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Commencement of the Retirement Villages Act 2003

Posted on 27 Jan 2004

Most of this Act takes effect on Sunday 1 February 2004. ACT considered this Bill was badly conceived as introduced but applying relevant professional experience I worked hard to improve it in the Select Committee.  

The Act means the Minister must approve codes to govern all villages with one-size fits rules. It encourages the major operators in the industry to collude in gold plating the codes.  For example the Bill assumes that codes will dictate minimum staffing requirements, and qualifications.  These could be used to make “part time” or small-scale developments untenable, and protect existing operators from the competition that comes from new entrants (such as builders branching out, co-operatives or small church inspired schemes).

We could have supported the new law if officials had not made it clear that they expected the new codes to pull up the drawbridges around those who can afford to be in a retirement village, and shut out others. They put it in writing.  I wanted an amendment requiring that the code “not be so onerous that it acts as a barrier to persons of modest means” and that it be “flexible enough to allow for retirement villages to offer a range of services, facilities, and pricing structures”. I was stunned when Minister Dalziel’s officials objected, on the grounds that “people of modest means are already excluded” and “it is not the purpose of the ...legislation to widen the range of retirement living options for people of modest means”  so it should not “be a requirement for the Minister to take into account the effect of the code on a group ...for whom retirement village living is not ... in the foreseeable future, an affordable option.”    

Retirement villages need not exclude those who are not wealthy. The structure has evolved to combine elements of property investment, of tenancy, of co-operative or communal living and of life insurance.

Residents may enter at a price which is lower than their share of the market value of the underlying property and the services they will be entitled to.  In return they commit to meet collective cash outgoings.  The balance of the cost, and the return to the promoter/manager/operator can be derived from the difference between their entry cost and what residents get when they exit, by sale or death.  The amount “withheld” from the exit return may depend on how property prices have performed since entry (inflation included) and of course time since entry.  It may be as much as 20% or more of the intrinsic value.  Because that “deduction” can vary depending on how long the resident lives it has elements akin to life insurance.  Those who live longer will in effect “subsidise” those whose stay is shorter.

The Act may improve the rights of some of the 4% of elderly who can already afford to live in retirement villages.  They are comparatively privileged.  In effect the Bill pulls up the drawbridges around retirement villages by creating new risks and rules for those defined as “operators” of retirement villages.  They will be reflected as new costs because no one bears risks for long without a return.

For many villages the “operator” is effectively themselves, collectively.  Risks for the “operator” become risks and costs for all residents.  For example, management obliged to pander to a vexatious complainant use time taken from other tasks.  Vainly regulating for disclosure to “protect” the least capable resident could expand documents, and procedural hurdles, to the cost of all others.

New personal liabilities may discourage innovators, people who are willing to pioneer and experiment.  If retirement villages become more expensive better off residents may not be concerned, but like gated suburbs they will exclude the poor who might be very happy to be in a retirement village without the gold plating.

The Act could have left these choices with residents, by allowing them ‘opt out’ rights assisted by disclosure of departures from best practice codes.  Instead retirement village residents are patronised.  ACT will not support law making retiring elderly the only class of adult New Zealanders not allowed to choose what kind of property rights they can buy.