For years, the senior housing industry has relied on a set of assumptions that drive development models and investment decisions—assumptions rooted in a market landscape that no longer exists. As economic conditions and demographic trends rapidly evolve, some experts warn that many investors and developers are still navigating with outdated expectations around rent premiums and lease-up windows, risking significant missteps as the sector undergoes seismic change.
Arick Morton, CEO of NIC MAP, is one of these experts. He tells GlobeSt that senior housing is at a crossroads, shaped by the rapid-fire disruptions and unexpected trends of the past decade. He points out that in the 2010s, developers took advantage of a fertile environment defined by low interest rates and a favorable capital markets climate. "The story of the 2010s was a development boom, which drove penetration up, but it also kind of drove occupancy down," Morton explains.
With supply growing faster than demand, new units flooded the market, leading to subdued rate growth and heightened competition for residents. "We built more supply than there was... supply grew faster than demand,” he notes, drawing a clear line from the building spree to occupancy challenges.
Part of the issue traces back to a demographic echo from the Great Depression. As Morton explains, if you subtract 80 years from the mid-2010s—the age cohort that's typically moving into senior housing—you wind up in 1935, a period marked by severely depressed birth rates. "There was a baby bust during the Great Depression years. So we had very suppressed demand growth," he says, emphasizing that the resulting population dip continues to create headwinds for occupancy rates.
The industry has also weathered powerful external shocks in recent years, including the disruptive force of COVID-19, which was followed swiftly by wage inflation and capital market volatility as interest rates climbed. These overlapping crises, argues Morton, have made the last five years "absolutely the hardest time in the industry's history," shaking confidence and upending business-as-usual approaches.
Despite these challenges, many investors and developers still cling to assumptions formed in a fundamentally different environment, says Morton. Traditional underwriting models commonly anticipate robust rent premiums and quick lease-up windows, not fully accounting for the new realities of more modest demand growth and a competitive, margin-tightened landscape. "The industry doesn't really have a historical precedent for underwriting to a world where demand is growing at five or six percent a year and supplying one percent," he says.
Instead of assuming that past trends will reliably steer future returns, Morton suggests the sector must recalibrate its expectations and frameworks. He is not calling for a reckless disregard for caution, but rather for a sober reassessment of what the data truly signal about today's market: developers must be wary of overestimating rent growth and underestimating the time needed to fill new communities.
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