When the federal government announced in the recent budget a couple of measures designed to ease the housing affordability crisis such as an announcement to build 1 million homes from 2024 as well as raise Commonwealth Rental Assistance by 15 percent, it also provided a boost to Australia’s fast-growing land lease sector.

The rental assistance package in particular will prove a boon to many of the nation’s retirees who have embraced land lease as an alternative to traditional retirement villages.

The reason for the sector’s spike in popularity is not just because many land lease communities are in some of the nation’s most sought-after locales but because owners only own the dwelling while their landholding is a back to the future style 99-year lease.

Back to the future in the sense that much of Australia’s private land was originally held as a leasehold (Canberra still is) as is much of central London for example.

The upshot for those living in land lease communities is they only pay around 60 to 70 per cent of what the dwelling would cost as a freehold property in the same location. Moreover, because owners are a tenant on the land, they pay fortnightly rent which is often eligible for Commonwealth rental assistance.

It’s proving a neat way to slowly address the housing affordability crisis and a way for baby boomers to enjoy a more comfortable retirement lifestyle and importantly be able to afford to spend more on their own wellbeing.

Managing partner of private equity firm, Tasman Capital Partners who own Serenitas in a joint venture with Singapore’s sovereign wealth fund GIC own 25 land lease communities around Australia, Rob Nichols, acknowledges the growth in land lease communities is linked to the nation’s ageing demographic tsunami.

He says retirees are flocking to them because the costs are much more transparent and the underlying site agreements equitable when compared to a retirement village.

The actual concept of land lease grew out of the old on-site van idea at a local caravan park and it has really reached its apotheosis in the United States where it grew out of trailer parks such as Florida’s The Villages – the world’s largest retirement village with around 50,000 residents.

Nichols says it’s a very simple idea where the homeowner buys the home from the operator if it’s a new village and they just pay a site fee, which is paid two weeks in advance.

“It means everyone knows where they stand. The maintenance of the house is paid by the homeowner and this is done in accordance with a village policy as we need to make sure everyone maintains their home to a prescribed standard,” Nichols says.

Another difference to retirement villages is they’re not as cookie-cutter in design with homeowners allowed to build larger homes and include add-ons such as butler’s pantries and walk-in wardrobes or multiple bathrooms.

The one similarity to retirement villages is the communities often come with a whole range of facilities such as swimming pools, bowling greens, gardens and large community centres.

Managing director and co-founder of Lifestyle Communities, James Kelly, says land lease communities are proving to be match-fit for baby boomers and Generation Xers now aged over 50.

Kelly’s Victoria-based ASX-listed Lifestyle Communities celebrates 20-years in business this year and he says while it was a struggle at first land lease’s popularity has exploded in recent years with many of the big retirement village players now entering the market.

He says the company doesn’t consider itself as property developers, but “very much long-term managers of our communities”.

“We have our 5000th resident poised to move in and we are about creating long-term relationships with our owners to the point where 50 per cent of our sales are referrals from existing homeowners.”

Nichols says that sense of community sets most of the communities apart and plays to the idea of increased wellness for retirees who are actively engaged socially and physically through the many activities on offer.

“The social side is definitely our strength because unlike in a suburb where everyone is caught up in their own hectic lives, in this setting, you basically have neighbours who are of a similar age with similar interests to you,” Nichols says.

“Owners also get to release a large amount of capital when they sell the family home because our typical sort of metric is they pay around 65 per cent of the median price in that surrounding suburb, so they release 35 per cent of their equity in their home.”

Kelly says that sees land lease homeowners typically free up around $250,000 in cash or equity when they buy into a community.

“Our tagline is ‘downsize into a bigger life’ and that amount certainly enables a bigger life when you’re freeing up that sort of equity,” he says.

Head of corporate health at NAB Health, John McCarthy, says land lease is an extension of the bank’s commitment to the senior living sector through residential communities, financial assistance and aged care.

He says NAB’s interest in land lease really took off around three years ago when the bank realised how it presented a good option for retirees who want something a little different.

Moreover, its financial structure makes it a more accessible housing option for many people which dovetails nicely with the bank’s $6 billion commitment to the affordable and specialised housing sector.

“We also noticed a lot of government funding come into the sector – as we’ve seen with the rental assistance announcement – and we looked at our business strategy in corporate health and decided to extend our senior living offering,” McCarthy says.

While Nichols and Kelly are both extremely bullish about the sector’s growth, they admit land access will be a challenge under the current state government planning regimes, especially as more players come into the market.

For Kelly, another potential headwind remains access to capital for his business as most banks originally “didn’t want a bar of us” – but that is changing.

“We’re still basically a start-up and it can be very difficult to get capital and that’s true across most property companies but it’s worse with land lease.

“It’s incredibly capital intensive because you have to buy the land and then build the clubhouse, the roads, display homes and other infrastructure before you have settled on one residence, which can be a barrier to entry in a funding sense,” Kelly says.

“Importantly though, the sector is assisting to make Australian housing more affordable because land lease helps people to downsize affordably which frees up housing stock for first time buyers.”

McCarthy agrees it’s helping to free up housing stock as retirees predominantly move to popular areas such as coastal communities where land lease properties offer well-finished affordable dwellings.

“This helps retirees as they have more to spend and from a government point of view it helps to recycle housing especially in cities where there is a shortage.

“It is as an affordable housing product for seniors living and we’re quite excited about the future really,” McCarthy says.