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Retirement living: where affordability remains

  • July 19, 2023
  • by Daniel Gannon
Retirement Living Council Executive Director Daniel Gannon

At a time when housing affordability is dominating every water cooler conversation across the country, in some respects the retirement living value proposition has never been stronger.

The ‘affordability gap’ between retirement units and the traditional real estate market has improved as prices across Australia’s housing market continue to rise. 

In the past week, we’ve released the 2022 PwC/Property Council Retirement Census, and it underscores the affordability of independent living units (ILUs) in retirement communities in the 18 months to December 2022. 

An average priced two-bedroom ILU has grown by 6.6 per cent to $516,000, while national house prices over the same period rose significantly by more than 26 per cent.

In simple terms, ILUs in retirement communities across Australia on average are 48 per cent cheaper than the median house price in the same suburb. To put it a different way, this represents an affordability ratio of 52 per cent.

At a time when national housing affordability is eroding, the value proposition of retirement communities is strengthening – but there are some warning bells starting to sound.

The 2022 Census has revealed some headwinds – issues that the RLC raises on a weekly basis with governments around the country.  

In concerning news, the three-year development supply pipeline has fallen by more than half to 5,100 dwellings compared to the previous Census forecast of 10,500 dwellings. 

On the demand front, national retirement village occupancy has remained steady at almost 90 per cent, which means the market is practically full when refurbishments are taken into consideration.

And finally, the average number of days between the date of vacant possession to settlement has increased by one month to 253 days.

For those professionals operating in different parts of the property industry, this is not an unfamiliar story. Higher construction and debt costs together with general economic uncertainty has applied downward pressure on our supply pipeline the way it has across other asset classes. 

Given supply is forecast to slow and with legislative reviews currently underway in Victoria, Queensland, SA, WA and Tasmania, we urge caution to policymakers. 

And we say this for one simple but important reason. If governments make it harder for operators to build and operate retirement communities, the supply clamp will tighten even further – and at the worst possible time.

We know the number of people older than 65 will increase from 4.4 to 6.6 million by 2041, presenting opportunities and risks for industry and governments. 

We also know that Australia’s population is ageing, which means our three tiers of government need to address and solve the challenges associated with housing this demographic cohort now. 

If more seniors are living in age-friendly communities, there is significant economic upside for State and Federal Governments through reduced interaction with the healthcare system.

But here’s the thing – and we’ve said it before.

Investment conditions governing the retirement living industry can be strengthened or eroded by legislative frameworks around the country.

Capital goes where it’s welcome. But if governments impose market conditions that don’t allow for commercial viability of operators, this same capital – and housing investment – will find a more welcoming place to go.