It has been well-documented that the care home sector in the UK is substantially underfunded. Care homes operated by small businesses and local authorities often struggle to run within the limited budget afforded to them, and many have been closed in recent years. The funding gap is estimated to be at £2bn this year alone. In 2016, a report by Radio 4 found that over a quarter of UK care homes are at risk of going bust within three years – and with an ageing population pressure will accumulate. The NHS Confederation has announced predictions that by 2039 the number of over 85s is expected to more than double, from 1.5 million in 2014 to 3.6 million. This is forecast to put the care home sector under enormous pressure, and private investment in the sector has emerged to bridge the gap. These investments can often prove very lucrative and stable, due to the sustained demand – the population isn’t just going to stop ageing!
Under the current government, the private sector has gained control of an increasing number of care homes. In fact, a recent report found that privatisation is so ingrained that reverting to public ownership is almost impossible. Virgin Care entered the market in 2010, and over the past six years has been awarded contracts worth more than £1billion and runs over 200 NHS services.
Many political parties have their own proposals on how to address the crisis, yet some well-meaning policies may compound the issue, as we will explore below.
The Tory policy to charge companies more for employing staff from overseas may increase care homes’ staff expenditure, which currently accounts for 60% of overall running cost. International recruitment has long been a policy to bridge the gap between the nursing shortage and requirement, and NHS hospital care and independent care homes have been reliant on it.
The Conservative Manifesto also aims to raise the threshold before you pay for your own social care from £23,250 to £100,000. Currently if you are cared for at home the value of your house is not counted towards the threshold, but under the Conservative Manifesto proposal this will be included. To summarise, the Conservatives want to shift the burden of payment to the individual, but instead of expecting payment up front, they are willing to wait until death to collect the money.
Labour have always traditionally been more supportive of the National Health Service, and in their manifesto they aim to invest more money into it and limit lifetime contributions to care costs. Whilst these plans may sound ambitious, Labour have proposed numerous ways it can be funded, including wealth taxes, employer care contributions and a new social care levy.
The Robust Luxury Care Home Sector
Of course, it is not all doom and gloom, and for investors there is a distinction to be made between luxury care homes and nursing homes. Luxury care homes typically attract more self-paying residents, due to the higher weekly rentals. Luxury care homes are aimed at 65+ year olds who wish to downsize and move into a community environment. They provide an assisted living environment where residents still maintain a degree of independence, but are given help with personal care and have opportunities to attend social events such as wine tasting. There is a strong demand for suites in luxury care homes. Tom Morgan, a senior director for CBRE comments that staying in a care home has “become more of a lifestyle choice. People choose them for the mental stimulation and sociable environment”.
The opportunity to invest in luxury care homes is proving to be a lucrative one, as Berkley have reported that they make £30,000 profit per bed, and £2million in profit per care home. Weekly fees have increased in some instances by over 50%, driven by the lack of beds in luxury care homes. Investors have recognised the high returns that can be made, and appetite for high-end care homes with self-paying residents is surging. Knight Frank cites £10bn of overseas equity that is set for investment in the sector, attracted by the stable income stream and the “hands-off” nature of the investment.
Suites in a luxury care home such as Park Avenue in County Durham start from a modest price point of £69,950, offers 10% returns for ten years and a buyback option at year 10 for 125%. Park Avenue is set in a Grade II listed building in an affluent area, near to a golf course and Ward Jackson Park, ideal for elderly residents who are looking to fill their time with leisurely activities. Hartlepool has an ageing population, with the number of over 85s projected to double over the next 20 years.
You can read more about care home investments, and the viability of investing in a luxury care home in our care home investment guide. You can also learn how despite uncertainty surrounding Brexit and the impending General Election, luxury care homes remain an attractive investment.