Earlier this year, we hosted a webinar on the active adult market, sometimes called the 55+ age restricted market. We really did not know what to expect, since this market is just outside the typical boundaries of seniors housing and care (and most of our readers), and no care is provided and there are few services in these active adult communities. Well, not only was it our most popular webinar in a few years, but attendees stayed on for an extra half hour with more than 20 questions of their own.
The topic has been on the minds of many in the industry, particularly when it comes to serving the middle market. It was also one of the more popular conversation topics at this year’s NIC Conference in Chicago. The NIC had a lot to do with that, having earlier partnered with NORC at the University of Chicago in their inaugural study on the middle market in seniors housing, holding an investor summit in New York City called “The Forgotten Middle.” The thesis was that there is a huge and growing middle market, projected to be about 11.6 million people by 2029, who will not have sufficient income to cover the projected cost of assisted living and general healthcare costs. The study did not address any other personal costs these seniors may have on top of care. The fact that there is a huge and growing population of seniors who do not qualify for Medicaid but who will not have the funds to pay for seniors housing was nothing new. We have been ranting about that for years. What was new was that someone finally tried to quantify it with some sensitivity analysis.
The Numbers
The study broke the middle market down by age, income, sex, race, education, marital status, cognitive and mobility limitations and home ownership. The only real controversial aspect of the study, or at least one that can generate a lot of debate, is how they classified “middle income” and not being able to afford the current seniors housing model.
The study projected that by 2029 there will be 14.4 million idle-income seniors, 60% of whom will have mobility limitations and 20% of whom will have high healthcare and functional needs. It also projected that 54% of seniors will not have sufficient financial resources to pay for the level of care provided in seniors housing, and that represents a big market.
Excluding equity in their homes, the study projected that there will be 11.6 million seniors who will have less than $60,000 in available annual income, compared with the projected cost of $62,000 for assisted living on a national basis. Some providers, however, have commented that they have plenty of residents in their communities with income well below that number.
The Affordability Problem
How are they affording it? They are spending down their assets, using their home equity, and getting subsidized by their children or other relatives. These other resources will be the most difficult to quantify, and probably mean that the numbers the study has put out there are overstated to a degree. Still, it represents a big problem and an even bigger opportunity.
One response to this problem has been to develop an assisted “lite” model, and we are not talking about lite on care. This means buildings with fewer amenities, smaller units, shared units or shared living rooms and bathrooms, lower-end appliances and finishes, fewer dining and menu options–anything to get the costs down to keep the monthly rate more manageable.
Yes, just what we all want to move into (pardon the sarcasm). The reality, however, is that this is what may be the only option available, but it will still not be cheap. After all, you can cut down on the real estate factor to some extent, but 65% of the operating costs are in labor and benefits, an expense item that will grow faster than anything else.
Is Active Adult an Answer?
In comes the active adult market. When we speak of active adult, we are talking about rental apartment buildings, maybe 150 or more units, and not the Sun City type of development of 3,000 or more mostly owned homes on a sprawling campus. These active adult communities come in various types, broken down simplistically into three categories: bargain basement ($1,200 per month rent), value ($2,000 to $2,200) and premium ($3,000 or more).
The target market is the 70- to 75-year old and maybe a little younger, who wants hassle-free living in a congregate setting but does not want to pay for services that are not needed or desired. We like to think of them as the “pre-retirement community” cohort, which now seems to be 80 and above on average. Affordability wise, this may represent a significant part of the forgotten middle.
What we believe is going to happen is that in many of these new active adult communities, the residents will not move out as they age, as long as they like the building, location and their neighbors. They will bring in services as required, and insurance, whether Medicare Advantage plans or long-term care insurance policies or something else that is created, will pick up some of the care costs. But residents won’t be paying $5,000 a month out of their own pocket. Consequently, this growing active adult market could be part of the solution for the forgotten middle. We just need to get the regulators and Medicare on board to help with the process. Easier said than done, especially in these politically caustic times, but it is time we as an industry, and a country, finally start to face the reality that is coming. Winter is coming sooner than we want.
