2035: The Next Housing Crisis

July 1, 2019

By the year 2035, seniors will outnumber youth for the first time in United States history. When that time comes, there won’t be housing to meet most seniors’ needs and housing needs for seniors are already a source of concern. Nationwide, industry leaders are searching for an effective housing model for seniors – one that balances affordability and services, while also meeting their need for community. 

Melissa Andrews, of LeadingAge VA, introduced the topic during a harrowing session entitled 2035: The Next Housing Crisis at the 2019 SFCS By Design conference. Andrews led a team of architects, bankers, providers, and feasibility experts all working to devise creative solutions to stay ahead of the upcoming crisis.

“We’ve spent 18 months debating everything, collaborating, and trying to make something work for this population, but we haven’t yet moved the needle on the issue,” said Andrews. The biggest obstacles include a diminishing workforce, a growing population with dementia, and a majority of seniors without resources to afford a typical entry-fee senior living community. “No one is sure how to best serve the middle market.”

The middle market, according to Andrews, is defined as “seniors who are above the HUD Section 202 subsidy, but below being able to put down a deposit [at a Continuing Care Retirement Community].” Since defining “middle income” can be challenging, the team focused on solutions for people on the higher end – those whose combined social security, retirement, and pension provide an annual income of at least $55,000. They tend to be people who don’t want to live in a traditional retirement home, but desire homes and communities that are appropriate for their aging needs.

The expert team considered and tested many business models. 

One idea was to develop partnerships with existing businesses and services for seniors living in a rental community. Rather than building their own wellness and aquatics centers, rental communities might partner with a local YMCA. When residents require continuing care, a referral relationship with a nursing home could serve the need. Other ideas included hybrid staffing solutions, and design and construction innovation.

Lynn Daly, Managing Director at BB&T Capital Markets, agreed the industry must consider alternative options. “We need to adopt a completely different mindset from the entry fee model,” she said. Daly shared examples of some retirement communities that are already looking to serve this market but admitted, “There are no magic answers here, we are hoping to plant some seeds.” To be successful, solutions must be scalable. Residents will likely need to pay for services a la carte, common spaces will probably need to be consolidated, and communities will have to offer fewer specialized amenities.

Daly researched existing communities that have already shifted the CCRC paradigm with some success. National Church Residences operates in 26 states with 9 communities that offer a combination of Independent Living and Assisted Living small, market rate apartments. Amenities such as parking, storage, and meals are not included in the monthly rent, but are available for additional fees. 

CrestView has four communities in Columbia Heights, Minnesota. They built 66 brand new Independent Living units to rent at market rate with no entry fee and they are sold out. The community offers Assisted Living and care suites on site for aging seniors who need more. Daly said the facility was able to buy down their financing rate because they had the benefit of being an existing operator. That helps make the financial model work. Presbyterian Homes & Services in Minnesota is an all-rental community with strong Christian branding. Marketing is fundamental to their success and she said, “their product flies off the shelf.”  

The architects at SFCS have been diving deep for working solutions. Tye Campbell, CEO at SFCS, shared three creative hypothetical concepts their team designed and tested for feasibility: A converted former high school building, an empty mid-grade hotel, and a new facility blending on-site construction with connected, stacked modular units. 

The high school study presented design challenges – how to fit units into existing window space; how to design a space for seniors that has lots of stairs and level changes; and what to do with a huge open gymnasium. SFCS squeezed in fifty-three units ranging from small, 608 square foot single bedroom units to spacious, 1,116 square foot two bedroom units. In order to make the financials work for the middle market, no meals are provided. That huge gym, however, could serve as a leased space to a local restaurant or brewery where residents can dine and socialize. Although the initial purchase of the city-owned building was only $1,000 and the exterior was not touched, no matter how SFCS played with the numbers, they couldn’t create a great business case. At best, it could take more than 6 years for positive cash flow to happen.

Campbell next described the empty hotel study. 

With a $1.5 million purchase price and only 50 units, all at a fairly premium rent, Campbell said, “It’s an ugly business case.”  This is where creativity and scale matter. After adding another 50 units of new construction, and considering a limited staffing model, the numbers can work. 

According to Campbell, the good news for this model is that “there are plenty of these types of hotels coming on the market.”

Emily Jimerson, Senior Associate at SFCS, explored the possibilities of modular system built housing. The benefits include thermal efficiency, good sound isolation, rigid construction, and less materials waste than site building. The biggest limitation is that each unit can only be fourteen feet wide in order to fit on a semi-trailer. Jimerson was creative though, and combined multiple units to design very livable spaces. The building features 100 units, a magic number to make the finances work. The four story, V-shaped building has 50 living spaces on each side connected by a site-built commons area. 

None of the hypothetical models developed by SFCS include healthcare as they are all intended for Independent Living. The design focus was on affordability, community, accessibility, and safety. 

According to Andrews, today’s seniors aren’t thinking about the long term.

“Most people [looking at Independent Living options] have a high interest in living in community with like-minded people. They have no interest in going to places with Assisted Living and skilled nursing.” 

It’s a good thing the experts are thinking ahead.

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