More than £2.5 trillion in housing equity could “revolutionise” the future funding for social care, a new report reveals.
The report, from former first secretary of state Damian Green and published by the Centre for Policy Studies, sees social care provision modelled on the state pension, with taxpayers funding a flat-rate ‘universal care entitlement’ supplemented from personal funds.
As such, the report makes a strong argument for the part housing equity can play in funding future care (see below).
While the report acknowledges the social care and healthcare systems as “inextricably intertwined”, it says social care also interacts – in a very damaging way – with local government in terms of housing, planning and finance.
The report recommends stronger incentives for councils to support purpose-built housing for the elderly – within a future social care system administered at a national level and not by individual authorities.
Each year people spend in retirement housing saves the government £3,500, the report says.
Another cited study found that, on average, costs for those with entry-level social care needs were 17.8% lower in specialist accommodation against general needs – saving £1,222 per person per year.
For those with more intensive social care needs, the savings were greater, with a 26% cost difference between specialist and general accommodation, saving £4,566 per person per year.
“We need to do all we can to encourage downsizing into retirement homes as the last piece of the social care puzzle,” the report says.
The introduction of a Universal Care Entitlement should, the report says, remove the disincentive for councils allowing more to be built.
However, it is acknowledged that it will take time for councils to begin to focus on developing this area and the government needs to push them to ensure more is done in the short-to-medium term.
The report recommends that the government takes forward two supporting measures as recommended by the HCLG Select Committee:
- Requiring every council to have a target of housing for older people in their local area, with a strategy on how this will be achieved
- Creating a ‘use class’ to help meet this target
The Select Committee cited “clear evidence” that land is difficult to obtain for older person housing.
Even where the council was ambivalent or supportive of retirement housing, the committee acknowledged issues that would make it more difficult, not least the fact that older person housing has a higher level of communal areas and other costs that make it more expensive to build than other types of flat – and which often mean long and difficult wrangles in planning, which can sink projects.
The report, though, says it cannot be assumed that this is the case across the board.
Both the select committee and the retirement development sector argue strongly for a complete exemption for Section 106 and Community Infrastructure Levy costs usually charged in return for planning permission.
The report says that, “at the very least,” creating a new use class would allow for a more realistic and simpler system that charged a lower rate for retirement housing than for other housing.
This, the report says, already happens with student housing in many areas, where it is understood this has a different cost base from typical homes, and this makes it much quicker and easier to get sign-off.
A more streamlined planning regime for retirement housing is seen as encouraging existing mainstream developers to enter the retirement market as part of their portfolio on a development – supporting the diversity of mix recommended in the Letwin Review.
But, for “understandable reasons”, the report recognises many of the public policy incentives to date have favoured conventional mainstream housing as a means of assisting first-time buyers.
Were planning policy to act as an inducement to deliver more retirement housing, the range of builders entering the market, and in turn the diversity of choice available to older home buyers, would kickstart a “renaissance” in the retirement sector, it says.
The typical retirement providers argue, using official data, that they make an average planning contribution of £6,285 compared to £33,000 per unit across all units.
However, this is only after costly and time-consuming arguments with officials who try to treat retirement homes as if they were standard properties.
There is, the report says, a clear argument that, even if some payments are retained, the current system needs to change to make clear that planning officials and councils should not treat retirement housing as if it was similar to other homes.
In the long run, this is pitched as helping save the public purse serious sums of money – if for example there was scope, over the next five years, to increase the number of owner-occupied retirement housing units being built to 30,000 a year, this would save £126m in the first year and £1.26bn by year 10, given the HCA figure of £3,500 in health and social care costs per person per year.
In addition, it would help give people a greater feeling of control in their life, by giving them access to a home that was suited to their needs, the report says.
Overall, since 2000, productivity in the social care sector has fallen by nearly 20%, with the report saying a key factor is how local council funding interacts with the current system to create a lack of new and more productive care homes.
To the report, this is a “huge extra burden” that means efficiencies worth some £3.4bn since 2000 have been last across the social care sector.
Shared between the public and private sectors, according to their total share of spending, this has cost the public sector £2.2bn and the private sector £1.2bn.
The report says the reasons for this relate to how local councils are burdened with the costs of social care, making them reluctant to allow local investment.
In addition, the UK is acknowledged as building a very low level of specialist retirement housing where current estimates alone identify a need for up to 30,000 new such units each year – with only around 7,000 units are being delivered.
To the report, there is “more than enough money” available from existing housing wealth to fund the kind of insurance market required.
A study by the former Homes and Communities Agency found, for a typical person aged 60 and above, moving to specialist retirement housing generates health and social care savings of £3,500 a year.
The report sees increasing the availability of retirement housing is eminently achievable, citing stats that show only 0.6% of retirees live in Housing with Care, which is 10 times less than in more mature retirement housing markets such as the USA and Australia, where over 5% of over-65s live in such housing.
Many councils are wary of importing too many elderly people because they can see their care costs mounting up in the years to come, despite the evidence showing that older people moving into retirement living typically move only a short distance from where they already live and so remain within the same council authority.
Where councils in general are spending ever-increasing amounts on social care, the problem is particularly acute for those which find themselves losing workers and fearful of gaining OAPs in large numbers.
That, the report says, is a “one-two punch” of fast-eroding tax base and fast-rising costs.
The worse these financial pressures get, and the more severe the problems with social care, councils become equally wary of approving planning applications for new care homes or retirement housing.
At a Centre for Policy Studies debate on housing for the elderly last year, many councillors said they had directly been told by other councillors that they could not support housing for older people in their area, because it would destabilise the local care system and effectively create a significant additional cost burden for the local council.
To the report, this mismatch between supply and demand is neither natural nor inevitable, but a direct result of a system which forces councils to choose between saving themselves money – by building less accommodation for the elderly – and saving money for the country as a whole.
That, the report says, is because the same incentives that push councils to avoid approving new retirement housing result in a higher bill for the state as a whole.
The report says its proposals replicate a past system that had “worked very well” with reference to the early 1980s, when the decision was made to guarantee national funding for those social care patients who could not afford to pay.
This, the report says, had two vital impacts:
- Private residential care could expand, with operators knowing they would be supported financially as long as the costs were not excessive
- Local councils were happy to oversee this expansion of supply, as it had no impact on their budgets and funding
The result was a boom in the number of care homes and the volume of care home provision.
Between 1980-1990, social care bed provision grew by 84% across the UK, much faster than before or since.
Even accounting for the fact that the figure for 2018 is for England only, which makes a perfect comparison impossible, it is clear according to the report that care bed provision has not increased much in recent years.
The report cites separate data showed that between 2012-2017, the number of care home beds in England increased by just 4.3% – while the number of people aged over 85 rose by 16.2%.
A key factor, the report says, is that in 1993, the NHS and Community Care Act reforms saw responsibility for care funding transferred to council budgets, with care management to help assess individual needs.
Councils, responding to incentives, started to be less keen on encouraging older people into their area, because it meant more bills to pay.
“Sure enough, care home provision slowed dramatically,” the report says.
Future care – The housing equity argument
The total amount of housing equity owned by people over the age of 65 in Great Britain is £1.56 trillion.
The amount of housing wealth for each year in the over-65 cohort works out at just under £100bn.
On top of this, for every £1 of residential wealth there is a further £0.63 in non-residential wealth for households – excluding pensions.
To the report, this means as people turn 65 each year, the annual cohort possesses approximately £163bn in non-pension assets.
To work out how much extra the Care Supplement might contribute to social care spending, the report recommends two variables:
- The number of people who might take it out
- The extent to which they would trade the one-off cost of the Care Supplement in order to protect the remainder of their wealth
On the first point, the report assumes that, at the top end of the scale, the Care Supplement will have the same hit rate as auto-enrolment – strong take-up of which saw the number of employees with a workplace pension soar from 55% to 84% between 2012 and 2017.
In turn, this assumes consideration of a nudge, or even auto-enrolment at the higher end of this range.
Since home ownership among older people peaks at around 80%, and those who do not own a home may only have limited savings in most cases, the latter figure represents a rough upper boundary for the number who could potentially have the resources to pay for their own care.
That £1.56 trillion rises to £2.54 trillion with non-pension wealth added in at the same rate of 0.63p per £1.
To the report, if even a fraction of this entered the system, it would “revolutionise” social care.