The Uncertain Demand for Senior Housing
The trend to age in place and affordability issues makes it difficult to pin down demand, according to Kroll Bond Rating Agency.
The national story for senior living housing is fairly straightforward right now. There appears to have been overbuilding as developers overestimated current demand and they are now adjusting their construction pipeline as they wait for the arrival of baby boomers. At any rate, at bottom, senior housing is a local business and based on various reports, developers believe that many areas are still underserved and potential demand is simply a matter of identifying those markets. However, a recent report from the Kroll Bond Rating Agency, points out that demand in this space can be uncertain, and more importantly, can change abruptly.
Here are two reasons why, according to the report:
Delayed Retirement and Aging in Place
A report by the AARP Public Policy Institute found that 87% of adults age 65 and older want to stay in their current homes as they age. In addition, many boomers are deferring retirement with more than 20% of Americans age 65+ working or looking for jobs, compared to 10% in 1985, according to information from the US Census Bureau and the Bureau of Labor Statistics population data that was analyzed by financial planner United Income. BLS estimating that 13 million Americans age 65 and older will be in the labor force by 2024.
“Some of this age group may stay at work as they want to be busy and challenged, while others may not have enough money saved up for retirement,” according to the report. “Some portion of the senior population may also leverage tech services such as Uber, Amazon, and TaskRabbit to help facilitate aging in place, as well as various in-home wellness programs.
Affordability
In 2029, 54% of middle-income US seniors will be unable to meet the annual cost of assisted living rent and other living expenses, even if they used the equity in their home and all of their annual financial resources, according to a University of Chicago study funded by NIC. At that time, it is projected that annual assisted living rent will total $60,000. That percentage jumps to 81% if seniors rely solely on annual financial resources. “Private-sector senior housing has generally focused on higher income seniors,” Kroll says. “Demand based on demographic trends is expected to continue for senior housing but will likely need to be at different price points and with different amenities and service offerings.”
Despite the overbuilding in senior housing and demand that can be hard to pin down, securitized loans in this sector continue to perform, as there is only one delinquent loan, Kroll notes. “However, in markets where there is excess supply, we could see other delinquencies start to appear,” it concludes.