Industry must share the responsibility of creating new models that will serve all aging Americans.
By Jess Stonefield, Senior Living Fund
This past spring, the National Investment Center for Seniors Housing & Care (NIC) published an eye-opening report focused on middle-market seniors. The study showed that of the 14.4 million Americans expected to make up the “middle market” by 2029, a projected 54 percent will not be able to afford seniors housing. What’s more, the number of middle-income seniors age 75 and above will grow 82 percentbetween 2014 and 2029.
From a human standpoint, this is a potential crisis. From a business perspective, it’s a huge opportunity — if the senior care industry can figure out how to make affordable senior housing a reality.
First, let’s establish a definition for “middle market.” According to NIC, the middle market includes Americans who have too much wealth to qualify for government support programs like Medicaid, but not enough to afford private-pay senior care for an extended period of time. In fact, just 19 percent of middle-market seniors are projected to be able to afford senior care with income; the other 46 percent will need to pull from home equity, as well.
As someone who works for a private equity company whose funds invest primarily in high-end, private-pay senior housing communities, this research regarding the middle market is incredibly important. As a business, we need to invest in communities that make money for our investors. From this report, we can see that by 2029, there may be a large portion of seniors who will not be able to afford the product in which we are investing. The question remains: what would it take for the industry to create housing they canafford?
NIC research shows the industry will need to build 700,000 units to support the “forgotten middle.” But how do we do it?
Step 1: Educate the Public
It is not common to put public education and seniors housing in the same sentence, but it may be time to start.
While the public may assume that building affordable senior housing is as simple as building housing and charging less, those in the industry know it isn’t quite that simple. There are a range of issues, including construction costs, local zoning laws, tariffs, immigration and even a decreasing construction workforce that all contribute to the high cost of seniors housing. None of these things will change simply by lowering rents.
“Construction costs have been rising at 10 percent per year on our projects,” says Brendalee Connors, director of development at Metro West Housing in Lakewood, Colorado. “Costs for lumber have gone up 25-50 percent due to tariffs on lumber from Canada. Fewer construction crews are available to work to keep projects on schedule. The costs simply aren’t sustainable from an affordable housing standpoint. Until those things are under control, this isn’t likely to change.”
It’s worth noting that Metro West Housing currently has four affordable seniors housing communities in operation, totaling 400 units. Their wait list is 3,000 people — 10 years long. Clearly, there is a demand for affordable seniors housing, but the costs associated with creating it make willingness among builders less likely. Public education could help local communities understand why.
Step 2: Educate State and Local Government
Again, most of us in the industry don’t fancy ourselves as politicians. But it may be worth flexing some political muscle, at least at the local level.
For instance, Connors says, if local communities offered incentives such as fee waivers, density bonuses, property tax relief or even accelerated application processing for those willing to build affordable housing, there may be more willingness to undertake it.
“Time is money,” she says. Being able to avoid the pain points of building a new community could help considerably.
Kevin Berger, president of Easterday Construction in Culver, Indiana, agrees, and thinks public/private partnerships may help improve local zoning regulations to make building easier.
“In many cities, there are very old regulations on zoning in place,” Berger says. “I don’t think the people writing the rules realize how they will impact the community’s ability to implement affordable housing. In smaller communities, where city meetings happen once a month, building schedules get hung up pretty quickly when we need to request variances. From our perspective, it just isn’t profitable.”
Jennifer Miller, executive director of Hamilton County Area Neighborhood Development (HAND) agrees. HAND operates seven affordable seniors housing communities in the state of Indiana, where inclusionary zoning for municipalities is prohibited. There, local municipalities can’t make changes to zoning ordinances to pursue affordable housing, even if they wanted to. Because of this, it can take a year or more to get affordable housing projects approved, another reason many companies simply won’t undertake the effort.
“If we handed power back to the local municipalities, we would be able to get projects approved much more quickly,” she says.
Step 3: Consider New Models
It’s possible that seniors housing may need to look completely different in the future than it does today. Yes, operators have increased the quality over age-old nursing homes by offering high-end amenities and more spacious room models. But if these communities can’t be replicated at an affordable rate, they may not be relevant to those who need them.
One option, ppod,is a solution developed by Living Solutions LLC. It is a portable, temporary living environment for all income classes of seniors. The ppods, says founder Mark Hunter, can be placed in a driveway or yard and require no sewer or water hook-ups. Because they are obtained with a doctor’s written prescription and are leased, zoning concerns will be lessened. The ppodsare aimed specifically at helping the 71 percent of seniors Hunter says live in rural or suburban areas so they can age in place close to family members.
While traditional senior housing companies may look at developments like ppod as a competitor in the marketplace, they could also consider offering similar care options to help grow their business in the middle market. It’s time for all of us to let our egos go and consider new care models that may work better for those who need them.
Step 4: Lobby
Armed with the knowledge of the need for more affordable seniors housing options, all of us in the industry need to do our part to speak about the importance of government tax creditsto support affordable housing. The issue must remain at the forefront if there is any hope of meeting the needs of middle-market aging Americans in the future.
“Without the use of tax credits, we would never be able to build affordable independent senior rental housing at the rent rates necessary for these low-income households,” says Chuck Heintzelman, principal at Milestone Ventures in Indianapolis. The company currently has six nonprofit affordable housing projects in the works, and has completed some 60 others.
No, the tax credit system is not perfect. However, tax credits, tax abatement and lower tax assessment will continue to play a significant role in affordable seniors housing moving forward.
“You need to be profitable someplace else to make this kind of investment work,” Berger says. “Tax breaks are the only way it will happen. Investing in affordable seniors housing just doesn’t make economic sense otherwise.”
Step 5: Give and Take
“The biggest challenge from an investment standpoint is attracting investors,” says Dan Brewer, chief fund manager at Senior Living Fund. “Any company interested in starting a private equity fund dedicated to affordable seniors housing could make a case for demand, and in some ways, that makes affordable housing a less ‘risky’ product. However, is the lower risk adequate for investors to accept lower returns?”
One option, says Connors, is to create mixed-income seniors housing communities, where a portion of units are dedicated to lower-income residents. In doing so, no single community needs to take 100 percent of the hit on profit, but new units are still made available to those who need them.
“Even with the tax credit program, you will always top out the maximum use of your credit, depending how many units you produce,” she says. “By being able to offer a mix of units, you may encourage operators to build more units because they know they will maximize profit on the site.”
Connors agrees that getting creative with profitability might be a good place to start.
“You can’t entirely count on the government to deal with this, because it will require tax credits and funding,” Connors says. “You also can’t count on the market to deal with it because it means choosing to make less money. We all need to work together to shoulder some of the burden. The answer is all about money and creativity.”
Facing Our Responsibility to Aging Americans
Finding a way to make affordable seniors housing a reality is no longer simply an option; it’s an industry responsibility. The industry must work together to find a way to house the millions of middle-market Americans who will need a place to live and age safely in the future. It may not be easy, and it may take years to create a model that works. But it will require all-hands-on-deck to make it a reality.
“While I appreciate the innovation that is going into housing construction and the efforts to make it less expensive, we need affordable options now,” Miller says. “As our senior population grows, our country’s affordable housing crisis will grow, too.”
Jess Stonefield is a communications expert for investment firm Senior Living Fund. She is also a contributing writer on aging, technology, mental health and more for publications like Next Avenue, Stria News and Changing Aging.