Over my career I have financed various types of senior housing, including assisted living, memory care, and intense nursing care. My parents lived the final years of their life in a senior housing complex that combined apartments with more intense care needs. This facility is one of thousands which have been developed over the past decade in the U.S. These properties have been filling up with people born from before the Great Depression to the World War II era. Real-estate investors are eyeing the massive baby boomer generation of 72 million people born between 1946 and 1964.
Real estate investors are betting big on this. In 2018, senior housing developer added 21,332 new units, over twice the amount added in 2014, according to the national Investment Center for Seniors Housing and Care (NIC). This makes senior housing a faster growing commercial sector ahead of office, retail, hospitality, and apartments. This development is expected to increase as within 10 years, the baby boomers will begin reaching their mid-80s, the average move-in age for senior housing. The needs of this group would require thousands of new facilities if the current demand continues.
“If” is a big assumption. Peter Grant in a recent Wall Street Journal article cites concerns that this bet on elder care could be one of the biggest real-estate miscalculations in recent history. We are already beginning to see assisted living communities which are not filling up and performing as originally expected. Overall occupancy is strong at 88%, but this is down from 90.2% just five years ago.
Some companies specializing in senior housing are hurting. Ventas Inc., a large health care REIT, fell by 9% in one day in October as it reported the occupancy rate of its senior housing communities declined for the 17th straight quarter. The age that people consider entering into senior housing is increasing to 85 years old today, compared to 82 years a decade ago, according to Green Street analyst Lukas Hartwich. This is partially due to improving health.
Technology plays a role in this. In 2019, over $1 billion will be invested in “aging in place” technology to allow seniors to enjoy the living standard of their current residence while accessing care without moving to the senior care facility. Some products include sensors that respond to a variety of medical conditions, facial recognition to identify visitors, and houses that can be easily changed as the resident ages to meet their needs.
These technologies make it easier for seniors to live at home and be less dependent upon others. One company is offering voice-recognition services that interacts with seniors about their health or plans for the day, makes suggestions, and then sends help based upon the responses.
The design firm Gensler is developing houses with features like adjustable bathroom sinks, living rooms that can be converted into bedrooms, and cabinets which people can see what is inside of them when they touch them. Who can forget items like the walk-in tub, stair chair lift, or Lifeline, which brings medical help at the touch of a button?
In England, the developer Tolent Construction is breaking ground on South Seaham Garden Village, a 1,500 home and mixed-use development in the Newcastle area. Homes will contain sensors and technology that will allow seniors to live next to families and younger single people. One fifth of these homes are outlined for people over 55 years old. The development will also have a village square, health center, and 20,000 sf of office space for startups and new technologies.
Hugh Daglish, the urban designer working on South Seaham touts the project, “You’re discouraging social isolation because you’ve designed the development in a way that brings people together.” This helps create a stronger community of people of all ages instead of quarantining the older folks to their own area.
Another factor which creates headwinds to senior housing demand is the sheer demographics of our country. After the huge influx of baby boomers, the Gen X group, my generation, is much smaller. Birth rates do not match the Boomer rate until later in the Millennial and Gen Z eras. So logically, if you build this to fit the Boomer needs, there will be a lot of empty units when the Gen X group comes around.
Senior housing will not go away. This remains a viable option for people with medical problems, loneliness, and the need for assistance with daily activities, like eating, dressing, bathing, and exercise. But the new aging in place movement and changes in the attitudes of future prospects for senior housing, will keep more people from senior housing. Clearly, the younger seniors will stay away, leaving the very, very old in housing and thus will be less attractive to younger seniors. Based on these factors, we should still see a declining trend in occupied units. These are factors the prudent lender should take into account.