Chris is Founder and Chief Executive at Radius Realty, a top 10 real estate company with a technology-first approach.
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As of 2018, 52 million people in the United States were aged 65 and older. By 2034, this population is expected to, for the first time in American history, outnumber the 18-and-under population. The rising number of seniors will have a major impact on the real estate market — and there are several ways savvy investors can take advantage.
Prior to the current pandemic, the numbers were trending upward in the senior rental housing market. The number of renters over the age of 55 increased by 28% between 2009 and 2015, according to one analysis of U.S. Census Bureau data, and another analysis suggests the demand for senior housing could hit half a million units a year. However, the number of seniors struggling to afford housing has also been on the rise, with only about a third of adults over 62 who qualified for housing and rental assistance actually receiving aid, leading to concerns for the well-being of this demographic if more affordable housing isn’t built.
An aging population with changing housing needs combined with a rise in demand for housing assistance presents an opportunity for developers who target senior-focused affordable rentals. Increasingly, real estate professionals are seeing the senior housing sector as a promising avenue for development and investment.
I agree. I recently co-founded a boutique senior living facility in St. Louis with the goal of providing a warm, caring and nurturing home environment for elderly men and women who desire an intimate setting and family atmosphere. Our typical residents are no longer able to live independently and require assistance with everyday functions such as dressing, personal care, medicine management, memory care and empowerment wellness — services that are also difficult, if not impossible, for resident families to provide on a full-time basis. But for developers and investors who have the desire, commitment and resources, these amenities can be far more easily provided to the populations for whom they may provide a much-improved quality of life.
Keys To Maximizing Your Investment
Focusing on containing costs while making necessary upgrades is key. A 2016 Harvard JCHS study found that just 1% of the housing stock was equipped with five key design elements — zero-step entrances, single-floor living, wheelchair-accessible hallways, reachable electrical outlets and lever-style handles. Adding these to current structures can cost thousands if not tens of thousands of dollars, so installing them during a regularly scheduled remodel can save time and money later.
Prior to the current pandemic, the lending environment for investors interested in senior housing was generally favorable — and because of the general lack of housing for the aging population, I anticipate that the government will continue to implement programs to make it easier to create housing for the elderly.
Independent senior living is only one aspect that investors can take advantage of. There is another opportunity in the senior housing market for investors to consider, the one I favor personally: boutique senior living, also called residential assisted living, which is along the lines of traditional retirement homes yet offers more personalized and frequent care, helping to keep seniors healthier and happier while reducing the likelihood of hospitalizations and complications resulting from chronic health issues.
The general anticipated lack of availability of assisted living — particularly, from my observation, here in the Midwest — coupled with the growth of the elderly population means the market is ripe for senior living development projects, with demand being heavy for at least the next 20 years. According to CBRE, data from the National Council of Real Estate Investment Fiduciaries (NCREIF) “indicates that reporting senior housing properties have generally outperformed the broader National Property Index (NPI) since at least 2003.”
And now that we’re in the middle of a public health crisis, smaller senior living communities are coming to be seen as better equipped to prevent the spread of infectious disease. Fewer residents means fewer workers are needed, while facilities can still maintain a positive resident to caregiver ratio. Not only are fewer people coming in and out of the home, increasing risk, but also “caregivers are able to develop much closer relationships with residents,” which can contribute to more positive outcomes. For investors in these projects, note that fewer workers also means less overhead.
With the need for senior housing — both independent and assisted living — increasing swiftly, investors and developers should consider taking advantage of the changing American demographics.
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