New U.S. tax laws implemented in 2018 are encouraging older residents to sell their homes and move to senior housing units with greater accessibility and age-friendly atmospheres. Because older Americans are searching for housing now and will continue to do so over the next few years, the senior housing sector is seeing significant growth. Continued demand for senior housing makes this sector an attractive, worthwhile investment.
2017 Growth in the Senior Housing Sector
There was an 86% increase in sales transactions for independent living units from 2016 to 2017. In addition, the demand for independent living has consistently maintained an occupancy rate of 90%. There was also an increase in the assisted living sector in 2017. The year saw 18,500 new units contributing to a decade-high supply while the average price per unit increased by 9%. In continuing care retirement communities, entrance fees increased 5% in 2017 and 8,700 new units were under construction at the beginning of 2018.
While senior housing is growing at a high rate, some current and potential investors see the increased supply of units as a reason to practice caution while making investment decisions. They still see the sector as an attractive option, but they think investors need to be mindful of risks such as:
- Potential Economic Risk
The effects of tariffs and recent tax cuts might have a negative impact on economic growth and stability.
- Potential Interest Rate Risk
Many expect the Federal Reserve to increase interest rates through 2018.
- Potential Inflation Risk
Many predict inflation will begin to accelerate because of tariffs on U.S. imports, wage rates, and labor costs.
- Potential Increased Competition
An increased competition and supply of senior housing units could drive the prices of the units down.
- Adequate Staffing
With the new units and facilities, there will be a need for adequate staffing. Some industry experts predict a lack of staffing in the sector might impact facilities’ ability to lease their new units.
Long Term Growth in the Senior Housing Sector
Even in light of these possible risks for investors, the senior housing sector outlook is promising, especially long term. An aging population and growing need for dementia care are stimulating growth in the sector and will continue to do so for many years to come.
In addition, Baby Boomers are aging and will continue to transition to senior housing over the next few years. According to the U.S. Census Bureau, when the last of the baby boomers reaches age 65 in 2029, their population will represent more than 20% of the total U.S. population—almost 60 million total. According to the U.S. Department of Health and Human Services, about 70% of people over the age of 65 require some form of long-term care.
These factors increase the potential for excellent returns on investments in this sector—especially in high-growth markets.
Valbridge Property Advisors specializes in appraising all property types, including senior housing facilities and developments. We produce custom, consistent appraisal reports across the United States so investors and lenders alike can make informed decisions. Our experts can walk with you through the appraisal process so your research and/or transaction can be conducted with efficiency.