Retirement housebuilding sector set for slowdown

Image Source: McCarthy & Stone

The retirement housebuilding sector looks set for a sustained slowdown as major players take a cautious approach to land after the government’s decision to ban leases on flats.

The ban was announced late last year after a media campaign on the growth – and exploitative sale – of leaseholds on new houses. Instead of just banning leases on houses, the government opted to ban leases on all new build properties.

As most new-build retirement properties are leasehold flats, this is having a significant impact on workloads that looks set to continue.

In the year to August 2018, completions fell 7% to 2,134 units at the UK’s biggest retirement homebuilder, McCarthy & Stone. At Churchill Retirement, the second largest player, completions slipped 1% to 521 units in the year to June 2018.

Retirement housing planning pipeline shrinks

After the ban was introduced, the major retirement homebuilders have been talking to government about an exemption.

John Tonkiss, McStone’s interim chief executive officer, said: “We believe that there is a strong case for a specific exemption for the retirement housebuilding sector and we are awaiting clarification on this matter.

“Until this is received, we continue our planning to try and mitigate the potential impact on the business, including maintaining discipline around our cash position and adopting a more measured approach to securing land.”

In the last financial year, McStone’s land programme shrank with 54 land exchanges – down from 75 in 2017 – while Churchill acquired 13 sites including 540 plots compared to 24 sites including 875 plots in 2017.

Churchill’s chairman and chief executive officer Spencer McCarthy said: “The investment model for our specialist form of development depends on capitalised ground rent income to fund the provision of extensive non-saleable communal space that is essential to our product.

“Until we have more clarity from government on this issue, or legislation is passed, our leases will continue to include fair ground rents, linked to RPI on standard review terms.”

Planning pipeline instability

McStone achieved 37 planning consents – down from 64 in 2017 – but Glenigan’s construction market analysis shows both leading retirement homebuilders applying to build more homes through the planning system.

In the 2017 calendar year, there were 1,908 units included in detailed planning applications made by McStone according to Glenigan’s data. That total is a rise of 41% on the 1,350 units in the group’s planning pipeline in 2016.

Since 2015, Churchill’s planning pipeline has nearly tripled. Glenigan’s market analysis shows 938 units included in detailed planning applications made by the group last year.

However, Glenigan’s research shows that the overall planning pipeline for retirement homes has shrunk.

Coming out of the recession, the annual pipeline of units in detailed planning applications grew relatively steadily from 2009 and had increased by 268% by 2014, only to fall away.

The number of retirement units in planning applications in 2015 was down 46% on the previous year.

In 2016, there was a rebound and a 31% rise in the planning pipeline of retirement homes but last year brought another fall with a drop of 8% amidst fears over the introduction of the ban.

With the planning pipeline still growing at McStone and Churchill, this suggests that other smaller retirement homebuilders may be being deterred by the new rules on leases, which does not augur well for future workload in the sector.