Senior Housing Demand Likely To Eclipse Supply By 360,000 Units Within 5 Years

Following a huge dropoff in senior housing development during the pandemic, the U.S. needs more than 560,000 new units to meet the demand expected by 2030.

But fewer than 200,000 senior housing units are on the way at current development rates, according to senior housing data firm NIC MAP, 360,000 units short of the projected 2030 demand.

Development of senior housing has yet to bounce back from a near-collapse during the pandemic, The Wall Street Journal reported. The sector faces insufficient levels of new construction as elevated interest rates and high building costs deter most senior housing developers. 

“We’ve never had a population pyramid that looks like this,” NIC MAP CEO Arick Morton told the WSJ. “The senior housing industry would need to develop twice as many units as it has ever developed in any single calendar year every year to keep up.”

For years, a glut of housing has dogged senior living. But as baby boomers move into their 80s, the market is set to move into a shortage in the next five years. The U.S. population of those aged 80 and over is projected to grow by more than a quarter by 2030 to nearly 19 million.

Statistics indicate that when people become octogenarians, they typically begin looking to move into a senior facility, the WSJ reported. The projected shortage could leave them priced out or on a waitlist. 

Investment trust Welltower has responded to the trend, strengthening its position as the largest owner of senior housing in the U.S. last year by spending more than $6B on acquisitions during the first three quarters of 2024. The firm spent less than that total during the entirety of 2023. 

Snapping up existing senior housing communities is also the chief priority of Ventas, another huge owner in the sector, company officials said on an earnings call last year. 

Investors report that senior housing communities are typically priced 20% to 30% lower than they were before the pandemic, making acquisitions attractive for investors like Kayne Anderson Real Estate, the WSJ reported.

“It doesn’t make sense today to put shovels in the ground except for a handful of top-tier deals,” Kayne Anderson Chief Investment Officer David Selznick told the outlet. 

The securities industry is a fan of this play. Welltower and Ventas surpassed the all-equity REIT index by 28 percentage points on average last year, according to analytics firm Green Street. 

Yet new projects are stalled as developers are unsure whether the growing population will translate to rent gains and high occupancy rates. 

Average rents north of $4K per month for independent living units and more than $6K per month for assisted living units price about half of seniors out of existing communities, Green Street said.  

But the percentage of baby boomers who could afford senior housing based on income alone is on the rise, with Green Street reporting it will surpass 40% in the years ahead.

Senior housing projects that do move forward are expected to be designed for the wealthiest seniors by offering luxury design, fine dining and top-tier amenities, developers told the WSJ.