Retirementlife.co.nz

Let’s not confuse retirement village living with homeownership

Written for Stuff by John Collyns - Executive Director of the Retirement Villages Association of New Zealand

A housing crisis is gripping the country and every day we hear reports of New Zealanders losing out on their dream home, queues at open homes and standing room only at auctions.

Owning your own home is seen by many Kiwis as a birthright, and despite recent Government announcements, property remains a popular investment choice for many people.

Retirement village living is also riding a wave of popularity with 100 people moving into a village across the country every week. However, in most cases, residents are choosing to sell their homes, release the equity and forgo homeownership in favour of a different model.

The most common model is called “licence to occupy”.

A licence to occupy means a resident purchases the contractual right to occupy a property such as a villa or an apartment at a village but has no legal ownership of the property itself or the land. The purchase of this right to live in a residential unit is often at a substantial discount to the average price of a freehold property in that area.

In return, the village operator assumes the ownership risks for the property such as long-term maintenance, renovations, storm or earthquake damage, pays rates and insurance and continues to invest in the village by providing an age care facility, upgrading the common areas, or rebuilding units to appeal to a new generation of residents. These investments are made at no risk or cost to the resident.

Many of our residents tell us they like the model because it provides them with certainty of costs, they get to enjoy the use of a village facilities at a weekly fee that’s often fixed for their life in the village. Unlike owning a home, they aren’t exposed to risks.

So why does the village operator provide a range of facilities for residents and yet not even charge the full operating costs?

Because the resident agrees when they move to a village to pay an agreed fee for living there, dependent on the time they stay.

Once they leave, the operator refurbishes the property and then relicenses it to a new resident, and in most cases, will receive a larger sum than the first time around.

An operator takes the risk it will be able to recoup its investment and operating losses, and the resident has certainty throughout their stay.

That’s why it is baffling that the Commission for Financial Capability (CFFC), which has recently finished consultation on changes to the Retirement Villages Act, regulations and the Code of Practice, has conflated the licence to occupy model with homeownership.

The CFFC and the Retirement Villages Residents Association are suggesting village operators should be forced to share the gains of any relicensing of a village unit. This simply fails to recognise the nature of the operating model.

Any “gains” made on the re-licensing of units are necessary for an operator to off-set the risks of owning the property, such as maintenance and unexpected expenditure, such as major upgrades. The resident, with no ownership stake in the village, is not liable for any of these property costs.

Understandably, many of our residents recognise they can’t have one without the other – either they can share the risk of ownership and the unexpected costs, or they forgo any appreciation in the relicensing process for the security of knowing they do not face these costs.

In my experience, the residents I talk to understand this. They are astute, they’ve done their research and due diligence and have, as is required by the law, sought independent legal advice before moving into a village.

Furthermore, an advantage of this model is residents selling their homes and moving into villages frees up much-needed housing for families. We estimate that more than 5000 family homes annually are freed up in this way, making a significant contribution to the housing supply.

Another proposal by the CFFC for mandatory buy-backs and intervening in the re-sale (or relicensing) process for units in the village is also misguided.

Of course, the relicensing of units can be a stressful time for residents and their families. However, it is in the interests of village operators to work with residents to ensure this process is handled as swiftly and smoothly as possible. There is no valid reason why an operator would be willing to draw this process out any longer than is absolutely necessary.

The approach to relicensing and buy-back structures has been evolving and some operators have introduced a maximum relicensing time. However, forcing the entire sector down this path could create cash flow uncertainty and significant financial challenges for many, especially smaller, independent and not-for-profit operators, which eventually would see residents in these villages face uncertainty and potential ruin.

But we do see several areas where we can work with the CFFC to develop and deliver best practice.

We see value in working with the Retirement Commissioner and the Retirement Village Residents Association of New Zealand to review the relicensing and buyback process and timing, the status of weekly fees after the resident leaves, transition to care arrangements, refining the complaints system to ensure the residents’ voice is heard, and managing operator-owned chattels repairs and replacements.

We signed a Memorandum of Understanding with the Retirement Village Residents Association New Zealand about working together on issues late last year.

What’s important to understand is the difference between the extensive consumer protection provided for in the Retirement Villages Act - such as registration, mandatory legal advice and the format and contents of key documents – and the commercial terms that allow operators to distinguish their village from their competitors.

These commercial terms are highly responsive to market demands and the needs of our residents. The popularity of retirement village living shows that many older people value and respect the model and relish the possibilities village life offers.

They receive their mandatory legal advice, understand the terms of their Occupational Rights Agreements, hopefully have told their children about the reasons for their move, and 96 per cent, according to independent research undertaken by UMR Insight, are happy with their decision.

There is also an independent Statutory Supervisor required at all villages, ensuring third party oversight over the village operations.

Retirement villages have and do work extremely well. Customers vote with their feet and the proportion of older New Zealanders living in a village has steadily increased. Let’s not try to fix something that isn’t broken.

– John Collyns, Executive Director of the Retirement Villages Association of New Zealand