as to what facilities and infrastructure, different uses should be contributing too. For example, retirement housing will place very little pressure on education and sports facilities. Delivery could therefore be impeded by having to make contributions towards facilities and infrastructure which are wholly unnecessary.

4.1.10              Highlighting the points being made, the supplemental report that accompanied the recent White Paper entitled ‘A new Approach to Developer Contributions: A Report by the CIL Review’ proposed a number of recommendations. It advocated a renewed central role in S106 contributions as a mechanism for addressing site specific needs supplemented by a ‘light touch’ Local Infrastructure Tariff (LIT) and a ‘lighter touch’ Strategic Infrastructure Tariff (SIT).  What was particularly concerning about this approach is that LIT would be applied to all forms of development irrespective of its viability. The rationale given for this was that the cost is so low it does not meaningfully impede delivery.  Under closer scrutiny, however, the formula used to determine LIT as a percentage of sales value results in rates that broadly align to or are higher than those provided through CIL. The cumulative impact of LIT in combination with S106 and SIT would then have significantly impacted on the financial viability of development with retirement housing being disproportionately affected as the proposed formula did not take into consideration the special characteristics of retirement housing including the considerable extent of non-saleable floor areas that will still be charged the rate.  In demonstrating the point through reference to this Report, it of course follows that the approach advocated would not be supported as it could be highly damaging to supply though it may be that the announcement of this CLG Committee inquiry is indicative that this is not being pursued.

4.2              What new methods may be employed to achieve land value capture and what examples exist of effective practice in this area, including internationally?

4.2.1              Generally McCarthy & Stone supports the representations of the House Builders Federation in this respect.

4.2.2              Considering the foregoing comments, care is required in the application of any methods which affect viability of retirement housing as its characteristic and viabity assumptions are markedly different to conventional housing development as are the sites that are most suitable for it (i.e. centrally located and usually significantly constrained Brownfield Sites as opposed to Green Field Sites). It follows that flexibility is needed into how such methods are applied to retirement housing development generally and also in how it is applied to individual retirement housing sites and developments to reflect their own circumstances. The current S106 process does this to an extent (principally excepting where inappropriate set formulaic approaches are employed) but CIL fails to do so. Without considerable care, retirement housing and its delivery is likely to be significantly affected by “more comprehensive systems” and particularly one employed as a “catch all” across the whole of the residential sector.   We are keen that any new system is not designed around a standard Green Field-type development, but includes the nuances of development like retirement housing. 

4.2.3               It is submitted then that alongside or perhaps as part of the changes arising from the inquiry that the opportunity is taken to action the findings of the Housing for Older People inquiry 2018 to create “a sub-category of the C2 planning classification for specialist housing, which would reduce the contributions required from developers, or the creation of a new use class for specialist housing which would have the same effect”.

4.2.4              As was presented to that inquiry, in order to optimise the opportunities for provision of retirement housing by ensuring it is viable and competitive, any new legislation required to implement the inquiry’s recommendation alongside the required changes to the Use Classes Order should exempt such housing from contributions.

4.2.5              If reduced contributions are to be explored then consideration should be given to the fact that privately delivered retirement development (i.e. at no cost to the public purse) has significant public benefits. 85% of people living in a McCarthy & Stone apartment said they experienced a sense of community compared to just 51% of older people in the general population. 64% of residents said their health and well-being had improved since moving. 92% said they were very happy or contented. 83% maintained their independence for longer.

4.2.6              Residents have fewer visits to health professionals and return home more easily after stays in hospital.  75% of residents in specialist retirement housing have not stayed overnight in hospital since moving. 60% who had stayed in hospital said that they had found it easier to return home since moving. One of the NHS’s biggest costs is overnight stays of older people - the annual cost of falls among older people is £1 billion and almost two thirds of general and acute hospital beds are occupied by people aged over 65. Each year a resident postpones moving into residential care, the state can save on average £28,080.

4.2.7              Such savings have been quantified by Government itself. A 2010 report commissioned by the HCA using Frontier Economics found that when older people with low to moderate support needs move into accommodation suitable for them, such as Retirement Living properties, this generates savings of £2,988 a year in health and social care.  This is split almost evenly between savings from social care settings and savings from hospital stays. Updated for 18% CPI inflation between 2010 and 2017, this gives annual savings of £3,525 a year. The benefits of Extra Care developments would be even higher, because they are sold to those who are even more frail and have more complex issues.

4.2.8              Over 25 years, with the Treasury approved discount rate of 3.5%, this gives a net present value (in layman’s terms, the total saving over this period) of £59,383 – a huge saving that is not currently accounted for in policy. Even if it assumed that some of these savings accrue to older people rather than Government, even half of these savings being made by Government would lead to £30,000 per person in savings over twenty-five years – a huge sum.

4.2.9              Taking the most conservative figure of £30,000, a 40-unit scheme averaging 60 people would save £1.8 million to the public purse over a twenty-five year period (60 people x £30,000). This is a major benefit to the taxpayer as well as a benefit to the individuals involved.  A starting point then for consideration of revised method is that any requirement starts from a “discount” of £30,000 per unit of Retirement Housing. This would be very conservative as it reflects the lower level of these savings already identified above. The Local Planning Authority would also not ‘lose out’ as the money would be recouped from its health and social care budget. This would effectively become a ‘social care credit’ for specialist retirement housing.

4.2.10              Separately or as part of this approach, flexibility should be applied as to whether a contribution towards a specific facility is required from retirement housing. For instance, a CIL123 list which sets out the facilities to which contributions are required will often include education and active sports provision, upon which retirement housing will place negligible, if any pressure. Discounting “unnecessary” contributions will help the viability and delivery of retirement housing.

4.3              What are the possible advantages and disadvantages in adopting alternative and more

comprehensive systems of land value capture?

4.3.1              Considering the foregoing commentary, there is a need for care and flexibility in consideration of adopting alternative systems for land capture and it follows then that there is a danger then that any alternative “Comprehensive System” that is proposed as a “catch all” could be highly disadvantageous to the delivery of retirement housing. 

4.4              What lessons may be learned from past attempts to capture the uplift in value?

4.4.1              As the HBF explains and McCarthy & Stone concur, previous attempts at land value capture have generally been abandoned by successive governments usually on the basis that not enough land was brought forward for development. And that many landowners will withdraw their land from the market, awaiting a change to the tax regime by a successive government.

4.4.2              Therefore, there must be a balance between capturing land value, incentivising landowners to bring land to market and creating a business environment for developers to be competitive and attract investors. As explained in this submission, the “balance” in which retirement housing needs to be considered is markedly different from that of mainstream housing and therefore this needs to be reflected in any revised system both in terms of recognising the differences between development and then ensuring there is sufficient flexibility in applying this to individual sites and developments.

4.4.3              Relevant to this too is that absolute care needs to be taken in establishing the appropriate land value against which land value capture is assessed. Given the challenges in bringing retirement housing forward because of the unique characteristics of the development itself and also the type of sites that are ideal for it (i.e centrally located urban brownfield sites), flexibility in assessing benchmark land Values for viability testing is also essential.   

February 2018