New development is widely blamed for occupancy declines, but affordability may be just as culpable.
Declining occupancy in seniors housing has been a major issue for the past 18 months or so, and while it took some providers way too long to admit that new development was taking its toll on census, there may be other things at work. One big one is affordability. While analysts celebrate that rents have gone up 3% despite census declines, remember that the numbers are based on asking rents. Just possibly, however, those rising asking rents are scaring some people away.
I have not seen any statistical analysis on this, but I think the seniors housing sector really has to take a hard look at affordability. With each 3% increase in rents, how many of the eligible pool of potential customers get priced out? And that is just one year. Think about when you compound that 3% increase over several years, with inflation and social security increases below that, not to mention CD rates that remain at historic lows.
With labor costs rising and construction costs going through the roof, those 3% rent increases may have to be 4% or higher just to maintain profitability and pay capital costs. That will just price more people out. It may be time to start looking beyond new development as the culprit for declining seniors housing occupancy.
