Middle-Income Seniors Face Challenges Finding Affordable Housing

The seniors housing market has made great strides over the past few decades to offer housing options that cater to a range of care needs. But a key segment of the market – middle-income seniors – is finding it increasingly difficult to secure affordable housing.

The middle-income senior segment is defined as those age 75 to 84 with annual incomes of about $25,000 to $95,000, panelists at the recent 2019 NIC Fall Conference in Chicago noted, citing a recent study in Health Affairs. Today, 8 million seniors fall into this category. An additional 6 million will join this group by 2029.

The study estimates that only 46% of these 14 million middle-market seniors will be able to afford the annual costs of living in seniors housing. These costs total about $60,000 per year, on average, in addition to about $5,000 of out-of-pocket medical expenses.

While seniors housing developers and operators have focused on building at the high-end and low-end of the spectrum, middle-market product has lagged behind. Panelists discussed the growing issue and how public and private entities can come together to find solutions.

The Need for a ‘Multi-Faceted Approach’ in Serving Middle-Income Seniors

Finding a way to serve middle-income seniors better “has to be a multi-faceted approach that includes operations, technology and financing [in addition to real estate]. It all has to come together to create a solution,” noted panelist David Watkins of investment firm SHA Capital Partners.

On the real estate side, panelists discussed some approaches to lowering construction and land costs. Making these costs pencil out to build more affordable senior housing communities is often a significant challenge for developers.

Some new development suggestions included:

• Building in opportunity zones due to their tax incentives
• Modular construction, which can be a less expensive building method
• Microapartments (under 500 square feet) with larger common areas
• Mixed-use projects with retail or other services components that can generate additional revenue

Another approach is to repurpose buildings, including older existing senior housing product or another real estate asset such as a mall or hotel.

Watkins added that there are challenges with some of these solutions. For example, offering services or accessibility could be more of an issue with microapartments, but “there will be some experiments in this area,” he said.

Ways to Lower the Cost of Operations

Lowering operating costs can also help owners offer more affordable housing options to seniors. Strategies included unbundling services like meals and transportation from housing costs and any regulatorily mandated care. Partnering with other service providers can also decrease costs.

“As operators, keep the businesses that are essential to the regulatory environment so the care can continue. But find ways to partner with hospitals or home health agencies to lower costs,” noted Gaurie Rodman of development services firm Direct Supply Aptura.

Operators could also partner with a local meal delivery service or restaurant instead of having a commercial kitchen on site, use a ride-sharing service for transportation, or implement technology solutions like telemedicine for remote patient monitoring.

Rodman added that seniors today are primarily focused on having a high quality of life and access to activities that make them feel younger and healthier. Engaging with residents to identify their needs instead of trying “to be everything for everyone” can help operators keep residents happy while preventing the unnecessary cost of offering underutilized services.

Public-Private Partnerships Could Provide Incentives

Seniors housing operators should also find ways to partner with public and private entities when possible, panelists noted. One strategy is to offer shared resources like classroom space or gardens for both residents and the broader community, which can make the operator eligible for certain public funds.

Panelist Rodney Harrell of AARP noted that while getting local governments on board can be a challenge, “when there are community benefits seen; when that’s observed by the powers that be, that creates an incentive for them to make things happen,” he said.

Partnering on the financing side, such as joint ventures with life insurance companies, can also help decrease owners’ debt costs while offering middle-income residents lower insurance premiums.

One example discussed during the panel conversation was UnitedHealthcare’s recent $400 million investment in more than 80 affordable housing projects across the U.S.

As with local governments, it will take some time and education to get more financing partners on board. However, once they see the value of building more affordable properties, they’ll feel more comfortable underwriting the deals, Rodman noted.

Some financing vehicles, including Fannie Mae and Freddie Mac, are active in the seniors housing space due to their commitment to provide liquidity to the market and help maintain affordable housing options.

“When we think about the solution, it isn’t singular,” Rodman added. “It’s not just the operator; it’s not just the regulatory environment; it’s everyone coming to the table.”