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Tread carefully

Housing associations considering a move into the care home market should tread carefully, says Colin Rees-Smith

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Social landlords are at a crossroads. As a result of significant recent policy changes – 1 per cent, four-year rent cut; new freedoms outlined in the Housing and Planning Act 2016 – they have some important choices to make. Not least of these is whether to seek to diversify their income streams, and if they do, how best to go about this.

A number of housing associations are exploring the possibilities in elderly care and care homes in particular. On the face of it this seems a sensible choice, as the population is aging and recent figures from Laing & Buisson show the supply of care homes is failing to meet demand. Investment into the sector is growing and several housing associations such as Anchor, Sanctuary and Metropolitan have substantial and successful care home businesses.

Yet, as the decisions in recent years to sell their care homes by the likes of Home, Viridian and L&Q show, this is not an easy sector in which to make money. It is highly competitive and even the largest players – witness the current travails of private care home operator Four Seasons – can struggle.

So how can housing associations best assess the care home market and whether it represents an opportunity for them?

First, if you are serious about making a success of the care home sector it must be a core business for your organisation, otherwise the chances are you will fail.

Second, there is no point in running small care homes if you are a large organisation – you will struggle to make ends meet. Don’t be afraid to shape your portfolio accordingly and sell care homes that no longer provide facilities in line with current market expectations.

Third, focus on specific care categories, such as nursing or end of life, high acuity or specialist. This will help you differentiate your offering and give you a greater competitive advantage. You are operating against some significant private players, who are highly competitive. If you are not prepared for this then you will struggle.

Fourth, make sure you have appropriate resources in place to support the care home business. Overheads such as staff, training, support provision and catering are significant and can be volatile – see the recent increase to the National Living Wage as an example. There is also a large amount of due diligence to undertake when starting out.

Fifth, care homes can be a valuable asset that provide an attractive, long-term income stream. Astute housing associations can use their public sector contacts to acquire land competitively, develop facilities, working with another party to operate them, and then sell the care home for a profit. This is very much of interest to large institutional investors, who could prove important partners in securing and growing the business.

As with any business investment, there is risk attached to the care home sector. However, done well, housing associations are well placed to provide a much-needed service and be rewarded accordingly.

Colin Rees-Smith is a director at Savills Healthcare

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