There are few examples of market failure so puzzling as the shortage of homes to suit downsizing sixty- and seventy-somethings. The appetite is there: more than three million people want to trade down to something easier to manage, perhaps in a retirement village, yet Britain manages to build only 7,000 such homes a year.
It’s odd. These are the people with the money, after all. And the demographics are favourable, too. The over-65 age group is projected to grow by 20 per cent between 2014 and 2024, five times faster than the working-age population.
Yet developers are wary. Even the experienced seem to get it wrong, offering apartments for rent when people want to buy, and building pokey hutches when these affluent retirees, dripping with the equity that 40 years in the property market confers, aspire to something more spacious, with a spare room or two.
The shortage is seriously distorting the housing market, preventing family homes being sold to the next generation, which in turn furs up transactions all the way along the chain to first-time buyers.
Into this market vaccuum is stepping Legal & General, which is forking out £40 million for a developer of retirement villages. It wants both to develop new villages and to own them in perpetuity. It is investing initially as principal, but ultimately sees the business as ideal for pension fund clients wanting a stable, reliable income.
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The residents buy long leases, but there is useful income to be had from service charges for the maintenance, gardening and security and from optional extras such as restaurants and “wellbeing centres” (this industry is euphemism city: the L&G executive running the project goes by the title of Head of Later Living).
It’s another example of L&G diversifying miles from its roots as a dusty insurer. The retirement village venture joins other experiments in prefab house manufacture, clean energy and urban regeneration. L&G wants to change the world and is aggressively pursuing what it believes are fabulous untapped opportunities. Now it just needs to make them pay.
The cost of growth
Hargreaves Lansdown has paid a special dividend every year since its float in 2007, which is why the Financial Conduct Authority’s capital demand came as such a shock. Is it necessary? The FCA believes so, insisting on the extra capital to reflect the company’s increasing scale and complexity. To be clear, all client assets are completely ringfenced.
But there are market and counterparty risks. And it is easy to conceive of an IT snafu that could expose the company to costly litigation. It does, after all, administer assets of £79 billion, more than ten times its market value.
The FCA also needs to be certain that there is enough capital in the business to ensure it could be wound down in the unlikely event of calamity. That means having the staff and systems in place to transfer the company’s clients and their assets seamlessly.
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Hargreaves, on track to recruit its millionth active customer within months, has prospered because clients like its service, products and innovative ideas. The FCA needs to be careful it is not penalising success. Hargreaves needs to recognise that different rules apply now it has got so big.
Agent of despair
It’s hard to see the proposed rethink at Onthemarket as anything but a last desperate throw of the dice for the estate agents behind this mutually owned property portal. And a throw of the dice they expect other investors, not themselves, to bankroll.
Onthemarket wants to float, raise £50 million of new capital and embark on the mother of all advertising campaigns in a bid to grab market share from the main incumbents, Rightmove and Zoopla, and so achieve the scale so crucial in property search.
It is also dropping the key rule at the heart of its business model — that agents can use only one other portal when they sign up to its service. This is the rule it has just spent the last year and more than £4 million defending in a gruelling, albeit successful, court case.
There are two big hurdles to clear. First, 75 per cent of member agents have to agree to the change, which also means their signing up to new five-year promises to use Onthemarket. The prize in theory could be valuable more liquid equity stakes. The cost could be they end up spending even more on listings.
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Second, outside investors have to be persuaded to put money into what for now is a loss-making No 3 in an industry that could be pitched into a marketing spending war that no one wins.
There’s no doubting the fury agents feel as they hand over ever-increasing fees to Rightmove and Zoopla and see those two cuckoos growing fat on other people’s data. Even so, there is a mountain to climb. The robustness of the Rightmove and Zoopla share prices yesterday speaks volumes about how much of a threat a demutualised Onthemarket is seen to be to the existing order.
Lost in translation
Royal Bank of Scotland’s trust ratings are far higher in England and Wales than in Scotland. The problem is that the taxpayer-rescued bank goes by the RBS name in its Scottish branches, whereas down south other brands are used. It could always dump the RBS name north of the border in favour of something less hated. Natwest has a bit of a ring to it.
