Investing in retirement and aged care: how we can future-proof a sector in dire need of development

16 December 2020

As our older population swells, New Zealand is projected to need 284 new retirement villages by 2043 — all to be built under incoming climate change legislation that aims to curb the built environment’s carbon emissions. How will this work, and how can we future-proof these essential investments?

As a growth sector, aged care holds huge investment potential rivalled by few others in New Zealand. A $3.3 billion industry as of 2020, it’s grown 4.3 per cent on average every year from 2015 to now — and with our rapidly increasing ‘greying population’, that percentage will only swell.

As numerous advisory boards, reports, and organisations have pointed out (and as we recently discussed in a think piece on designing for dementia), New Zealand’s aged care sector isn’t currently prepared for this coming surge in demand and the new legislative environment. According to a June 2020 whitepaper titled ‘NZ retirement villages and aged care’ by JLL, which maintains a New Zealand Retirement Village Database of over 400 villages housing 45,000 residents, the key demographic for retirement villages is expected to increase from 460,000 to a stunning 784,000 by 2043.

By the same year, Statistics New Zealand projects that 14 percent of the Kiwi population will comprise people over 75 years old, and Senior Trust Capital predicts we’ll need 42,566 new units across approximately 284 new retirement villages in order to accommodate those in need.

If we’re to keep apace of this extraordinary demand, we effectively must build one new retirement village every month — a truth demonstrative of the fact that New Zealand’s retirement and aged care industry is in dire need of robust and immediate investment and development.

Luckily, it’s an investor’s dream, thanks to demand guarantee, assured market growth, historically strong returns, and independent and governmental regulations that offer a measure of protection to investors, developers, and residents alike.

But as with any investment, some risk is unavoidable — and the key to risk management lies in future-proofing.

Net-zero legislation and the ramifications for the retirement and aged care sector

The nearly 300 new retirement villages New Zealand needs represent a gargantuan undertaking for the industry, most of which will be constructed under proposed new Climate Change legislation in pursuit of net-zero emissions. Indeed, the amount of required development stands to have a massive impact on the country’s carbon production.

Whether this need is met through the optimisation of existing assets or through new builds, it’s imperative that investors and developers within the retirement and aged care sector ensure their designs comply with coming requirements.

At the end of August 2020, the Ministry of Business, Innovation, and Employment (MBIE) released two frameworks under the Building for Climate Change programme, which aims to reduce building emissions during construction and operation and to protect our built assets against the effects of climate change. These frameworks apply to New Zealand’s building and construction sectors and are meant to help the country achieve its goal of net-zero carbon by 2050.

Transforming operational efficiency

The first framework revolves around operational efficiency and how we can reduce emissions from the ongoing operation of our buildings, which currently consume more than half of all electricity generated and roughly 20 per cent of all energy produced. Operational efficiency includes energy and water use, and it has ramifications for the indoor environmental quality (IEQ) of our buildings, which in turn affects aged care resident well-being.

The operational efficiency framework pertains primarily to new buildings, making it particularly relevant to the retirement and aged care sector. In order to achieve the goal of net-zero by 2050, MBIE intends to implement a yearly operational emissions cap for each building, which would include provisions for thermal performance, services efficiency, water use, fossil fuel use limits, and requirements for IEQ.

Numerous architectural and design measures exist to aid in transforming operational efficiency. In the design phase, assessments of temperature, humidity, ventilation, and thermal performance, as well as thorough reviews to determine where emissions can be reduced and how energy might be generated on-site, can all help investors and developers ensure new buildings comply with proposed legislation and upcoming requirements.

As for the construction phase, careful selection of building materials and appliances can significantly contribute to the overall sustainability of a given building and the improvement of its operational efficiency.

Whole-of-life embodied carbon emissions reduction

The second framework addresses whole-of-life embodied carbon emissions. This covers all emissions stemming from the production, transport, construction, replacement, and disposal of materials, products, and appliances used across the entire lifecycle of a building.

Embodied carbon depends on a building’s size and can be considerably reduced by maximising the efficiency and sustainability of a structure. In order to quantifiably measure whole-of-life embodied carbon emissions, MBIE proposes mandatory building reporting for all projects — the data from which will contribute to the development of embodied carbon caps in support of net-zero.

This framework pertains to new and existing buildings equally and aims to minimise the carbon impact of New Zealand’s building and construction activity, which currently accounts for 20 per cent of the country’s emissions.

As with operational efficiency, thoughtful design can drastically improve embodied carbon emissions across our buildings. For existing stock, this means making enhancements that bring systems and services in line with new goals through such measures as appliance upgrades and improvements to energy efficiency within the building.

For new buildings, it means prioritising resilience and adaptability in the design phase — ensuring our assets can morph and improve as necessary for changing user needs and in turn avoiding emissions from rebuilds or additional new builds. It also means coming up with innovative solutions to reduce construction waste and increasing the longevity of buildings by choosing sustainable, low-carbon construction materials and products.

Working together to future-proof New Zealand’s retirement and aged care sector

A thriving retirement and aged care industry is vital to the social and economic success of New Zealand as a nation.

Through thoughtful, forward-focussed design in both new buildings and existing asset optimisation, we can engineer a healthy, robust retirement sector that provides high standards of comfort and quality of life for our aging population whilst simultaneously benefitting the environment and achieving our critically important net-zero goals. This future-proofing design philosophy will also markedly improve commerciality and returns for investors and developers, in turn stimulating meaningful economic growth for our country.

Context is focussed on maximising commerciality, marketability, and saleability for our clients whilst improving our communities and the well-being of those who live in them. We offer a range of services relevant to the retirement and aged care sector, including indoor environmental quality (IEQ) assessment, thermal performance assessment, reporting strategies for operational efficiency, materials lifecycle assessment, coordination with sustainable businesses and the NZGBC, design for efficiency, and more. Please contact us at [email protected] for additional information on our retirement and aged care offering.