For the better part of the past decade, investors have flocked to senior living, which was viewed as the golden goose for sure-bet growth as the baby boomer generation aged. More recently, however, due in large part to pandemic-related challenges including health safety considerations and staffing shortages, the gold has lost its luster. Other options for senior living, including multigenerational housing, are gaining in popularity; along with them come market opportunities for savvy industry participants.
During the height of the pandemic, senior housing occupancy dropped quickly, more so than in the multifamily market, as senior facilities faced high rates of COVID-19 fatalities and a thinning labor pool.
Baby boomers, born between 1946 and 1964, led the U.S. economy through a period of unprecedented prosperity and consumer spending. Prior to the pandemic, with the youngest of that cohort entering their late-50s, investors who focused on senior housing were poised to harvest one last golden egg from this generation.
Enter COVID-19 in early 2020. During the height of the pandemic, senior housing occupancy dropped quickly, more so than in the multifamily market, as senior facilities faced high rates of COVID-19 fatalities and a thinning labor pool. Occupancy bottomed out at 78.7% in the second quarter of 2021, down from 88.0% in the fourth quarter of 2019, according to the National Investment Center for Seniors Housing & Care.
In the first quarter of this year, occupancy at senior housing (which includes assisted living and retirement communities) rebounded to 80.6%. It is still well below the national rate for multifamily housing, which reached 95.1% in the same period, surpassing a pre-pandemic rate of 93.5% in the fourth quarter of 2019, according to CoStar.
While some industry watchers point to ongoing fears about vulnerable seniors living in more densely packed housing for the continued downturn in the sector, there is a host of other factors at play that could put a long-term drag on growth.
While some industry watchers point to ongoing fears about vulnerable seniors living in more densely packed housing for the continued downturn in the sector, there is a host of other factors at play that could put a long-term drag on growth.
Financial struggles related to rising inflation and the economic slowdown have led some boomers to put a hold on retirement. That shift is helped by fast-changing dynamics in the workplace, which have left many prime-age and senior workers with remote and hybrid work options.
Meanwhile, the pandemic has also resulted in more fluid arrangements for school as children move between in-person and remote learning, creating the additional need for in-home childcare. Some grandparents are stepping up to fulfill that need through mutually beneficial multigenerational living arrangements. In addition, recent improvements in telehealth now make it possible for more seniors to postpone moves to environments offering in-person care.
Retirement is for the birds
Workforce participation rates for those over age 55 have been increasing since 2000 and are projected to continue, with the biggest rise to date in the younger over-50 set—those aged 55 to 64. Most dramatically, those Americans 75 or older are expected to double their rate in the workforce to 11.7% in 2030 from 5.3% in 2020, according to the U.S. Bureau of Labor and Statistics.
This pattern has coincided with people living longer; U.S. life expectancy is up 5.5 years from 1980 to 2020, and employment opportunities have shifted from labor-intensive jobs to service and knowledge work.
Financial concerns are clearly adding to seniors’ unwillingness to retire, as waning pensions, a lack of retirement savings and rising medical costs prompt seniors to work longer than they otherwise would.
In 1980, 38% of the U.S. workforce could look forward to a pension; in 2020, that figure had dropped to 15%, according to the BLS. At the same time, retirement savings such as 401(k) plans have not prepared boomers to leave the workforce; median savings in those plan were only $202,000, according to data released in April from the Transamerica Center for Retirement Studies.
A 2021 Planning & Progress Study by Northwestern Mutual found the top two reasons people are planning to delay retirement are a desire to work and save money, given additional flexibility in the workplace (55%); and concerns about rising costs like health care and unexpected medical expenses (50%).
While the recent rise in inflation is certainly worrisome to many seniors, the longer-standing concern over rising medical costs speaks to the lack of financial security felt by many in the boomer generation.
It’s also easier now for many older workers to stay in the labor force; the aforementioned shift to remote and hybrid work provides more options to seniors who want to continue pulling in a paycheck.
Meanwhile, with unemployment nearing pre-pandemic levels of 3.6% and the battle for labor intensifying, companies are less inclined to push retirement packages on aging employees or shun older applicants in the interview process. Unlike previous generations who were shown the door so that they could be replaced by younger and cheaper employees, boomers are being asked to delay retirement and stay in the workplace on their own terms.
The rise in multigenerational living
Multigenerational living had already seen exponential growth over baby boomers’ lifetime, with the number of people living in multigenerational housing arrangements quadrupling between 1971 and 2021 to 59.7 million, according to Pew Research. The most prominent catalysts for this growth—financial worries and the need for caregiving—are clearly escalating in the current economic environment.
Multigenerational housing can be beneficial to all age groups residing in the same home. Not only can baby boomers look to their adult children for help with their own care, but their children can often depend on them to help look after grandchildren.
Financial pressure on households is now the primary catalyst driving multiple generations of one family to cohabitate under the same roof. Inflation of more than 8.5% year-over-year through March 2022 has helped drive housing prices up 20.9% in the same period, according to CoreLogic. Meanwhile, a lack of inventory of new homes, exacerbated by supply chain challenges in the construction industry, and rising interest rates leave many families unable to purchase homes.
Part of the reason for the inventory shortage? As boomers stay in their homes longer, the existing housing market supply is restricted. Even though rising home valuations provides them a greater cushion to afford the amenities offered by senior housing, they are opting to stay in their homes longer and forego those services.
Telehealth and wearables provide remote medical support
Often the move to senior living is prompted by a desire for access to health care, with many facilities offering higher levels of care as needs progress. Physical proximity to health care professionals was long considered critical to ensure the best care. But the pandemic changed the model, causing the medical community and regulators to reimagine health care.
Technology innovation accelerated and telehealth rose, with baby boomers leading the way. According to a survey conducted by the U.S. Department of Health and Human Services between April 14 and Oct. 11 of 2021, nearly a quarter of Americans over the age of 65 indicated they had a telehealth visit in the prior month.
Benefits of multigenerational housing
The pandemic exacerbated problems of an already-stressed childcare industry; according to Child Care Aware of America, approximately 16,000 centers closed permanently between December 2019 and March 2021, accounting for 9% of centers nationwide. The need for broader family support to raise children was more necessary than ever before.
Multigenerational housing can be beneficial to all age groups residing in the same home. Not only can baby boomers look to their adult children for help with their own care, but their children can often depend on them to help look after grandchildren.
The takeaway: Investor focus will shift
Industry participants operating and investing in existing senior housing assets with the flexibility to convert some or all their units to multifamily housing stand to benefit the most. Multifamily supply will continue to be restrained by high cost of construction (the average price per unit is up 21.6% year-over-year according to Yardi Matrix), and community aversions to new development create significant barriers for new entrants into the market.
Multifamily units that can be retrofitted to include multigenerational features such as extra bedrooms, in-law suites, additional bathrooms and safety features are sure bets. While the re-permitting and zoning will present hurdles for developers, the demand of multifamily housing is simply too great. It just may be the next golden goose.
