More Older Adults Live in Senior Housing Than Ever Before
The volume of HUD loans financing these communities is expected to grow in kind, writes Stephen Chasteen of Regions Bank.
Senior housing continues to perform, with current dynamics pointing to the sector’s steady improvement during the post pandemic years. While some challenges do remain for owner/operators, occupancy rates today are solid.
Second quarter NIC MAP Vision data reported an 85.9 percent occupancy rate across 31 primary markets, marking a 0.5 percent quarterly rise as well as the 12th consecutive quarter of occupancy gains. The number of occupied units rose to nearly 607,000 in those primary markets and to nearly 330,000 in secondary markets. These figures underscore that more older adults are residents in senior properties than ever before.
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Occupancy gains occurred amidst slower activity in inventory growth and construction. The annual year-over-year second quarter growth rate for inventory in both assisted living and independent living remained low at 1.6 percent and 1.3 percent, respectively. Reduced inventory follows a record low amount of new unit construction since 2014. Senior housing construction in primary markets declined with fewer than 27,000 new unit deliveries in the second quarter, which is notably the lowest in a decade. By property type, majority independent living and majority assisted living properties each comprised roughly half of the construction underway. The markets with the greatest number of units under construction, as measured by percentage of inventory in the first quarter, were led by Washington D.C. and San Jose, CA, then followed by Los Angeles and Denver, respectively.
As is true of the other real estate types, senior housing has been facing inflation and interest rate pressures. Owner/operators have been dealing with accelerating operating costs, such as those associated with both maintenance and insurance, as well as with persistent staffing recruitment, retention and other cost challenges. Some of this pressure should alleviate over time considering the Federal Reserve’s recent September interest rate reduction, and the anticipated series of rate cuts expected to follow over time.
Downstream, consumers are feeling the pressure as well, specifically with increased rental rates. Rents for assisted living properties have increased 19.8 percent since 2021. Similarly, independent living facility rents have grown 14.7 percent over the same period. Yet despite these rate increases, demand for units has not only persisted, but flourished. NIC MAP Vision data indicates that absorption rates have reached record highs. Prior to the pandemic, average quarterly absorption within senior housing was nearly 5,500 units. However, a June 2024 report noted that during the prior ten quarters, the average quarterly absorption nearly doubled that at 10,200.
All of this suggests consumers value senior housing and the benefits these communities render to loved ones. Americans are willing to invest in the lifestyle, care, security and community that senior housing provides.
Of course, the health of the senior housing sector is not only fueled by demand, but also in large part by a healthy finance environment. Today, HUD remains critical to this as the country’s primary provider of permanent financing to owner/operators of skilled nursing and assisted living facilities. One of HUD’s key programs, HUD 232 per 223(f), provides fully non-recourse loans with a fixed rate for a maximum of 35 years fully amortizing.
HUD’s current loan review time runs approximately 60 days, and HUD’s loan programs can be navigated through one of its approved lender partners. There has been a notable increase in 232/223(f) application submissions over the past three months, attributable to the recent decline in rates. It is anticipated that loan volume will continue to increase in 2025 for the 232/223(f) program due to the improved performance of healthcare facilities post-COVID, along with future anticipated rate cuts. Locking in a fixed rate, 35-year loan allows the owner/operators of senior housing facilities to mitigate any future financing or interest rate risk. Their primary focus can then remain with the performance of the healthcare facility and its residents.
Stephen Chasteen is managing director & FHA/HUD Platform Manager, Real Estate Capital Markets, Regions Bank, a nationwide senior housing, multifamily and commercial real estate lender.
This information is general education or marketing in nature and is not intended to be accounting, legal, tax, investment or financial advice. Although Regions believes this information to be accurate as of the date written, it cannot ensure that it will remain up to date. Statements of individuals are their own—not Regions’.
