Seniors in the United States are facing a housing dilemma stemming from the diminishing unit supply as well as climbing rent rates nationwide. The growth of the U.S. senior population is continuously outpacing the development of unit supply — a gap that may grow significantly year over year. This is creating longer wait lists for applicants, unaffordable monthly rental rates and a lack of options for one the nation’s most vulnerable communities. In this commentary, DBRS looks at the extent of the senior housing shortage issue and how reinvigorated investment interests may help alleviate some of these problems.
The U.S. life expectancy rate continues to climb (76 years for males and 81 females as of 2017, according to Statista), which has boosted the number of people living over the age of 65 and 85. According to the CBRE report Senior Housing & Care Market Insight: 2017 Q2 Review, the population of people aged 65+ in 2010 was 40.3 million; for people aged 85+, it was 5.5 million in the same year. The figures were sourced from a 2014 National Population Projections report by the U.S. Census Bureau that projected that a continuous trend will put the 65+ population and the 85+ population at 98.2 million and 19.7 million, respectively, by 2060 (refer to Exhibit 1). On average, this represents a percentage increase of 20.2% each decade for seniors 65+ and an average increase of 33.2% each decade for seniors 85+. By 2060, the general population in the United States is projected to stand at 416.8 million (according to the U.S Census Bureau), with all seniors over 65 representing 23.6%.
There are much fewer senior housing facilities across the nation to accommodate this booming population, with approximately 49,870 company-owned and independent communities (including assisted, independent, nursing homes and Alzheimer’s care options) reported by Senior Guidance, an organization that collects information on senior living options nationwide (refer to the list located at the side). The number of units within these facilities varies from about 20 to 200. According to the listings provided by Senior Guidance, the top five states for facilities count are California (7,379), Wisconsin (3,968), Michigan (3,462), Washington (3,361) and Florida (3,097). Rent rates are another issue, as rent for senior housing are higher than other housing types. According to Senior Guidance, the national rent rate average for private and semi-private units was $3,293. The five most expensive states are Alaska ($6,208), Delaware ($5,050), Oklahoma ($2,938), Wisconsin ($3,821) and Georgia ($3,016). These rates put affordability out of reach for many Americans, especially for their relatives who require assisted care.
DBRS inspected over 20 independent and assisted living properties across the United States (refer to Exhibit 3) and found that high occupancy rates and rent rates are correlated across deals. On average, properties exhibited an average unit count of 113 with an average occupancy of a staggering 92.2%, which leaves little room for new admissions. The high demand resulted in other issues like high rent rates, with an average monthly cost of $3,143 ($2,689/month for independent living units and $3,749/month for assisted living units). The average monthly costs of the rated properties are in line with the national average of $3,293. Assisted living communities tend to be more expensive than independent living communities because they include trained staff and luxurious amenities such as a pool, fitness center, coffee shop, beauty salon, library, meal services, etc.
The high demand for senior accommodations has attracted the attention of different investment firms in the United States and Canada. In CIBC’s recent 23rd Annual Real Estate Conference held in April, 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, it is not a simple market to break into, as senior properties often require staff training, specified unit renovations, as well as considerations into the complexities surrounding senior housing management and needs. The CBRE Senior Housing & Care Market Insight: 2017 Q2 Review report also outlines the strength of the Senior Housing/ Healthcare real estate investment trust (REIT) market, which had a total market capitalization of $88.76 billion as of September 2017. With high interest in the market, the United States may see more units and facilities under development, which in turn could help alleviate some of the demand pressure nationwide.
Seniors in the United States are facing an issue of housing availability and affordability, finding that the occupancy rates across facilities are too high to find accommodations and the rent rate is out of budget for those who are often on a fixed income. The situation is not unlike the crisis faced by the Canadian market (refer to Analyzing the Canadian Senior Housing Dilemma), though between the two countries, the commercial real estate culture in the United States has allowed investors to find more ripe opportunities to invest in developing and redeveloping these high-demand properties. While Canada has both government-subsidized options and private options with Canadian-based senior housing REITs, the projections seem less bleak in the States.
You can access this research piece on the DBRS website and on the Viewpoint Blog.
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