Analyzing the Canadian Senior Housing Dilemma

Canada’s seniors are facing a severe housing shortage as there is an increasing number of baby boomers turning 65, coupled with a low property vacancy and supply as well as general soaring rent rates. This issue is especially magnified with Canada’s senior population since they often require properties with the care facilities and staffing that standard housing units do not provide. As wait lists extend and affordability slips away, DBRS examines the senior housing shortage more closely.

The growing senior population is one of the biggest issues creating the housing shortage. According to a Statistics Canada report, the number of seniors is projected to exceed the number of children aged 14 and younger between the years 2015 and 2021. By 2036, the number of seniors could range between 9.9 million and 10.9 million. Canadians are also living longer: the population of people aged 80+ is expected to be in excess of 3.3 million by 2036; those 100+ could triple to more than 20,000 by then. The Conference Board of Canada makes a similar prediction in its report, Future Care for Canadian Seniors: A Status Quo Forecast. The report states that by 2026, over 2.4 million Canadians aged 65 and over will require supportive care and that approximately 131,000 spaces are needed for these seniors. The number of seniors requiring supportive care is expected to reach a staggering 3.3 million by 2046.

The growing senior population is putting a strain on the availability of current supply. More senior housing units are being developed nationally each year in an attempt to match this growth. However, the issue is that the rate of supply growth is not enough to match the senior population incline. In 2017, the total count for senior housing units in Canada was approximately 258,000, according to a total unit count by the CMHC’s Senior Housing Report (Exhibit 1). The year-over-year average percentage increase for supply development was approximately 6.9% between 2009 and 2017. However, between 2006 and 2016, the rate of increase for Canada’s senior population averaged 21.7% — more than double the rate of the supply increase.

Figures were collected from CMHC’s Senior Housing Report on a year-over-year basis.

The disparity between the growth rate of supply and the growth rate of Canada’s senior population is squeezing the availability rate for assisted living units. Between 2009 and 2017, the vacancy rate for senior housing was on a steady decline, with the national rate resting at 7.8% as of 2017 (Exhibit 2). Manitoba has the lowest vacancy rate at 4.0%, whereas Atlantic Canada (New Brunswick, Prince Edward Island, Nova Scotia and Newfoundland and Labrador) has the highest rate at 11.4%.

Figures were collected from CMHC’s Senior Housing Report on a year-over-year basis.

Rental rates have been steadily increasing over the years, according to the Canadian Mortgage and Housing Corporation. Across all provinces, the monthly rent rate was above $1,000 in the 2010’s (refer to the provincial chart set below) for standard unit spaces. As of 2017, Ontario displayed the highest rent rate at $3,526/month, while Québec had the lowest rate at $1,678/month. Between 2013 and 2017, the national average rental rate increase was 4.7% year over year. Assuming this percentage increase persists, national average rent rates could reach just over $4,000 a month by 2025. Keeping up with this rate will become increasingly difficult, especially for those on a fixed income.

Figures were collected from CMHC’s Senior Housing Report on a year-over-year basis.

DBRS rates a number of retirement residences across Canada, ranging from standard units, which rent around $1,000/month, to luxury units, which rent at almost $5,000/month. Vacancy is a well-observed issue among the properties, with an average occupancy rate of 95.1%. With an average unit count of 120 per property, units are filled as soon as they become available. The average rent of DBRS-rated senior homes is around $3,552, which is more than double the $1,206 national rent rate for regular housing (figures from CMHC’s Comprehensive Rental Market Survey Tables). It should be noted that the luxury properties DBRS has inspected over the years are well stocked with features and services for seniors. These properties go beyond serving as mere apartments and seem more like a full community. Some of the higher-end communities include amenities like a piano lounge, library, beauty salon, cafe, fitness centre, chapel, computer station, spa, billiards room, community television and fully serviced kitchen. The table below highlights some of the recent properties that DBRS CMBS analysts have reviewed during their transaction analyses.

Further information on these transactions is available through Viewpoint. Please search using the deal code listed above.

While developing more supply would help address the increasing number of seniors who require housing, it is not as simple as just laying out construction plans. Senior housing property development is highly regulated; every property must meet all of the care standards that its residents will need. This can make it more complicated for investors to be approved to develop and manage properties designed for seniors. Some of these regulatory requirements include minimum staffing, number of services offered (like a meal service, transportation, etc.), personal support worker program, etc. These were some of the regulations implemented in Québec in 2013. Regulatory trends may slow down unit development or give a greater preference toward independent property units, which require much less regulation.

The good news is that the demand for the supply makes it an attractive option for investors. In the recent CIBC 23rd Annual Real Estate Conference in April, investing representatives from private senior care companies BayBridge Senior Living, Sienna Senior Living, Chartwell Retirement Residences, Revera Inc. and Invesque Inc. explained that the senior housing market is very active for investors. However, these investments come with a set of challenges, such as staff training and the complexity of senior housing management and needs.

Housing is a national crisis that generally affects all Canadians regardless of age. However, it is especially a problem for seniors who tend to have specific housing needs. Affordable housing is becoming increasingly out of reach for those who rely on a fixed income, but the market’s investment prospects may change the tide of this issue, providing a greater unit supply for the ever-aging population.

Follow Stephanie Hughes on Twitter @StephHughes95.

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