Care homes –  a tale of two sectors

As the self-pay care home market booms, the state-funded sector is under increasing pressure to survive. The government must act to ensure a dignified and secure future for all our older citizens

This month we take a long hard look at the state-pay care home sector 

(page 24). As we have repeated many times in the pages of this magazine, the situation is deteriorating. Care home operators are finding it more and more difficult to make a success of their businesses while the money paid to them by local councils falls well short of operating costs.

As a result, increasing numbers of homes 

in less affluent areas that rely on council funding are going to the wall. A recent report from accountancy firm BDO found that care home insolvencies have skyrocketed in the past two years. 

In contrast, the self-pay care home market is booming as investment floods in. Estate agents Knight Frank report that adult care homes and supported living accommodation accounted for 24% of all recorded healthcare deals in 2018, a total outlay of £350 million. Retirement living is also gaining ground, with 64,000 new units predicted over the next five years as funds look for a new opportunity in familiar territory.

Of course, with mortgage-free residential housing in the UK valued at a staggering 

£2.4 trillion, it’s no surprise that investors are keen to work with developers and operators as that equity is accessed to pay for senior living.

But wealth is not evenly distributed. While some owner-occupiers in more well-to-do areas can comfortably access enough money to live in high-end facilities for as long as necessary, many will soon go through the value of their homes. With the average cost of care running at £40,000 a year and the average house value at just under £230,000, it’s not hard to do the maths. Most people will find their resources seriously depleted in short order even when pensions and other income are taken into account. As life expectancy increases along with frailty and complex care needs, some will run out of cash and find themselves reliant upon their local authority for funding.

But the austerity of recent years has seen public spending significantly reduced and councils are finding it hard to meet the true cost of care. This is what is driving the crisis. There simply isn’t enough money being paid to operators to keep them in business. Those who can are concentrating on increasing their self-pay capacity and who can blame them?

The government must take control of the situation and start a national discussion on how we are going to fund adult social care. The ball has been kicked into the long grass for too long and investors need certainty, or at least a plan, if they are to breath new life into the state-pay sector.

Of course, the deal cuts both ways and the government will want assurances that long-term responsible investment strategies are in place. No one wants to see another Southern Cross debacle, where private equity made a mint, but ultimately the business collapsed under the burden of debt.

Whatever is agreed upon, one thing is certain: as a civilized and wealthy country, how we care for older people is an important measure of our worth.