Demand for dollars going up: Updated demographics support need for increased capital. (Finance).

HOW HAVE HEALTH, WEALTH, HOMEOWNERSHIP, AND DEMO-graphics changed during the past several years for seniors age 65 and older? What implications do these findings have for marketers and how do they translate into the need for capital?

Wealth comparisons

Seniors, even those with annual incomes below typical annual residence fees, can and do afford market-rate facilities. However, assisted living residents are far more likely than independent living residents to have annual incomes under $25,000 and a net worth under $50,000. In fact, 43.5 percent of assisted living residents had a net worth of less than $50,000, compared to only 24.1 percent of independent living residents. (1)

But these assisted living residents pay their residence and care fees by tapping into their asset pool (net worth) and receiving financial assistance from families, principally adult children. Their actions thus increase the proportion of those who can afford private-pay facilities, thereby increasing demand.

Healthier than ever

Compared with data from just five years ago, seniors as a group are becoming healthier and their functional disabilities are fewer, which by itself would decrease potential demand for long term care. For the marketer, that means that the number of ADLs is declining among key targeted age groups.

Another implication is that these senior living sectors will house older residents than they did in the past. The average age of mid-80s for assisted living residents today could climb to the 90s in the coming decade.

Home sweet home

Homeownership rates continue to increase among those age 65 and older, having reached 80.7 percent in 2001. (1) This, too, decreases the pool of demand available for rental seniors housing. That's because it is assumed that if seniors are not yet forced out of their own homes by the need for frequent and continuing care or the desire for companionship, they are less likely to be candidates for seniors housing. The good news is that when seniors do move to seniors housing, they will have greater ability to afford market-rate seniors housing because of the equity in their homes.

Fortunately, awareness of seniors-oriented housing has increased among seniors. (2) However, this increase in awareness has been accompanied by sharper distinctions in their opinions of the desirability of these properties. At the same time, the proportion of age 60 and older households thinking of moving to a retirement community has more than doubled between 1998 and 2000, while those that have definitely decided to move has almost tripled. (2)

Demand for capital

Seniors are more numerous, healthier, wealthier, staying in their homes longer, but also more aware of and receptive to seniors housing. How does it all add up? Demand for seniors housing and care will increase by more than 250,000 seniors age 65 and older by 2005, and by another 300,000 by 2010. (1)

This increased demand will result not only in filling existing supply, but also in generating the need for more than $5 billion in capital by 2005 for new development and construction of seniors housing. (See "Minimum capital needed for new construction, 2000-2030," above.) Given current capacity, that funding will be needed primarily for new independent living properties. But additional funds will also be needed for recapitalizations--that is, renovations, acquisitions, refinancings and capital restructurings--in assisted living and skilled nursing.

By 2010, almost $25 billion will be needed for construction, including assisted living and skilled nursing. (1)

Robert G. Kramer is executive director and Harvey N. Singer is research director of the National Investment Center for the Seniors Housing & Care Industries (NIC). Founded in 1991, this nonprofit organization uses proceeds from its annual conference to fund original research, particularly on business strategy and capital formation.

References

(1.) The Case for Investing in Seniors Housing using and Long Term Care Properties. Prepared by PricewaterhouseCoopers LLP for NIC. Annapolis, Md., NIC, 2001.

(2.) NIC National Housing Survey of Adults Age 60+ (Volume 111). Produced by NIC and the Promatura Group LLC. Annapolis, Md., NIC, 2001.

Minimum capital needed for  new construction 2000-2030

                    2000  2005  2010  2015  2020  2025  2030

Independent living     -    $5   $15   $35   $68  $123  $198
Skilled nursing        -     -     5    22    48    95   171
Assisted living        -     -     5    17    38    79   146

ALL $ IN BILLIONS

Note: Table made from line graph