Thinking of moving into a retirement village?
New research looks at the appeal, benefits and disadvantages of living in retirement villages, and the business models.
In 2014, a national overview of the retirement village sector found that 184,000 Australians lived in retirement villages, that’s the equivalent of 5.7 per cent of the population aged 65 and over.
It is projected to increase to 7.5 per cent by 2025.
This is among the findings in the Australian Housing and Urban Research Institute’s report Business models, consumer experiences and regulation of retirement villages.
The analysis estimates living in retirement villages saves the health care system $2.16 billion, with $1.98 billion of those savings achieved by postponing residents’ entry into government funded aged care facilities.
This study draws on interviews and the experiences of residents in New South Wales, Queensland and Tasmania, as well as lawyers and village managers.
People said they were drawn to the opportunity to join a community formed through informal friendships. Affordability was an important consideration.
Countering loneliness and ill health was important, as were good facilities and the natural environment. However, there was also negative aspects such as ageism through the perception of segregation from younger age groups.
Fees and disputes
Unscrupulous managers, or companies facing financial pressures, could raise fees even though increases had to be reasonable, both as stated in the contract and state regulation. This was cited as a major difficulty for consumers as they are in a weak bargaining position.
Consumers can try to hold management to account through residents’ associations, often required by regulation. They also can seek a legal remedy by making an application to a tribunal.
Approximately two-thirds of survey respondents reported that they had encountered disputes with their retirement village operator; around one-fifth of those disputes concerned fees or the financial management of their village.
The next most common issue was retirement village management and service quality. Those who had pursued a dispute with the retirement village operator to a tribunal body for resolution consistently indicated in interviews that tribunal bodies were inadequate and ineffective in supporting older people to have their matter heard fairly and equitably.
They said they had limited support to understand and participate in the process. This left older residents to fend for themselves legally and financially against the village operator’s legal team.
Since the 1970s, complaints have been made about the consumer experience in retirement villages.
These include mis-selling, excessive exit fees, and unfair buy-back arrangements. Twenty-five per cent said they either could not understand exit fees or experienced difficulties understanding exit fees. Two respondents felt trapped in a village, and one had been bullied.
However, the report authors say the survey shows fewer concerns, and many residents expressed positive views about exit fees.
Most residents sought legal advice, but did not find it helpful - often the result of inadequate availability of expert advice in this area. The report says legislation passed during the 1990s and in the last 10 years has “to some extent addressed the problems”.
However, a lawyer noted that consumers are warned about risks, but do not always employ due diligence.
“I think consumer protection is inherently a difficult space. They want one thing, they want to buy a load of goods on the one hand, and they really don’t want to do their due diligence, but when it’s not meeting their expectations on the other, they want to complain about it.
“How do I approach it as a lawyer? I make sure my client understands, as best as possible, meaningfully, what it is they’re buying into.”
Other negatives include the hard line taken by operators under pressure to make profits in a competitive market.
The authors observed that while some residents have bad experiences and even feel trapped in villages, surveys indicate that most are happy. Although this may change when they seek to leave.
Industry insiders believe that the business model is not well understood by government or critics.
There is only one model—the exit fee or deferred management fee—that allows residents to live in properties at a reduced entry price. Variations within the model allow different types of tenure and levels of service, but no alternative models have been developed.
There is an alternative means of renting buildings in manufactured home estates, often confusingly also called villages. This type of housing offers fewer legal protections, but is growing due to government rental support. There are also alternative purchase arrangements that allow a share in capital gains.
In addition, some experimental and social initiatives are co-funded in the not-for-profit sector. These include rental congregate villages in which residents eat together to encourage stronger communities. The report found there is scope for differentiation and innovation within the exit fee model.
Retirement villages could be made more affordable through a financial partnership with government with funds directed at low-income groups through care packages and public housing, rather than subsidising wealthy Australians, companies, and investors.
The report recommends funding a specialist ombudsman for the sector, and reject government subsidisation or financial support for villages.
It concludes: “Limited support from Commonwealth and state and territory governments would arguably be best used in supporting lower-income and vulnerable groups through home-care packages and public housing rather than subsidising wealthier home owners to live in villages.”
The report can be read in full on the Australian Housing and Urban Redevelopment Institute website.
