My Lords, I thank the Homes for Later Living group for its briefing on the issues that I shall raise. I greatly welcome the Bill, and congratulate the Government on taking the bold step of getting rid of ground rents. I know there is more to come in this space, and I look forward to further legislation to assist existing leaseholders in the future.
This amendment is intended to tidy up an anomaly in the Bill relating to the provision of retirement housing. I declare my interest as co-chair of the APPG on Housing and Care for Older People, and chair of
the five inquiries flowing from the so-called HAPPI initiative—Housing our Ageing Population Panel for Innovation.
I shall set the amendment in context. Retirement housing is an important but very small part of the housing scene. It seeks to meet the needs of older people who want to “rightsize”, usually from a family house and garden to somewhere easy to manage and inexpensive to heat, with space and light and without stairs and obstacles, where care can be delivered if need be—and, importantly, with the opportunity for company and companionship, in these times when loneliness is a problem for so many.
By moving in later life, older people not only avoid the struggle and cost of maintaining a large property, and prevent the need for an expensive and unpopular move into residential care, but bring a much-needed family home on to the market. The house buying and selling chain that follows means that a young family, too, can access the home they need. The nation gets two for one. Yet in the last year before Covid, of around 200,000 homes built, only about 7,000 were tailor-made for later living—down from 28,000 in the recent past. That output is far short of the numbers needed, with surveys indicating that nearly 4 million people over pension age would be interested in downsizing—or rightsizing—if the opportunity were there.
I have been anxious to see whether the Bill assists or undermines the already very low level of new home building for older people. As it stands, there is a danger that it will have a negative effect on that sector, because ground rents currently play a special and different role in such schemes. The specialist developers of retirement housing have had a tough time competing with the volume housebuilders, which make bigger profits, and so pay more for sites, by concentrating on younger buyers who are less discerning and often desperate to move.
Retirement housing cannot take advantage of Help to Buy subsidies, or the ongoing stamp duty relief for first-time buyers. Importantly, retirement accommodation must include extra space for communal facilities—a clubroom, a garden area and a range of other facilities in assisted living and extra care schemes, such as a restaurant, a treatment room, accommodation for care staff and a guest room. Space for those items can add up to 30% of the total cost of a residential development.
The cost for a scheme of 40 apartments is likely to be between £1 million and £2 million. This is where ground rents come in. They have not been, as they are in other housing schemes, payments of “something for nothing”. When capitalised and sold to investors, they have been the means of funding the extra capital costs of the communal spaces inside and out. As I said at Second Reading, they have been “something for something”, and have represented an alternative to a higher purchase price, which would be entirely justified, but which can put off buyers in this sensitive marketplace and debar those unable to afford the extra cost.
Why, you may ask, cannot service charges cover the capital costs in retirement housing, instead of using ground rents? The existing rules on what goes into a service charge—which can, of course, cover the ongoing
revenue costs of communal facilities—mean that it is impossible to use a service charge to pay for these extra capital costs. This is as it should be.
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Having chaired the Property Ombudsman and the Government’s working group on regulation of property agents, RoPA, I would not welcome any relaxation in the conditions applied to service charges for fear, frankly, that less scrupulous managers could take advantage of any change. Indeed, all leaseholders deserve greater clarity and transparency from managing agents, not only in respect of service charges. I hope it will not be long before the Government bring forward legislation for the regulation of property agents, not least those managing retirement housing. I record my appreciation to the Minister for a recent helpful meeting on this.
Regarding this amendment, service charges cannot replace the use of ground rents to cover the special extra capital costs of retirement schemes. There is a case for simply excluding this kind of housing, in a carefully defined way, from the ban. The Government indicated when they announced the ban that retirement housing would be exempted, but they subsequently rejected this option. I think that the Government’s position is right. It means that the Bill will achieve an end to ground rents for all leaseholders, including those in retirement housing. It would have been distinctly odd to announce a new deal for all future purchasers of leases except older people, some of whom might be the most vulnerable to scams and exploitation arising from any exemption from the ground rents ban.
Nevertheless, despite the Government doing the right thing, this disadvantages the retirement housing providers, which will have to seek a higher purchase price in a price-conscious marketplace. This makes a somewhat fragile sector less viable. I sincerely hope that it does not mean cutting out or reducing the extra facilities that are a hallmark of these developments. It also disadvantages those older buyers who would prefer a ground rent of, say, £400 per annum instead of having to pay in addition to the purchase price perhaps £15,000 or more—an extra amount they may not have.
For the longer term, those of us keen to see a growth in downsizer accommodation will have to campaign for other ways of redressing the disadvantages in this sector compared with the incentives for building new homes for younger people. To me, this strengthens the case for stamp duty relief for those over pension age, as made by our APPG, but this is a matter for another day. The immediate issue is to help the retirement housing sector through the transition to an era with no ground rents. The Government have had a go at helping with this, and I pay tribute to the willingness of the Minister and his colleagues to include in the Bill provision intended to help this sector.
The Government have incorporated in Clause 25 a date for introducing the ban of no earlier than 1 April 2023. While I appreciate the special treatment for retirement housing, I fear it does not quite do the job. Because retirement housing providers believed until January this year that their schemes were to be excluded, they carried on with developments dependent on ground rents. Some providers are now in a difficult position.
This will hold back the growth of the sector accordingly. It is not that retirement housing developers want to start on new schemes now and still use ground rents for another few months. The problem is that they have already begun building some developments where ground rents are an important part of the package, and they might well be unable to sell all the apartments in these projects before April 2023.
April 2023 is too soon to have finished and sold all the homes in schemes already under way. This is simply because it takes time to sell to this client group—more time than to sell to younger households. As I noted at Second Reading, older people will not commit themselves after one visit to a show flat. Quite properly, they will wait until the scheme is finished and they can visit their prospective home, often several times, before committing themselves to a purchase. It is common for the final decision to be postponed even until the elderly buyer has had a chance to meet the scheme’s manager to make sure that they will get on well with them. Along with the seemingly inevitable delays in movers selling their existing properties, this often means a lengthy time lag before all the apartments in a retirement scheme are sold. I have witnessed the process as chair of the retirement housing association Hanover, now Anchor Hanover, which has developed mixed tenure schemes for rent and sale. The whole development must be finished before potential visitors will inspect their intended homes. Sales off-plan before completion are very unlikely. Older buyers will bring a series of family members and they cannot be rushed.
This is why, although a development is on site today with construction under way, not all the apartments may be sold by April 2023. Building works may not be concluded this year, and a further two years is needed for the subsequent sales. If some flats have not been sold by the cut-off date, there will be the anomaly of some residents who pay ground rents and some who do not—including perhaps some canny buyers who delay a purchase to avoid the ground rent.
Using the ground rents for the whole scheme to pay for the extra amenities will not be possible if it is uncertain how many homes will be covered and how many will fall outside the ground rent system. Moreover, the management problem of having two categories of occupier will remain for however long the lease lasts, in many cases 999 years, so coping with the anomaly is not a short-term problem.
This amendment therefore exempts from the ban those retirement schemes and homes for later living that are in the pipeline today, for which land has been purchased and construction has started. It does not encourage any delay in building out new schemes, since it affects only cases where the building works are already under way. This amendment covers very few homes. The Homes for Later Living group knows of 180 developments affected, comprising 4,200 homes, and of course no new schemes can be added.
By disadvantaging these specialist providers, with the competition from other developers so fierce and older purchasers sensibly proving so discerning, the future health and confidence of the retirement housing sector depends on not damaging its prospects now. I hope the Minister will accept that, while this may seem
a very minor exemption from the ground rents ban, it is important in not deterring the growth of what is still a fledgling industry that the nation badly needs to grow and flourish. I beg to move.