The UK Urgently Needs Care Homes, But The Focus Must Be On Quality

While there are many operators providing excellent elderly care, the sector is becoming increasingly stressed. Demand for beds is growing and a lack of new properties is making it hard for families to find good quality care for their relatives when the need arises.

More investment is needed not only to build new properties but to bring older homes up to standard, Aldermore Bank Commercial Director John Carter said. Aldermore is looking to back operators that understand what it takes to provide the homes people need while providing employment and becoming a crucial part of the local community.

“If you focus on the quality of care, you will make a good long-term return on your investment,” he said. “If you focus on the return, that’s not going to work. We are working with excellent operators who understand this and are looking to create portfolios of the highest quality homes.”

Currently, the UK has 480,000 beds across 12,000 care homes. However, an additional 144,000 beds are anticipated to be needed to meet population growth in the next decade. The number of people aged over 80 is expected to increase by 1.1 million between 2022 to 2032 to reach 4.5 million.

The existing pipeline of care home beds is not sufficient to meet this population growth. In September 2023, there were 132 care homes providing 5,900 beds under construction and 23,300 beds in the planning system. By 2050, there is expected to be a shortfall of more than 200,000 beds. 

A lack of availability of beds is not the only problem facing families, Carter said. Due to high demand and rising costs of care provision, fees have risen by almost 20% in the last two years. Also, though the Care Standards Act has been in force since 2000, many properties still don’t conform to measures such as minimum room sizes.

“The sizeable increase in beds needed going forward is against a backdrop of older and increasingly not fit-for-purpose stock,” he said. “The Care Standards Act was not enforced on existing properties as it would have shut down too many homes. Many still require upgrading, reconfiguring and retrofitting.” 

The acute shortage of adequate care home beds is inspiring investors and operators to invest in the sector. This element of the living sector is clearly going to continue to be in high demand over the coming decades, Carter said. However, success relies on an operator’s ability and commitment to providing a good quality of care. 

“You could have a brilliant, state-of-the-art home, run by an inadequate operator,” he said. “On the other hand, you could have an excellent operator making the best use of a substandard building. Our goal is to see where those excellent operators could do an even better job in a new property and back their strategy.”

In 2023, Aldermore identified the care home sector as an area where it could apply its expertise to support the need for more beds at a higher standard. Specifically, the bank is looking to increase its provision of development funding to proven operators to help them create new and better spaces that enhance their portfolios. 

A factor in providing good quality care is that it can take a while for the costs to balance out against income when a new care home opens, Carter said. This has to be factored into a business model and cash flow forecasts regarding investment. 

“Care homes can take time to fill up, so they are usually running at a loss for the first few months,” he said. “This is why our strategy is to back proven operators who already have a strong brand and can withstand a loss in the short term.”

Another factor that sets excellent operators apart is how they handle sector challenges, Carter said. Providing a high level of care has been hindered recently due to labour challenges. Brexit has reduced the number of available workers, and while care home staff often receive low salaries, the living wage has increased in the last few years. Many rural areas in particular are struggling to attract the staff needed. 

“The best operators invest in their staff,” Carter said. “They pay them well, which means they don’t end up paying higher costs to an agency, and provide good working conditions. When they achieve this, they’re able to provide high-quality care while achieving financial goals.”

When an operator gets the provision of care right, there are long-term financial and community returns to be had. The overall market value of the sector is estimated at £23B, having dipped to £17.4B in March 2021 during the pandemic. 

Care home development is underway, but it is not yet enough, Carter said. To support the sector’s growth, Aldermore is on the lookout for operators that can not only provide exceptional care with a robust business model but provide new homes and beds that are fit for the future. 

This article was produced in collaboration between Aldermore and Studio B. Bisnow news staff was not involved in the production of this content.

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