Renthusiast

Senior housing, a "niche" real estate market, is getting a lot of attention from investors these days. This is not surprising: the share of population aged 65 and over has been steadily increasing since 2000, with over half a million people joining that club every year.

Bureau of the Census projects seniors will account for nearly 20% of the U.S. population by 2030, up from less than 13% today. In five years, there will be over 40 million people aged 65 and older. Thereafter, this will be the only major age group to gain share in the overall population. In less than a generation, it will turn from a "niche" to a major housing market segment, closely rivaling the population aged 18-34, which is traditionally viewed as the main source of multi-housing demand.

The South and West of the U.S. are where most of the growth in senior population is concentrated. Florida, Texas, Virginia, Georgia, Maryland, North Carolina, South Carolina and Tennessee will account for about 40% of the increase in population aged 65 and over in this decade. California, Arizona, Washington, Nevada, and Colorado will account for another 26%. In fact, net increase in seniors' population in either the whole of the Midwest or the Northeast will be less than that in California alone. More seniors are expected to be added in Texas than in New York, New Jersey, and Illinois combined.

There are several sub-classes of housing—including active adult, assisted living, continuing care, independent living and nursing facilities, as well as senior apartments—all of which will cater to the growing population of seniors. One would think that current development of such housing follows regional demographic trends, but a closer look at the distribution of new construction reveals a different picture!

The TWR/Dodge Pipeline shows that the Northeast and Midwest account for a larger share of the over 100 thousand "senior housing" units currently under construction. The West and South are expected to account for over 75% of growth in the seniors' population, yet they only account for 45% of the "senior housing" being built. There are twice as many "senior housing" units under construction today in Illinois as in Florida!

Why is regional distribution of new "senior housing" construction so markedly different from the regional distribution of growth in senior population? One reason is that there is simply a lot more existing senior housing in the South and West—regions with historically higher shares of senior population. The two regions already account for over half of the nation's senior population and well over half of the existing senior housing inventory.

Another reason is that increasing numbers of seniors might be staying in their present states after retirement. One recent survey, for example, names Chicago as one of the possible retirement destinations for aging baby-boomers: after all, Chicago is actually more affordable than many sunny destinations in Florida or California. While few Miami "baby-boomers" will likely retire in Chicago, those currently living in Chicago may very well stay put, and will demand more service-oriented housing to meet their needs.

Those who invest in rental housing today better start paying attention to senior housing supply—especially age-oriented apartments, since they will eventually compete with the traditional apartments for a rapidly-growing demand segment. And better yet, rather than viewing senior housing only as a "niche" market, why not make it part of your apartment investment strategy? Just make sure that you build or purchase your senior housing property somewhere that has an abundance of income- and need-qualified seniors. While senior housing is a growing market, don't assume that demand for the various types of this product will grow at the same rate everywhere.