A property segment immune to the cycle

By Ross Elliott, author of The Pulse:

Much has been written about the ageing of our population but less is known about the implications for housing and caring for them. In the past, this has been left to not-for-profit groups like religious organisations or charitable institutions and a handful of smaller private operators. But the numbers that are coming in terms of ageing Australians will render this cottage industry approach entirely obsolete. Demand is likely to be so strong, for so long, you have to ask if this is one part of the property industry that will be immune from cyclical gyrations because it will be one long upswing lasting more than 20 years.

If you were born in 1900, you could expect to live on average to around 50 years of age – less than today’s retirement age. If you were born in 1945 that rose to around 68 years of age. If you were born in 2009 you can expect on average to live to 79 for males and 84 for females – a good way past retirement age. The United Nations has estimated that every second child born in a developed economy from 2000 onwards could live to 100. So one in two of today’s children in Australia may somehow have to work out how to live without an income for some 35 years. Good luck with that.

They – and today’s ‘baby boomer’ generation – will also need to find somewhere to live – and this is where the property industry comes in. There are two types of product and generally two types of operator servicing the needs of the 70+ population: retirement living (also known as independent living) and aged care (once called nursing homes). Neither are for everyone and take up rates in Australia are still low by developed nation standards. However, even based on those low take up rates, demand is going to quickly outstrip supply.

Leading Aged Services Australia is the peak body representing aged care providers. They estimate that there will need to be an extra 83,000 new aged care places in Australia in the next nine years alone. Let’s adopt an average of 80 beds per facility which is typical of most existing aged care operations. That equates to 1037 new aged care facilities for the next nine years, or around 115 per annum for that period. Mostly they will be needed in the larger capitals. Some research I coordinated for Calibre Consulting shows that in Brisbane, Sydney and Melbourne will all need something like 20 to 25 new facilities each year to 2031 and probably beyond. Each place costs roughly around $250,000 in development costs (building plus land plus other charges) so each facility of 80 beds will on average be around $20 million. The 115 new facilities needed nationally work out to an annual development budget of $2.3 billion. And this is just to keep pace with the demand we know is coming, without any increase in take up rates. And these are only the development numbers for aged care. Add in the retirement living market and you could potentially double that. Or maybe more.

The thing about this market is that demand is fairly predictable. You will not find an aged care or retirement living operator complain about a lack of demand. They will however complain about high operating costs and high site costs, if they can find the sites. After all, it’s one thing to reel off statistics about projected demand but the industry still has to find places to develop these facilities. And because most seniors (and their families) want to age in the communities they are used to living in, this does not mean they’ll be interested in shifting out to some bleak cow paddock on the urban fringe. Nor will they (or their families) be interested in trotting off to some aged care facility that has all the charm of a 1930s insane asylum, or if a retirement living facility, all the design flair of a post- war workers housing scheme, complete with vinyl floors.

Not all of them will be able to afford to be choosy of course. But there will be enough of today’s boomers with enough cash to support a large and growing industry that will appeal to their needs and advanced tastes.

(What though will happen to today’s generation of kids? They are renting longer, entering the housing market later and with much higher mortgages. They are projected to retire with a mortgage and will need to live that much longer without an income past retirement. Today’s boomers are often multiple property owners having grown up in a post-war era of extraordinary opportunity. Today’s millennials by contrast, when it comes their turn to find a retirement living or aged care product, may not have the assets to fund their lengthy senior years. For them, is it time for Logan’s Run?)

The other aspect of demand in this market is that it is typically unrelated to market or economic cycles. True, most people entering a retirement living product do so by selling their family home, and they will try maximise the price for that by waiting for the right time to sell. But ageing has its own immutable clock, which doesn’t wait for market cycles – especially if people suffer from loss of a partner, a fall, or stroke or rapid onset of dementia or other debilitating conditions that can’t be forecast. They need new living arrangements, or they need care, and they need it now. Family members are often left to find somewhere and they need to find it quickly. Market or economic cycles are immaterial to finding suitable places for loved ones to live in. And there will be an increasing wave of seniors in precisely these situations that will drive a long upswing in the aged care and retirement living market.

How will the industry respond? Here are a few thoughts.

Consolidation by merger or acquisition is inevitable. The top two or three largest operators in the aged care market, for example, control only around 5% of the market. Contrast that with retail where the two majors receive 80% of the retail dollar. There are literally thousands of facilities and operators nationwide and many of them with only one or perhaps two facilities. They will not survive, except perhaps for the elite end of the market, because they do not have the economies of scale to provide cost-efficient operations. Everything from the cost of meals to laundry to staff:patient ratios counts and larger operators will win out.

There will also be more professionalism. No disrespect to the many well-meaning and long standing charitable and religious providers but in terms of property development or redevelopment, many don’t have the skills. Their business models were based on noble but often uneconomic commitments to provide care at ‘affordable’ prices. Their cash balance sheets are often incapable of supporting new development to meet demand even though they may be paper rich in land assets. I suspect many will start joint venturing with private developer-operators to fund their future – indeed some are already doing so.

Planning schemes and community attitudes must also change. There are virtually no undeveloped sites suitable for retirement living or aged care facilities in areas of our cities where demand is most acute. Under-utilised land like shopping centre carparks or even that second school oval are going to need to be available to meet demand. Otherwise we may as well put up signs in our cities saying “hey oldies, thanks for building all this but you can piss off now you aren’t welcome anymore.” Height restrictions will also need to give way to provide for higher density facilities especially in areas where land or sites are particularly scarce. The NIMBY attitude of some community groups that I’ve seen actively oppose new aged care facilities is nothing short of disgraceful, and the politicians giving them encouragement should be given an advanced ageing pill so they know what it’s like to be the wrong side of 80 with nowhere to live and no going back.

The other thing that will change dramatically is design. The next generations will demand higher standards that more closely resemble a Balinese resort. Or their children will demand it for their parents. We are all becoming increasingly spoiled and those with the money will want to remain spoiled in their senior years. Already we are seeing cinemas, resort style pools, quality cafeterias and dining areas with high standard menus, hairdressers and beauty salons, resort style landscaped gardens and a host of other features that bear no resemblance to the ‘retirement homes’ or ‘nursing homes’ of years past.

All this presents challenges and the prospect of enormous change for the industry on a scale that is hard to imagine. But that change will come because it is being driven by a tide of demand that is irresistible and inevitable.

Quite possibly that wave of demand is something that for this part of the market at least, economic or market cycles won’t be the main drivers: demography will.

Comments

  1. Pathetic. Now community attitudes and height restrictions and availability of sports ovals for housing and nimbyism will all have to change to accommodate the boomers, when they age. How convenient.

    I like the cow paddock idea better.

    • You gotta admit, sports ovals often sit empty for most of the time, especially during the weekday when kids can’t be bothered using them. Boomers created many of them so really they should be entitled to build on them. Just saying.

    • Yep. Watch the children’s playground be re-zoned for assisted living. They worked hard, they deserve it. That’s what they tell me.

    • Why not the paddocks. That’s where the kids and grandkids are. They’ve been pushed out already.

    • Stewie Griffin

      Otherwise we may as well put up signs in our cities saying “hey oldies, thanks for building all this but you can piss off now you aren’t welcome anymore.”

      – Sounds good to me.

  2. Destitution has a severe effect on longevity so my guess is that life expectancy will decline sharply as post boomer generations retire.

    • Wouldn’t that go against all long-running trends? Longevity is as much a product of medical advancement so unless you are suggesting that our world class public health care collapses…

      • As much to do with economics as it is to do with medicine . And it seems very highly likely that government spending per capita on both health and aged care will be reduced as tax revenues inevitably decline. So that trend halting and maybe reversing also seems likely.

      • I hate this ridiculous idea that people have that we live longer in years because life expectancy is longer.

        Life expectancy isn’t some EVOLUTIONARY thing where we now live longer.

        Its a simple case of “less kids die in birth”, fewer wars killing every kid between the age of 18-30, and yes we can cure cancer a bit better.

        People frequently lived to 90-100 for centuries in the right conditions.

        Our LIFE SPAN hasn’t changed that much – we have just overcome a lot of the things which kill us young so there are more old people – thats it.

        We actually have one of the unhealthiest lifestyles for generations – lack of exercise, lack of work, obese etc.

      • + Karl very true. We aren’t going to start dying from the flu again which historically has shortened life spans more than most things


      • We aren’t going to start dying from the flu again which historically has shortened life spans more than most things

        When there are legions of people aged 70+ living densely in retirement villages or aged care facilities, the flu is exactly what they will die of.

    • Or they will get some foodborne illness from 1 of those round the world Contiki tours on a P&O cruise. I hope I never wear old man pants and travel the world on a boat full of grey haired citizens.

      • You may live long enough to think differently – cheaper than many retirement communities and every (non-medical) need is catered for with the possibility of changing scenery.

  3. Ridiculous. It’s a land boom not a property boom. Demand is willingness AND capacity to pay, a generation saddled with debt will have no capacity to pay so land prices must fall.

  4. Just send them to your Florida (QLD) like we do in the US. Never understood why the inner eastern suburbs of Sydney are packed with pensioners. It’s extremely inefficient. Introduce a land tax now!

  5. Rosco, you’re not going to get much love (reusachtige and some handcuffs aside) from the MB gallery, but don’t take it to heart. Here we all suffer from a pathological disdain of the robber-baron boomers and wish them no well in their autumn years.
    But your core points about the Indians coming over the hill is fair warning. The rich will look after themselves on some golfing estate. But the rest deserve some dignity and a little kindness. To which I have three random thoughts:
    First, they might be getting older, but they are also remaining more youthful. That is, just because you live another ten years, doesn’t necessarily mean another 10 years in dedicated retirement living. 80 is the new 60 and so on …
    Second, I view the need for aged care facilities no differently than social housing. Just as progressive cities (from London to Adelaide) mandate minimum levels of social housing in their urban mixes, so too should they work with planners, councils and developers to set aside parts of the ongoing urban renewal for aged care facilities.
    Lastly, the value chain needs to fragment. The skills – and as you identify the scale requirements – are different for the development of the asset versus the management of the asset. Let the property developers develop, let the charities own, and let the hospitality industry operate. Entities like the Hilton Group are always going to be better at managing these assets – filling the beds and delivering edible food – than property developers like Lend Lease.
    See you on the green for a few ends and frosty ponies

  6. So from this story younger generations need to invest in retirement villas and aged care, ensure they charge massive rents, and extract back all the horded wealth of the older generation? That will be much harder for younger generations to stomach than simply locking your kids out of the housing market…. although if things keep going the way they are now…

  7. This is not what happens in my circles. Everyone suffers in their own house as long as possible with the help of the home care nurses and volunteers. We know better than to let these vultures get any lien over our houses. Most seem to only need the last few days in hospital, some though are unlucky.

    Such things as are talked about in the article are for the past employees of governments and large corporates with their generous pensions.

    • Depends on your condition. If you have dementia, staying in your own home is not an option.

      • If you live past 80 chances of dementia are better than even and it’s not the only condition you need to avoid (eg stroke) so hard to avoid aged care by that age if you can’t afford your own full time staff .

    • I’d rather take the EXIT option (ref. Philip Nitschke, great guy) than be cloistered in a place with hordes of other gomers shuffling about and sucking on oxygen masks. To that end I have acquired a canister of nitrogen and a regulator, which, combined with an Exit Bag, could relieve me painlessly of the burden of life in, oh, about 5 minutes (unconscious in 12 seconds). 😯


    • Everyone suffers in their own house as long as possible with the help of …. volunteers.

      I reckon the ranks of volunteers are going to be very seriously thinned by the need to keep working past seventy to pay off the mortgage. The days of retiring early, feeling bored after you’ve completed your list of home maintenance jobs and doing the travel you always dreamed. then donating useful labour back to the community are themselves in their twilight years.

      • Exactly right! As conditions in general worsen for our species during this century, people will be loathe to have children, thus creating an almighty bulge of oldies on the one end of the population graph.

        In a world of shrinking assets, resources and population, these oldies are not going to be able to call on the younger generations for free help.

        Get very rich, or get a way out (Nembutal, nitrogen). 😮

      • Anyone in Malcolm Young’s family (probably not the man himself) could tell you that being very rich is insufficient for avoiding an aged care facility.

        Nembutal it is – and at the first signs, lest the decision be taken away.

  8. Here’s a crazy idea:

    Retirementville, Australia’s newest city. Two hours by fast train from Melb or Sydney….

    • On a slightly more serious note.
      Sixty percent of demand for care are for dementia,while only twenty percent of available beds are suitable for dementia care. These people require a much higher and much more expensive level of care. This disparity in need and provision is not currently being addressed as many new facilities opening have no dementia beds,or suitable facilities(even something as simple as locked entrances).
      Dementia care is almost impossible in the community- stopping them driving,making sure people are eating(need supervision not meals on wheels),personal cleanliness,aggressive behaviour requiring police intervention(those bruises on granny might be grandpa losing it!),let alone shopping etc for someone who can’t find the supermarket from the car park,and the daily boredom for people who can’t remember anything long enough to follow a half hour television show.
      And if you want to see the scale of it,just go to somewhere like Balwyn Safeways on a Thursday,and count the number of non demented people that aren’t staff or carers-usually zero.
      The private sector will require lots of incentive to provide adequate dementia care.
      I would be pushing just as hard for research into causes and effective treatments for dementia-good jobs for well trained people,viable export,may help stem the tidal wave of required care approaching.
      There are currently NO effective treatments for dementia,despite the glossy articles talking about breakthroughs. They are currently just wishful thinking.

      • Agree.

        I would be pushing just as hard for research into causes and effective treatments for dementia-good jobs for well trained people,viable export,may help stem the tidal wave of required care approaching.

        Yes…kinda do this for a living…but we are cutting funding left right and center.

      • Given the lead times for getting treatments widely available, as far as the boomers are concerned, I suggest that the discovery of effective Alzheimer’s reversal or prophylaxis is already too late if it hasn’t already happened.

      • Dementia is a really serious problem for Australia, as the oldies get older a big percentage will start to show signs of dementia.
        When your median life span is 70 dementia is a small problem however when your median is 90 dementia is a big problem…if your median is 100 dementia is a HUGE problem.
        I know from personal experience that my mum was very clear headed at age 84 and considered High Care dementia patient by age 86 ….it can happen that quickly
        High Care dementia patients basically need full time carers, I dont know what the Aussie regulations say but from my own experience one carer can probably assist no more that 4 High care patients, even within a purpose built facility. Think about the care required for looking after a baby (less than one year old) and you’ll be on the right path.
        Big problem is the Baby hopefully grows out of this need for intensive help whereas the dementia patient grows into it. Physically Mum’s in excellent health ….and that’s the problem

      • It will take a lot of government resources to keep food on the table and the indoor temperature mild (even now, every time there’s a heat wave, there are newspaper reports of oldies kicking the bucket side by side with discussions of pensioners who can’t pay the electricity bill to run the A/C. Imagine a world where pensions are half what they are today. Example: http://www.abc.net.au/news/2014-01-23/heatwave-death-toll-expected-to-top-almost-400/5214496 ) for people whose super runs out in future years. Boomers might get to 90 or 100 en masse, but cash strapped Gen Y’s and their younger relatives won’t.

    • Probably not as crazy as you think.

      The fastest growing city in the US is a retirement community called The Villages in Florida. It has a population of 114k people.

      https://en.wikipedia.org/wiki/The_Villages,_Florida

      Given Australia’s penchant for flogging off everything to the rest of the world, we could probably create an international retirement mecca of twice that size.

  9. In terms of capital requirements, the $250k per bed quote derives largely from the fact that the not for profits and government operators who have dominated this sector have not been particularly innovative or good at negotiating prices – they have been fish in a barrel for the design and construction industries. New aged care facilities are being constructed for a full development cost of around $170k per bed, which implies a far lower capital requirement.

    The big risk is that the demand for places is being overstated, and there will be a glut of beds. European models favour ageing in the home, and that is indeed what policy is attempting here as well. Aged care now is increasingly taken up by people requiring high levels of care, and increasingly those suffering dementia. Most residents will exit a facility to meet their maker within 6-12 months. In operational terms, aged care facilities are closer to a hospital than a hotel. This sector is not the domain of hotel operators or property developers.

    There is a lot of Asian capital flowing into this sector now, either on the REIT side or equity stakes in operators, and now our super funds taking a much closer look at the sector as a defensive investment. But hardly any of these investors have the first clue about the actual operational risks inherent in aged care. I think we are going to see a lot of fly by nighters quickly trying to capture the inefficiencies in the operations of not for profits (and there is a lot of fudging patient classifications to get a higher daily funding rate from the government), but once those gains are gone, it is going to be hard grind to generate high return on equity from such a highly regulated sector. The potential for regulatory change to wipe out investor’s assumptions about government funding is huge.

    The bigger gains are to be found in the retirement village sector – a deferred management fee up to 34% levied on residents when they leave, in addition to operators creaming all of the capital gain. If boomers continue to accept that pricing dynamic, then the returns are potentially phenomenal. Unfortunately, the Churches and charitable organisations are again like fish in a barrel for property developers and private equity. They are giving up valuable land, and a huge potential long-term cash-flow.

    • I agree, the Retirement community is a huge rort, I couldn’t believe the move-in T&C’s when I first saw them but this is what you get when demand outpaces supply the numbers impressed me so much that I made a couple of investments in this sector, I rationalized my involvement as ,,,getting some experience in the sector…but the truth is it was motivated by plain old greed.

  10. Australia … The dumbass, soon to be, THIRD-WORLD NATION. But that won’t be anyone’s problem. It never is.

    KIDS – Don’t expect a bailout. Don’t listen to your elders. Don’t dream the same dreams as your gluttonous elders. Re-evaluate what will make you happy. Let go of cliched ambitions that are no longer realistic in today’s Australia. Don’t be complacent. Don’t accept things as gospel. Know that you’re being shafted. Understand that ALL CURRENT POLITICIANS DONT CARE ABOUT YOU and LOCAL YOUTH. Don’t put your faith in any current political party expecting change must occur.
    REVOLUTION / OVERHAUL OF OUR ENTIRE CONSTITUTION IS REQUIRED.

    The faultless elders will handball residual prosperity, then sit back and claim, without merit, “we did all we could”.

    Let there be no mistake. Be in no doubt. Let’s be clear. We will govern in the interests of the Chinese. They mean so much more to us than our kids, since they pay more for our property investments. We’d live to help our kids, but the money is just too damn tempting. These Chinese are suckers.

    We will let the market implode once we are taken care of. And we will fool our locals into thinking we are doing all we can about illegal foreign property investment, farm sell-offs, mining etc etc. And you know what? We don’t even care if the electorate disbelieve our intentions. Just by saying words of “good will” will help us sleep at night in the comfort of our mansions and wealth.

    We will saturate our workforce with cheap labour since the more we allow in, the more canon fodder there is to help us in our old age. Our kids, well, we will be too old to worry about their futures (sorry kids). They’ll be fine flipping burgers taking a pay check from their Chinese managers/employers for pittance pay. Maybe they can live in a cheap van or caravan or something.

    Make no mistake.

    This country has been outsourced, offshored, sold off, raped, sliced, diced, carved up, butchered, robbed, stolen from….all in the name of weakness, visionless, self-centredness, fraudulent politicians that can go to their deathbeds in the knowing they have BETRAYED AUSTRALIAS FUTURE…..THEIR KIDS.

    While you bubbleize your mind in a gadget, the silent war is waged against your generation. The perfect plan. The mother of distractions leveraging the time-poor youth. While you sleep, they destroy the very ground you live on. You will be a slave to another race. Opportunism at its most pure.

    How many more examples of nothingness, of bullshitedness, do you need from all sides of politics to prove their irrelevance to Australia’s future?
    A clinging to a hope that someone, somewhere, something, at some time, will magically address all things, is nothing but that….a blind faith.
    Akin to how many more mass murders do the yanks need to ignite an appropriate long overdue humanistic sensible logical response, enough assertiveness, of proactive, real tangible change to cull the ridiculous clinging to gun ownership at any cost, including additional avoidable funeral costs an continued global advertisement of stupidity and backwardness.

    Bow to your new managers. Accept that pay cut, accept your lower living standards. Jostle for job. 500 applications for that one barista job.
    Complacency is your enemy. Opportunism is their lever. Urgency is your weapon. Take your head out of that device, lift your head, and back a united front against this tragedy that has the word betrayal all over it.

    Mock change, it cant be done. Its all too hard. Its someone elses problem.
    It doesnt affect me. Im too busy.Make yourself do. Dont say, do. Keep voting down on all.

    Growing overseas influence.
    Diminishing local significance.
    Obliteration of allegiance.
    Tokenistic statements of ignorance.
    Populist shallowness.
    The lie of stated inclusiveness.

    THESE ARE YOUR ENEMIES….

    ALL POLITICAL SIDES RIGHT NOW

    NO MORE PROOF NEEDED.

    ALL POLITICAL PARTIES DO NOT SERVE YOUTH, ONLY ONE GEN.

    When was the last time you heard a politician admit fallibity and apologise SINCERELY?

    Youth…. ADVICE…

    Get your heads out of your gadgets.
    Lift them up.
    Back yourselves that you have the collective growing power tofight against this blatantbetrayal by ALL POLITICIANS, and by a predominantly elder population that failed to use their collective might to make real, long term positive change fir our country.
    Believe it or not, there are some of us who are there right by your side.

    What needs to happen.
    By leveraging and equipping themselves with the following attributes:
    – adoption of urgency, assertiveness, generational distrust, political acknowledgement dstrust, utilisation of technological savviness

    The world wont stop.
    The politicians mission is incomplete.
    There will be more broken records.
    More disregard.
    More Chinese managers paying locals peanuts.
    More chinese.
    More corruption unchecked.
    More of the same.
    Until, there can be no more.

    Theres a real gentle song called “One” by a really sedate band called Metallica. I think the youth of today could do worse than to listen to this mellow track to get a sense of what they should be feeling in this age, where themselves are the easy targets for which the current powers have set their sights on.

    The next time anyone gets accused of being racist and dare I say it, politically incorrect (bullshit term) for stating facts that we indeed are overpopulated, remember a term called REVERSE-RACISM. Ah yes, it is alive and well in our once “lucky” country. Look it up if you dont know what it is. Pretty rife in aged care facilities etc etc..

    KIDS – FIGHT BACK

    Know there are some of us out there in your corner.

    Good luck everyone.

    • There are plenty of angry disaffected youth here, but we don’t need a copy pasta tirade in every thread.

      Thanks for the support but please stop this. It’s silly

  11. There are plenty of angry disaffected youth here, but we don’t need a copy pasta tirade in every thread.

    Thanks for the support but please stop this. It’s silly.

  12. Back to the future. Oldies will end up with their offspring.

    Lack of retirement villages and aged care is a first world problem. Boo frickety hoo. My grandparents lived at home until they died (one had dementia), the missus’ grandparents the same. People just need to adjust their expectations.

    • Fair enough, although by the time Gen Y gets old they won’t own homes to stay in, nor will their children own a home for them to move into, which should make things interesting.

  13. See that’s what I don’t understand. Why doesn’t a group of boomers pool their funds to set up retirement homes / villages that are to a standard that they want to live in? Get it set up now, so it’s ready to go when you need it.
    Plus you could bypass the queue cos you’d be the owner.

  14. One of the more informative articles on MB, Mr. G has also touched upon, and often ignored by MSM in fear of being accused of ‘attacking the oldies’, and is an issue across both developed and now developing world with stalling populations.

    Think dementia is now in the top 3 causes of death in Oz?

    Many new retirement homes are going up in the regions, but impractical if your ‘community’ is in a city, and they have huge issues in attracting qualified aged carers etc. (Oz has a huge mismatch between skills required for actual available jobs vs education system and career preferences).

    There are solutions, one popped somewhere in Europe recently, in addition to FIFO aged carers e.g. from Central Europe but working in UK/EU (why years ago Italy also turned a blind eye to ‘illegal’ immigration of nurses from pre EU Romania living in with oldies).

    The more recent one was encouraging oldies to take on boarders e.g. students, with whom they can do an exchange i.e. free board for 10-20 hours per week assistance, doing errands, keeping an eye on them etc. and most importantly avoding social isolation (in Oz, with our ‘homestead’ like suburban homes it’s ridiculous when ’empty nesters’ i.e. a couple/or single person live in a 3-4 bedroom house).