Housing LIN Technical Brief ‘Funding Extra Care Housing’ Ian Laight – Housing Research Capital funding

Irresistible force vs immovable object Public sector policy direction is still fostering new models of provision & new capacity in extra care to reduce costs and improve outcomes - Firstly, by a shift towards unregistered ‘housing’ accommodation with high levels of support to replace traditional care home placements & reduce hospital use for respite, assessment, rehabilitation and intermediate care Secondly, through new housing based & domestic style models for dementia care at all needs levels Thirdly, a ‘de-institutionalisation’ of expensive health services for long term mental health & chronic illnesses Unfortunately, property, care and housing are out of favour sectors - poor investment yields on care homes, even poorer yields on housing portfolios

Technical Brief approach Current sources of funding Which of these may still be suitable for funding new extra care schemes? How scheme characteristics influence access to funding sources Not all extra care schemes, providers or operators are the same Evidencing and informing funding applications Understanding demand and capacity, making your case for funding Appraisal types for extra care housing Not for profit and for profit approaches

57 varieties of capital funding SUBSIDY FUNDINGNON SUBSIDY FUNDING HCA Affordable Homes Programme Local Authority prudential borrowing DH Care & Support Specialised Housing Fund Local Authority housing revenue account Public land at nil or below market value Group banking facilities Capital subsidies from Local Authorities Own name bond issues Section 106 planning obligations Social finance Charitable fundraising Scheme specific banking facilities Construction contractor finance PFI and LIFT programmes Private equity partners High net worth individuals Institutional investors REITs and Property Investment Trusts Property unit trusts and OIECs Public pension funds Consortia of pension holders

57 varieties of capital funding Conventional HCA subsidy funding is still possible but at reducing levels per unit and competing with general needs on value for money tests DH Care & Support Specialised Housing Fund evidence of the health savings that can be achieved through extra care / preventative provision Section 106 agreements offer increased possibilities for developer funded extra care Housing Revenue Account funded extra care - a short term opportunity? Construction contractor finance Real Estate Investment Trusts (REITS) Institutional investors – (public) pension funds & insurance companies

NEEDS LOCATION PRICEHeading Text Multiple models along the Specialist Housing continuum Not enough just to target a funder - where does your proposal fit Care is Needs based – consistently good services are essential Housing is Discretionary – your product and service competes with general needs stock

Where does your proposal fit? Will you own, or just operate, the new scheme? Is it just one scheme, or one of many What is your operational model – contractor / developer ‘early exit’, scheme manager, housing services provider, support provider, care provider? How does it fit with commissioning objectives Scheme specific partners or part of a wider partnership / Joint Venture Will the scheme be developed or operated by a Special Purpose Vehicle What will be your tenure mix / target market?

Where does your proposal fit? Outright sale puts ‘all your eggs in one basket’ No doubt that home ownership is still the tenure of choice at the housing / discretionary end of the spectrum but owner occupiers will increasingly need to release equity as their incomes fall / costs rise – already in US ‘staircasing down’ through the scheme operator is far preferable to all involved when compared with conventional equity release ‘Bundled in’ services transform appraisals from development models to operational models - retain residents for far longer occupancy periods and achieve the prevention & delay of admission to registered settings Schemes that rely on sales revenue alone to meet their costs miss the opportunity to benefit from operational revenue generated by services (food, drink, housekeeping, laundry and support – not necessarily care)

Evidencing funding applications Understanding demand & capacity – Housing LIN / ADASS SHOP tool Factor in customer choice, a move to specialist housing is the exception Realistic programming required, particularly for fill up periods How does the scheme fit in with commissioning / referral priorities Set realistic budgets, particularly for pre-development work Take advice on Tax / VAT treatments, particularly for JVs and SPVs Plan and budget for sales and marketing activities to start pre planning Forecast operating costs & for fill up period shortfalls in appraisals

Evidencing funding applications Understanding demand & capacity Housing LIN / ADASS SHOP analysis tool Draws on the IPC POPPI data from ONS, plus the EAC care & housing data

Evidencing funding applications Factor in customer choice, a move to specialist housing is the exception After 67 years of development and marketing in the US – Max take up is 5% of eligible population for each new scheme Saturation level is 15% of the eligible population in any area (except Sthn Calif. & Florida)

Appraisal types Are you trapped by your appraisals? Look beyond “computer says no” Proprietary software can limit the options and limit understanding of the outcomes Choose the right appraisal type for the scheme you are considering Focus on the appraisal outputs that matter to your funders Understand the sensitivities in each scheme model / appraisal type

Appraisal types Gross yields and net yields Simple calcs so can be misleading & only good enough for initial filtering Earnings Before Interest Tax Depreciation & Amortisation (EBITDA) Used to generate yields for operating businesses such as care homes, rather than vacant possession value Net present value Discounted cash flow method of assessing if schemes require subsidy Residual land value Developers’ simplest calculation that treats land as the variable Internal Rate of Return (IRR) Funders’ favourite so increasingly used as KPI in appraisals

C/o EAC 3rd Floor, 89 Albert Embankment London SE1 7TP Thank you Housing Research Ian Laight and tel: website: