A new report released Tuesday by the Milken Institute presents four potential solutions to improving the financing and delivery of housing for the “forgotten middle,” those whose incomes are too low for them to be able to privately pay for current senior living options but too high for them to qualify for federal assistance.
This group was named and quantified in 2019 and 2022 studies. The Milken Institute undertook the research due to the long-standing — and growing — gap in available senior housing and care options affordable care options to this group, according to Lauren Dunning, director of the Institute’s Future of Aging Advisory Board. More than half of middle-income Americans 75 and older are projected to fall into the “forgotten middle” by 2029.
But a central purpose of the report, Dunning told McKnight’s Senior Living, was to spotlight the flip side of the challenge — the opportunity for innovative senior housing and care offerings, options and solutions addressing the unmet needs and wants of older adults.
“Pioneering operators are already utilizing unique levers to serve the ‘forgotten middle,’ creating healthcare and payer partnerships, developing models centered around resident volunteering, and introducing new a la carte arrangements,” Dunning said. “Lowering housing and care costs can also increase the value proposition for investors and present compelling selling points for prospective consumers.”
Senior housing operators are innovating, Dunning said, and now the call to action is to bring that to scale across the nation.
The potential solutions presented in the new report, Dunning said, embody an overarching theme that senior housing is “approaching a new era” of integration in the healthcare continuum, within communities, and across sectors, such as technology:
- Establish a social enterprise to refinance and rehabilitate existing distressed senior living properties.
- Design a revolving loan fund to provide a sustainable source of long-term capital.
- Use a pay-for-performance model to attract upfront funding for housing and provide a new revenue stream to offset the ongoing costs of providing care by delivering long-term cost-savings for payers.
- Launch a regional pilot program to generate data supporting partnerships between senior housing operators and payers in value-based care.
The report, titled “Innovative Financing and Care Models to Scale Affordable Housing Solutions for Middle-Income Older Adults,” comes as the need to address cost barriers to affordable senior living and care increases. It presents research findings from Milken’s Financial Innovations Lab conducted by the institute’s Innovative Finance and Future of Aging teams. Milken partnered with the National Investment Center for Seniors Housing & Care and CVS Health last summer to host a series of meetings with 80 experts from healthcare, senior living and care delivery, finance, technology, government, philanthropy and academia.
There are a few groups of stakeholders working to advance the recommendations outlined in the report.
“We are excited that the industry has embraced the report’s findings, and we will continue to help facilitate the execution of the solution alongside the working groups,” Dunning said.
The ‘forgotten middle’ dilemma
It is projected that nearly three-fourths of the estimated 16 million middle-income older adults 75 and older will be financially unprepared to afford housing to meet their needs in 2033, with more than half projected to live with three or more chronic conditions and mobility limitations, according to the report authors.
Even with home equity, 39% of middle-income older adults will be unable to pay for assisted living, but 67% of those individuals are expected to experience three or more chronic conditions, and 60% will have limited mobility.
Compounding the problem is the intensifying shortage of direct care workers and lasting economic effects of the COVID-19 pandemic on senior housing developers in the form of higher costs for materials, labor, operations and employee benefits. Those factors contributed to a 17.8% increase in senior housing development costs between 2020 and 2022, according to the report.
But optimism exists within the industry that pandemic disruptors have changed the way developers and operators design and deliver housing and care, with innovation driving the overall value proposition of senior living, according to the authors.
In a case study, the report highlighted 2Life Communities’ Opus Communities project, which broke ground in March as one of the nation’s first senior housing projects designed specifically for the middle market. Among the approaches the project is taking to reduce operating and state costs, Opus will require residents to volunteer 10 hours per month, offer meal service just three nights a week and encourage membership in nearby Jewish community centers for activities, to reduce in-house entertainment and activity costs.
