For senior living operators on the fence about implementing resident rate increases, a new rate report from a senior housing data analytics company reveals positive signals indicating strengthening demand.
In an analysis of pricing data from 1,649 senior living communities — independent living, assisted living and memory care — Chicago-based LivingPath found that resident rental rates are increasing 20% to 30% less quickly this year compared with speed in the past two years. But co-founder and CEO Jonathan Woodrow told McKnight’s Senior Living that the rate of change is more a function of a lagging catchup to staffing costs.
The base rate for a studio unit in assisted living rose 6.6% in the first quarter, compared with an average increase of 8% for all of 2023, according to LivingPath’s first-quarter rate increase report. For independent living, the rate for a studio unit increased 5.6% in the first quarter, compared with 8.8%, on average, in 2023, whereas the average base rate for a private memory care unit rose 5.7% in the first quarter compared with 9.8% in 2023.
But Woodrow said that the perspective missing from the data showing that rates are rising 20% to 30% less quickly in 2024 compared to the last two years is just how much faster senior living rates are growing compared with traditional multifamily rates. Pointing to a recent Apartments.com report, he said that the average growth for multifamily housing rates in the first quarter was 0.7%.
“Yes, [senior housing] rates are growing a little bit slower than last year, but this is an asset class where growth is dramatically exceeding traditional apartment buildings,” Woodrow said, adding that that message is the single biggest takeaway from the report for operators.
For operators managing a stabilized community that has 85% or higher occupancy — which Woodrow said comprises 65% of the market — the data validate that the broader market is pushing rates pretty close to last year’s levels. That reality, he said, is a signal that the kind of demand-side “exponential growth” that the industry has been waiting for exists, or at least is starting to play out.
“For operators that waited, this should give you the confidence to implement the rate increases that you modeled, even if you haven’t done it yet,” Woodrow said, adding that some operators either are increasing rates multiple times throughout the year or are at least evaluating and making adjustments throughout the year.
Care rates restructured
Although the report did not note a dramatic difference in rental rate performance across the three senior living segments, a deeper dive into the data found that some operators are “really working to quantify care delivery so they can optimize staffing models as well as resident rates, Woodrow said. Some of that effort is occurring through restructuring in how those operators are assessing and charging for care.
Woodrow said he’s still seeing a 3.5% to 4% rate increase per care level, which is in line with wage growth. But what that finding doesn’t capture are the changes occurring in those levels of care and whether ancillary fees — such as for medication management — are layered into those rates. Some clients, he said, are paying much closer attention to how they structure care levels.
Aging housing stock might be issue
Woodrow said he remains curious about the long term — say five years down the road. The average senior living community included in the first-quarter rate report was built in 2006. In theory, increasing demand should place substantial upward pressure on rates over the next five years. But the units in those older buildings are smaller compared with units in newer construction.
“Where does that balance out?” Woodward asked, nothing that capital market issues over the past 24 months have led to some deferred maintenance in senior living. “At what point does that really become a sales and marketing issue?
Moving forward, he said, spending capital becomes important as potential residents consider the desirability of those smaller units in an environment of increasing rates.
