ARCO's Director of Policy and Communications, James Lloyd, has written for Inside Housing Living on why ministers should encourage deferred management fees to enable the magic sauce of housing-with-care.
The op-ed can be read on the website of Inside Housing Living here, and is also reproduced below.
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Older people in the UK have more than £2.5tr of housing wealth – although many can be described as ‘asset-rich and income-poor’.
The huge amount of frozen housing wealth held by the older population has inevitably stoked interest among policymakers in how to mobilise it to power growth, jobs and public services.
One option is tax. However, despite the noise around the ‘mansion tax’ in the recent Budget, the proportion of households that will be affected is minuscule. Indeed, the Budget really underlined how politically untouchable housing wealth is.
A more fruitful approach for policymakers to explore is to make it as easy as possible for older households to use their housing wealth to improve their lives, making it easier to ‘defrost and consume’.
This means looking at barriers to trading down in later life, such as stamp duty and the shortage of specialist housing for older people that will tempt them to downsize. It also means looking again at financial products such as equity release.
However, we think it also means policymakers looking increasingly to housing models which use so-called ‘deferred management fees’.
Older people’s well-being, health and longevity can be transformed when they move into specialist housing, such as modern housing-with-care schemes, which in the UK are known as integrated retirement communities (IRCs).
However, the magic sauce of housing-with-care – vital services and facilities such as 24/7 on-site support, restaurants, exercise and wellness amenities – all result in running costs not found in general needs homes.
This is why in the UK and around the world, providers and policymakers have encouraged the use of housing wealth to fund these costs. For some older households, the flexibility of renting a home in an IRC by drawing down on liquidated housing wealth is attractive, and this part of the sector is undoubtedly growing.
However, the proportion of new housing-with-care schemes that use deferred management fees – where residents defer some costs by paying a percentage of the resale price to the operator – has grown steadily over the last decade and will continue to do so.
The model originated in Australia in the 1970s. Government subsidies for older people’s housing were withdrawn, so providers shifted to resident-funded retirement villages.
Early adopters included church-based not-for-profits, which began developing long-term lease/licence units funded by residents rather than the state. By the 1980s, the deferred management fee structure had become standard across both not-for-profit and private village operators.
In the UK, the deferred management fee model has become increasingly popular during the last 15 years. In fact, ARCO projects that by the end of 2027, the vast majority of new (non-rented) housing-with-care units will offer deferred management fees (also known as ‘event fees’ or, even further back, ‘exit fees’).
Why? There are four key reasons.
First, affordability: far more older households are able to access the benefits of living in an IRC because of the existence of deferred management fees. There are currently 80-year olds living in housing-with-care units who are pushing back the onset of conditions like dementia because of the facilities and community life they enjoy, but who simply would not be there if the operator did not offer an event fee.
Second, operators have used deferred management fees to unlock a range of benefits for older people living in IRCs. Most operators offering these fee models also take on the risk of capital expenditure – like communal roofs needing replacing – so residents don’t face the expenditure risk or anxiety of big sinking-fund calls. They also enable providers to offer lower purchase prices (think 10-30%) because they can make a return in the long term.
Third, deferred management fees are popular with older people. Whenever operators give residents a choice of a lower or higher deferred management fee, the higher option (with commensurately lower monthly charges) is almost always the preferred choice.
‘Live now, pay later’ with more income in your pocket each month ticks a lot of boxes for older households. It helps that the ARCO consumer code ensures fees are transparently disclosed and understood before people move in, meaning complaints about deferred management fees from customers are vanishingly small.
Fourth, independent evidence repeatedly shows deferred management fees help with resale values – an issue which deters many households from ever considering older people’s housing. By making schemes more affordable to live in, deferred management fees create a much bigger pool of potential buyers. They also incentivise operators to ensure schemes are well-run and maintained.
In this way, deferred management fees provide a solution not just to older people, but to a very big conundrum facing policymakers in the UK and elsewhere: how to respond to the economic drag that results from so much of the nation’s wealth being tied-up in housing, much of it owned by older retired people.
Indeed, UK policymakers have begun taking note. Government policy documents now recognise deferred management fees enable older homeowners in specialist housing to manage their costs. The 2024 Leasehold and Freehold Reform Act gave event fees a welcome definition in primary legislation.
However, the sector could be doing so much more. If the UK’s housing-with-care sector scaled up to match that of New Zealand, many billions of pounds of ‘frozen’ housing wealth would be converted into growth, services and employment.
This is why, rather than being distracted by mansion taxes, the government should be doing far more to encourage the use of deferred management fees if it wants to tap into the huge amount of wealth locked up in people’s homes.
