Welcome to the Age of Misalignment
If we are to make any judgment about America's current supply of senior living stock, it is this: Things are seriously out of whack.
How else to explain a very bizarre phenomenon we're now seeing: oversupply for some cohorts and scarcity for others?
Most in this sector are familiar with mounting oversupply concerns. Trending data have been showing what the experts like to call “froth” for the better part of a year now. That's sort of a cool way to say that supply exceeds demand. What's less cool is why this is happening. In destination locales like Florida, senior housing developments seem to be opening faster than new Starbucks.
A more subtle sign of overbuilding is what the insiders are saying at investor conferences. “We like this sector, but …” is being uttered with increasing regularity. What that basically means is that while the fundamentals in some areas suggest room for moderate growth, a lot of developers just don't seem to know when to say “when.”
Then there's the little matter of the target market many of the new complexes are chasing. Developers almost universally insist these new edifices are intended for “average Americans.” But many seem to have a highly inflated notion of what that means.
For many of the freshly minted units are intended to command $3,000-to-$5,000 a month in rent, or more. Then there are the continuing care retirement communities. Most of them seem to come with an entrance fee north of $300,000. In other words, many of the “average American” prospects can expect to shell out $40,000 to $70,000 a year in rentals. And at CCRCs, that's on top of the cover charge.
Have we forgotten that the mean household income in the United States in 2014 year was $51,939? Do the math, and it's hard to accept the premise that many of these dwellings are, in fact, being built for average Americans.
As for senior living stock for the unwell heeled? It's not a pretty picture.
As a recent Make Room analysis shows, the number of older-adult households where rent and utility costs total more than half of before-tax household income has outpaced the growth in the overall senior population during the past decade.
“Rising, unaffordable rents are jeopardizing older Americans' retirement security, including the ability to stay in their homes and communities, and to afford healthcare and medicine,” Angela Boyd, managing director of Make Room, said in a statement.
So we have a situation where many lower-income people who will need seniors housing are becoming even more cash-strapped. Yet developers keep building for the cream, even as demand among this preferred demographic continues to erode.
Which leads to an inevitable question: Do we have a problem on our hands — or an opportunity?