Photograph by Val Vesa
An entire swath of retirees may not be able to afford senior housing such as assisted-living or independent-living facilities, even after tapping their existing home equity, according to a new study.
While the majority of retirees prefer aging in place, care needs or isolation can push seniors toward other housing options. It’s the bet many real-estate developers made as they fueled a senior-housing boom in recent years, especially targeted at higher-income seniors. Occupancy rates vary around the country but have been relatively low as retirees have tended to stay independent longer. That could change in the next decade, though, as today’s oldest baby boomers enter their 80s, when more care and services are often needed.
There may be more demand by 2029, but about 54% of middle-income seniors aren’t expected to have the financial wherewithal to pay for senior housing, even after using the proceeds from their existing homes, according to findings released this week by The National Investment Center for Seniors Housing and Care, a nonprofit that tracks the market. Researchers defined middle-income seniors as those aged 75 to 84 years old whose financial resources—Social Security, pensions, 401(k) and other investments—annuitized using actuarial tables would yield roughly $25,000 to $75,000 a year or up to $95,051 for those 85 and over. These seniors are typically too wealthy to qualify for public means-tested programs like Medicaid but not flush enough to pay for senior housing out of pocket for a sustained period.
That is a conservative projection, using the latest average cost for senior housing in larger markets of $60,000 and doesn’t include services people may need for mobility, cognitive, and other issues over time. It also assumes seniors will be able to sell their homes at a price they want—not a sure thing, especially as Millennials have been slower to buy homes and start families. Without tapping home equity, the NIC researchers project that in 2029 81% of middle-income seniors won’t have enough to pay for the average costs for senior housing.
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It is a finding that echoes other retirement experts’ caution that long-term-care needs can derail retirement security. Demographics could make it hard to find affordable senior housing at all. Many retirees today rely on family members providing unpaid caregiving, but that could become less reliable in the future given the shrinking size of families and the rising number of single seniors. Health-care needs could also push people toward senior housing in a decade when today’s oldest Boomers will be 83—about the time caregiving needs increase. Researchers project 60% of the 14.4 million middle-income seniors who are 75 or older will have some sort of mobility issues, and two-thirds will have a chronic condition. About 8% will have cognitive impairment.
“We are trying to put a spotlight on the need, from the policy side but also from the opportunity for private investors,” Beth Mace, NIC chief economist, tells Barron’s. “There is a big demand pool of people with housing and care needs.”
The social aspect of senior housing may be more of a draw to baby boomers, who spent time in dorms more than the previous cohort of retirees. Already, there is more experimentation with co-housing, with seniors rooming with younger people who can help with caregiving or other services around the house and more communal living a la “Golden Girls.”
As for investors, Mace, who worked in real estate investment management for nearly 20 years, says private equity has been investing in senior housing. But the challenge now is to draw that investment to middle-income senior housing, possibly by tapping into the interest for socially responsible investing to structure different types of debt instruments that could lower rents for senior housing. Another option: Tax incentives for senior-housing developers and operators that build for middle-income groups.
Write to Reshma Kapadia at [email protected]