An inflationary environment makes care home collapses more probable, given the way they’re financing themselves
When Britain’s largest care home operator, Southern Cross, collapsed in 2011, it heaped anxiety on elderly residents and ignited a debate about the role of private finance in the sector. The company had sold off most of its freehold properties to landlords, leaving it with a £230m annual rental bill. Many of these properties were locked into 30-year leases with increasing rents. The bulk of the company’s income came from local authorities, so when councils clamped down on spending, Southern Cross buckled. “This model doesn’t work through hard times,” its chief executive said.
Those times seem to have returned. A new report warns that the UK care system now risks sleepwalking into a crisis of rising costs because of how care homes are financed. Investors are piling into the sector, and have spent an estimated £7.5bn buying up healthcare properties over the last five years. The authors estimate that up to half of for-profit care home groups are leasing their homes from landlords. This is a ticking timebomb, they argue: as rents rise in line with inflation, some care home operators may have to increase their fees, even while landlords’ profits soar. They estimate that care home landlords are making £515m in profit annually.
