I stumbled into the senior housing industry soon after finishing college There were many things I did not understand, though I thought I did. I was not alone because the industry was very young. Over the years, the industry has gotten much more sophisticated and profitable. The current generation of independent living, assisted living and CCRC communities look more like luxury hotels or full service resorts. This evolution is natural, it is what people want and is profitable. Now add to this the rapidly aging Boomer population and investing in senior housing seems like a sure bet. You can find hundreds of articles that support this proposition with fantastic statistics, charts and graphs.
I am not so sure . . .
The typical assisted living community has starting rates that hover around $4,500 per month and in many cases additional services can add hundreds or thousands of dollars a month. Independent living is slightly less expensive and high quality private pay skilled nursing and memory care can easily approach or surpass $10,000 per month. There are lots of options for people who have buckets of money. Here is the problem. Boomers have always been better at consuming than saving. Even those who saved have found that their mutual funds and home values have tanked. As a result there is a huge gap in the senior housing marketplace for people with modest incomes and modest resources. These are people who will receive the maximum social security payment and may have an additional few hundred dollars per month in supplemental income from 401k’s and pension plans. These are people who will not have the financial capacity to pay $4,500 plus per month.
This problem is compounded by the growing and persistent unemployment and underemployment problem that impacts the retiring Boomer’s children. Even though the selfish generation, they care about their families, their children and grandchildren. This subset of the Boomer generation appears to be senior housing’s “emperor with no clothes” and the question becomes how will these individuals address their housing and care needs? I believe:
• They will stay in their homes either rented or owned. They will take advantage of Medicare and Medicaid funded home care service.
• They will move in with their children which will create meaningful work for otherwise unemployed younger family members and preserve capital for the next generation.
• They will work with attorneys and families to divest themselves of assets and move into Section 8 senior housing.
• As consumers who have lost the resources to consume, they will get angry and depressed.
• They will not flock to senior housing because they will not have the buying power.
This will leave senior housing providers will scratch their heads, wondering where the Boomers are; wondering why their communities are not filling up. Like so much of life, this gap in senior housing can either been seen as a dire problem or burgeoning opportunity. To me, this group represents a huge virtually untapped opportunity. Next week I will offer some suggestions on how to tap into this gap. PART 2 IS NOW AVAILABLE HERE
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Shortly after posting this blog I came across this related article.
http://www.nytimes.com/2011/10/25/health/25seniors.html?_r=1
From LinkedIn Groups
Having been responsible for brokering the dirt for expensive active adult for Del Webb, and expensive AL for Sunrise and others, I agree as to the next wave, it has to be a lot more cost effective, which it will have to be apartments in places like Orlando, but no one in the CCRC industry, or for that matter in the housing industry, will listen. JIM KRAFT [email protected]
Hi Jim, Thanks for confirming my thoughts. I do think the marketplace will get their attention over time.
Steve Moran
Steve
Nice introspective on the near future of the Senior Boomer marketplace.
I’d like to add something to your thoughts, but you covered all angles, pointing out some scenarios that I hadn’t considered.
Dave Hare
From LinkedIn Groups
Steve – Good article and I am in general agreement. As a leading edge boomer who lost about $100,000 in home equity when we sold a home in Florida, I relate to many of your points. Like most investors, we lost about 40% of the value in my retirement savings in the past three years, which changed our plans dramatically. However, I find all the discussion about the Boomers and senior living a distraction. Leading edge boomers are anywhere from 5 to 15 years away from even considering an age restricted community and most will avoid traditional CCRCs unless developers and operators rethink the focus of their community cultures, embrace ageless marketing the promote the value of well being in all dimensions.
Posted by Richard
Hi Steve –
This is a double-eged sword. You are correct in assessing the financial issues that are associated with the new Independent Living/AL/CCRC’s, however, Medicare/Medicaid does not cover all the services required for in home care either. What that essentially does is leave care providers in a financial and emotional quandry – leaving their jobs (and income) to help take care of mom or dad, which now leaves them in financial straits, or hiring outside help which is minimally covered. Additionally, the cost of weekend in-home care is prohibitive for most.
Additionally, the cost to upgrade a home to accommodate the needs of an aging resident(s) is very high – ramps, chair lifts, and other modifications become prohibitive on a fixed income, and little savings, whether it’s in the seniors’ own home, or making the decision to have mom or dad live with you.
I agree that the cost of Senior Housing must become more realistic, but until we have a program that helps caregivers and our senior population with financial aid to help them “age in place”, it leaves us all between a rock and a hard place, and provides little incentive for Assisted Living Communities to lower their rates.
From LinkedIn Groups
HUGE……The largest voting block, “Boomers” will soon swell the senior ranks. This senior group will need a lot of “stuff” that they don’t need now. It is up to today’s marketers, inventors and entrepreneurs to figure out what stuff seniors will need in the future. New stuff that hasn’t been invented may surprise us all. I’m waiting. Surprise me.
Posted by John F
Steve Moran •
John, that is a very positive way of looking at it though next week’s article will include some crystal ball gazing on my part.
You bring up a number of valid points, and it does seem inevitable that ALFs, nursing homes and retirement communities may face steep competition for the dollars that the aging boomers do manage to save. From a purely marketing perspective, I think the businesses that succeed will be the ones that are best able to communicate and impress. Boomers will have lots of options to consider, so getting known and making a favorable impression will be critical.
Marianne while I agree to a large degree about being able to communicate and impress the gap is that no matter how impressive a community is the prospective resident will still need to be able to afford it.
Steve Moran
Obviously that’s true. I’m just thinking that in order to stay solvent, these facilities will have to attract residents with the cash to pay, and that pool may well be shrinking. Those who do have the money will have all the options, so attracting/impressing them becomes critical.
From LinkedIn Groups
Depends what sector you are in. Hospitals, LTACs, SNFs, I believe will continue to see declining census despite the aging population. Primarily because the aging population will be healthier, have increased access to preventative care, and will have increased interventions with changes in condition that will minimze the need for Acute and Post-Acute Services (mentioned above).
Posted by George
George I think you make a good point. What is going to be interesting to watch is how the penalties for hospital re-admissions impact the mix. It could reduce the days for long term care, it could improve things for LTAC’s or it could be that hospitals will find it cost saving ways to continue to make early moves to a lower level of care, but do a better job of supporting those more fragile residents.
Steve Moran
Thank you,
This validates what I have been thinking for sometime.
David Lamb
There definitely will be a need to address care for the next generation in their homes. With an estimated 70% of boomers having to work during their normal full retirement years, many will not be able to afford the current assisted living costs. Creative solutions will need to be implemented and the winners will be those that are willing to make the needed changes to the current models in the market.
As I have been reading your’s and other comments I find myself wondering if we will see someone come up with a model for either independent living or assisted living where the residents will be allowed to continue to work part-time at some type of job either in or out of the facility.
Steve Moran
We have residents in our IL who still work for sure. In fact, we employ one of our residents part time, albeit a minimal back-up role…
From LinkedIn Groups
The opportunity is great but the need exceeds it. The industry as a whole is not attracting the talent needed to manage, lead and develop future services.
Posted by John
From LinkedIn Groups
Hi Steve. True, economic times create situations whereby people must adapt to survive. I can definitely see a trend in the “boomers” opting to stay at home, versus a community…at least at first. I mention this because I truly feel that the boomers, along with their strong sense of self, are also desire-motivated with a innate sense of “survival.” Coupling these last two attributes, I postulate that the boomers may try a home-based situation, at least in the short-run. However, as you touched upon, this generation is used to getting what they want. I do not feel that their social and physical needs will be fully met while living with their children or in section 8 elder housing. They will seek out their heart’s desires. Think of it this way. A consumer sees a pair of shoes that catch their eye The shoes are pricey, and so they move-on, shopping some more, and maybe settling for a lesser pair of shoes. They go home. They keep thinking about the shoes. They say, “Why didn’t I get thoses shoes when I could? They come up with a plan to cut their budget and manifest that pair of shoes. They make it work. Our challenge is to create small cities of ammenities that are some glorious; like a shiny jewel for the boommer generation. We must make our ammenities accessible and of the sort that the boomers will go home, think about it and manifest a way to have what they desire. The boomers may be the “emperor without a coat”, as you mentioned. However, they will want that coat back & we can give it to them.
Posted by Ashley
From LinkedIn Groups
I agree with George but I think with RHIO’s we will have more information to share with all sectors at our fingertips also. I don’t agree with aging population being healthier though. We see more comorbidities combined with primary diagnoses to the tune of some admissions have 23 diagnoses; but I also have to say we are seeing younger (than aging population) admissions to LTC with these diagnoses. Primary kidney diseases with diabetes mellitus requiring insulin, renal dialysis, etc. Steve we tend to see many hospitals discharging too soon making it more costly for the patient/resident with co-pays/timeframes, traumatizing having the patient shift from one level of care to the next and back again. They come into the SNF short of completing their hospital stay because hospitals are pushing them out too soon and SNF’s have to return them back to the hospital. It’s becoming a revolving door basically. I’m sure its because of the MS-DRG’s and the insurance conglomerates but this is so unfair to the direct quality of care to our patients/residents. Many fragile residents is the truth…I hear you on that one.
Posted by Cindy A
From LinkedIn Groups
You touched on it briefly Steve, but many first wave Boomers, who a couple years ago would have been able to afford pricy independent or assisted living, can no longer do so because of the devaluing of their portfolios. I look forward to the next installment!
Posted by Louise
CiminoCare is intentionally and willingly exploring innovative ways to provide consistent QUALITY care at a price that is more accessible to the masses. We are thus excited to be part of innovative and emerging government sponsored programs. It is simply delivering better value. If we can achieve that, we believe we will be able to be honored with continued opportunity to serve the aging population far into the future.
From LinkedIn Groups
I think LTACHs will continue to see increased census–those patients really can’t be cared for elsewhere, regardless of regulation. SNFs however, are going to see an increase in acuity, and a decrease in both admissions and LOS for those easy orthos that everyone loves. Boomers are going to be FAR more reluctant than their predecessors to go to a SNF, and if they must do so they are going to want to leave sooner. We have already seen the trend in AL–acuity is going up at all levels. This is actually a good trend for hospitals–if SNFs are taking (and keeping) higher acuity patients, that means shorter LOS and decreased re-admissions. For folks in home and community based-services, get ready, it’s going to be crazy. THAT is the wave of the future.
Posted by Louise
Older adults with the means to live in upscale congregate settings such as Sunrise and the like create nice and appealing senior living communities; there is a place in the future market for this population and it’s providers. However, people of modest means and high need that live in congregate HUD housing, some assisted living settings and/or nursing care facilities tend to create unappealing “institutions.”
The blog author’s estimation of what will occur with the middle class senior is spot on. When contemplating the opportunity in the housing market for people who do not have buckets of money, it is time for a more integrated service design in congregate housing development. Does “assisted living” have to be just for seniors? Think about it. Change the face of it. Expand your market. Get a younger couple or 2 to move in and uplift the spirit of the space. Or better yet, invert your business and take the focus off the senior. Gracefully include them.
From LinkedIn Groups
Bubble is the wrong word. A bubble is something that lasts just a couple of years and inflates without solid underlying demand. We had a tech bubble that ended around 2000 and a real estate bubble that ended more recently. We are looking at a tsunami shift in business that will be lasting 30-40 years. There may be some bubbles involved in this shift, but overall it is a new shift in business and we have to look at it as exactly that.
This is a fascinating discussion. I work as a consultant RD in LTC facilities. I agree with Bob Erio’s comment that the discussion may need to begin to shift away from older communities to being more inclusive of a variety of age ranges. Unfortunately, by compartmentalizing people within their own age demographic we lose valuable opportunities to learn from a variety of people. Culturally, it feels as though we’ve missed the boat. I also agree that Boomers are not necessarily healthier. The food that we have consumed over the past 30 years, ie., High Fructose corn Syrup, Processed foods, super sized food portions have resulted in the epidemic of obesity, heart disease, cancer, diabetes, etc. From a financial standpoint, we may have to shift back to a time when families actually lived together and learned from each other rather than warehousing our elderly. I do have to admit that many of the residents that I see in my LTC facilities are much better off in the NH only because they had no family or financial options. Creating a more communal environment that welcomes a variety of age groups actually may be healthier for the aging process.
From LinkedIn Groups
The bubble will come with active retirees, more enegetic, still doing things, better health, etc. Most will stay in their independant living choice for a long time.
Posted by Steve
The original post, I think, is very accurate for our current economic times, no real recovery in sight. From the responses, though, I’d say this is still a very brick-and-mortar discussion that makes the future look like the present and the past (if we build it, they will come). The Wall Street Journal published an article on what the new American home is and will be like:
http://online.wsj.com/article/SB10001424052970204644504576651152960249150.html
and it clearly makes the point that home designs are increasingly going to be future-age friendly, downsized, cheaper (read that, lived in far longer). And the flip side, a prediction that half or more of seniors are at some point going to be living in poverty. Juxtaposing these two ideas, when is the senior housing industry mainstream going to offer more tiers of service for this still in-home population, not the luxo-cruiser CCRC, but a mixed menu of home care, organized volunteers (perhaps from the brick-and-mortar IL), home remodel services, even becoming more of a virtual village (Intentional Community, NORC, or whatever) for the community surrounds the brick and mortar.
http://www.rawstory.com/rs/2010/12/13/elderly-face-poverty-study/
Laurie
You make a great point. Perhaps part of the solution could be to have some lower cost more modest models of care on the same campus with a more upscale community.
Steve Moran
From LinkedIn Groups
Another issue hindering the senior housing industry is that while Boomers are turning 65 at a 10,000/day rate, they don’t see themselves as old – and they don’t want to be old. They aren’t retiring – most are still work full-time. They are still living the same lifestyles they lived 20 years ago. They don’t need many the services typically provided through senior housing. In my opinion, the bubble is there – we just won’t see the expected impact for another 15-20 years (when these senior Boomers are turning 85).
Posted by Paul
From LinkedIn Groups
Ron Shuck • I think that your points are well taken. I have not reached the level of pessimism that you have, but there is a big problem. How the senior housing market reaches out to the middle to lower middle (pre-subsidized housing) is the big unansewered question.
From LinkedIn Groups
Sharon Aalto Sparks • Looking forward to your next article. My gut tells me that Assisted Living in neighborhood homes, with certified administrators and caregivers, will be the affordable ticket.
From LinkedIn groups
Steve Moran • Ron, I don’t particularly see myself as pessimistic (though perhaps I am). It is more that I am see a huge unaddressed need that is coming that can either be a great thing or a terrible thing, though I am leaning toward great.
Sharon, you may be right, but I know people who run those and it is very difficult to make the economics work well. Even one vacancy for a few weeks can cost months of full occupancy to make up.
The solution is LTC education. A LTC policy can be made meaningful and affordable, but unfortunately most people believe the myth that it’s too expensive and doesn’t work. Yes, there are companies that have placed a black cloud on the industry, but there are a couple good companies. Bottom line, after people are educated, that’s how most people will get care where they want it, at home or assisted living, half or two thirds the cost of a nursing home. Properly balancing their assets, family support and a little insurance gets it done. Don’t play the artificially impoverish game to go to a Medicaid nursing home. Save that safety net for the people that need it. I apologize if I offended anyone.
From LinkedIn Groups
Good article. I am an owner of a non medical home care agency.
Not only do seniors want to stay in their homes, they cannot sell their homes.
The little secret no one talks about is the baby boomers are just turning 65 this year in mass (10,000 every day). It will be 10 to 15 years before they will be the peak age range of needing senior housing.
Posted by Richard
LinkedIn Groups
There’s no question that the U.S.(as well as Europe, Japan and other nations) are faced with a huge “emerging senior bubble”. And as the need for care and assistance grows, public funding at both the state and federal level will continue to shrink.
But if your in the private sector and your revenue model is based on the assumption that elders and their family caregivers can pay you from their private funds, your business plan must put the data concerning the growing need for eldercare services into a larger context.
According to the most recent data from the census bureau the top-earning 20 percent of Americans — those making more than $100,000 each year — received 49.4 percent of all income generated in the U.S.. That’s nearly double the ratio of rich to poor in 1968.
The U.S. has the greatest disparity of wealth among Western industrialized nations.
Source: http://www.census.gov – September 28, 2010
According to the recently published “long-term care cost study” funded by insurance giant Genworth “Home care rates have remained flat in part because of increased competition. If a person needs only 6 hours per day of care to stay at home the annual cost is about $41,000.” http://www.genworth.com/…/long_term_care/long_term_care/cost_of_care.html
A person needing round the clock care at home due to the limitations caused by Alzheimer’s disease, Parkinson’s disease and stroke. Will need $73,000 at $200 per day and $109,000 at $300 per day to pay for just 1 year of care in 2010.
In other words by 2030, there will be about 72.1 million older persons, but less than 7 million of them will be able to pay for home or facility care out of pocket if they should need it.
Posted by Robert
From LinkedIn Groups
Steve:
Currently, we provide housing and services for such a small sliver of the market. Only a few providers have been innovative enough under a “Robin Hood” model to diversify their portfolios to serve deeper into the less afluent market. We do see it as an opportunity, but only if we are innovative on both the housing and care side. This will also need regulatory innovation – to get different state agencies to understand a more flexible care model needed to meet the aging needs of the boomers.
It’ s a great challenge that a few are reaching for. So often, crisis drives innovation, I wish we took a more strategic and proactive approach. We need to use Leading Age and other forums such as this to push ourselves to find better solutions.
Posted by Timothy
From LinkedIn Groups
I can’t see the ‘opportunity’ as a bubble, since bubbles tend to be deflated in a relatively short period. The aftereffects of bubbles – and yes, I’m thinking of the housing bubble – last much longer. Housing values are depressed and will remain that way for some time, given that new college graduates who have jobs are in many cases priced out of the market for single family homes because of crushing educational debts. That’s not even considering those who can’t find jobs at all, at least that pay a decent wage. To name the most prominent example, when 2/3s of the homes in Nevada are underwater….that’s not going to go away any time soon. Many boomers (me among them) aren’t going to be able to pay $3500-4000 a month for an upscale rental retirement community, nor pay a six figure entrance fee plus $2500 a month to live in a lifecare project. People can’t sell houses because a lot of people can’t afford to buy them, and those who can’t sell don’t have the wherewithal to move to expensive senior housing communities.
Even today, given the effects of the crash, many communities are struggling with a financial structure that doesn’t make sense under current conditions. Existing properties that were contemplating expansion three years ago are more concerned today with maintaining occupancy of their existing units, since many of those who could have afforded to move in three years ago….now can’t. The demographics have changed, and developers and operators cannot count on ever escalating – or even steady – home values and incomes. But as James pointed out, no one wants to listen, because the emphasis (and development fees, let us not forget) has been on/in development of “big” projects. Nobody wants to admit that a real move-in schedule these days might consist of taking the pro forma estimate of fill rate, doubling it, and adding 20%.
I’d add that in my observation, developer ego (maybe the wrong word) is a problem as well. I’ve been around the business for a long time, and I’ve seen (over and over) the tendency of vice presidents and CEOs to want to build the kinds of communities that they would want to live in. Which produces very nice communities, to be sure – but most age-qualified potential residents do not and never have pulled down six figure salaries themselves and don’t have the financial resources needed to live in those very nice communities. Developers are not realistic about this.
Back in the day, I used to go through discussions about “influencers” – the kids – and how much they could contribute towards their parents’ monthly fees for IL/AL. Over and over, I’d hear from development/marketing folk that couples in the 40-54 age brackets(s) with estimated annual income of $50,000 or more could afford to kick in “a few hundred dollars” a month to “help out mom/dad”. This from people who were themselves getting paid upwards of $100k annually, mind you. And I’d say, okay – let’s take that $50,000 couple. Take 20% off the top for taxes. Take an additional 10% for retirement savings. A mortgage, couple of cars, saving for college, and probably a couple of teenagers with appetites like timber wolves. Your couple with $50,000 doesn’t have that “few hundred dollars”. Even $75,000 is pushing it. The extra move-in a month you fudged in isn’t going to happen. I’d get a lot of, “I’d do it for MY mom/dad”, and I’d say, YOU make a lot more money than your proposed “influencers” do – and I’d get an angry silence. But that was reality at the time, and times are a lot harder now than they were then.
For what it’s worth (probably not all that much) I think there will be a surge in neighborhood, group home-type living environments, as well as a lot of retrofitting of seniors’ current homes. Retrofitting costs, but $20K for retrofitting looks pretty good compared to a $250K entrance fee. FLEXIBILITY and REALISM are the key words, as others have noted.
Posted by Daniel
From LinkedIn Groups
With data like Robert cited, it becomes abundantly clear that our current models will not meet the needs of the vast amount of seniors who do not have adequate savings for their own care. We need some innovative approaches that may include co-housing, family care, students caring for elders in exchange for room and board, etc. The sheer numbers of boomers requiring care in 15-25 years will force changes to the current system. It’s a scary thought.
Posted by Regina G.
Fantastic articles- and as people live longer they will incur more ailments which require solutions. This presents an opportunity for new businesses- leading me to invent Friendly Beds and other products to keep people safely at home. Some good comes from bad.