The Other Housing Shortfall – Jan. 27, 2025
Connect CRE last week reported on a survey from the U.S. Conference of Mayors and the American Institute of Architects that projected a shortfall of two million housing units over the next five years in the 120 cities surveyed. Almost simultaneously, a new report from the National Investment Center for Seniors Housing & Care (NIC) called attention to a shortage of a more specific kind.
Based on rising demand and decreasing vacancies, NIC in early 2024 said that as many as 200,000 new seniors housing units could be needed by 2025. Current production levels are nowhere close to meeting that requirement.
The latest NIC report says there were fewer than 22,000 seniors housing units under construction in the fourth quarter of 2024, representing the lowest level since Q1 2014. For all of 2024, just under 8,800 units of inventory were added across primary markets.
That’s only slightly higher than the total number added in 2023 and indicates that construction activity remains lower than historical averages, according to NIC. In fact, overall annual absorption as of Q4 2024 was more than triple the annual inventory growth (i.e., 3.9% vs. 1.3%).
“New construction deals are difficult to pencil today because of the volatility of the cost of capital, changes in what the consumer is willing to pay and skyrocketing development costs,” said Arick Morton, CEO of NIC MAP Vision, the platform for seniors housing research, data and analysis launched in 2004. “First and foremost, we need to see meaningful improvement in the access to capital for new construction before we will see the needle move on development activity, which is sorely needed to meet the growing demand.”
Citing NIC data, Trepp reported that an estimated 75% of all properties take nearly three years to get completed once ground is broken. “Part of it is the permitting and approval process,” according to Trepp. “Meanwhile, [NIC] has found that 44% of seniors-housing properties are more than 25 years old, meaning they’re likely due for renovations. It expects inventory to increase by only 4.1% through 2026, falling well short of meeting demand.”
Occupancy rates across the U.S. increased 0.7 percentage points, from 86.5% occupied in Q3 2024 to 87.2% at year’s end, according to NIC MAP Vision data. The seniors housing occupancy rate for the 31 Primary Markets exceeded pre-pandemic occupancy levels in Q4, as NIC predicted would happen.
“Older adults are turning to seniors housing in record numbers, and we anticipate that trend will continue as our population ages and requires specialized housing and care,” said NIC’s senior principal Caroline Clapp. “Given the current supply and demand trends, we forecast that occupancy levels will surpass 90% by the end of 2026, which has only happened a handful of other times since NIC MAP Vision began tracking the data.”
As it is, Q4 2024 set a record high for the number of occupied senior housing units. There were more than 618,000 units occupied, compared to roughly 611,000 in Q3.
The three markets with the highest and lowest occupancy rates remained unchanged from previous quarters. Boston (91.0%), Baltimore (89.9%), and Tampa (89.8%) once again had the highest occupancy rates of the 31 NIC MAP Primary Markets, while Atlanta (83.9%), Houston (83.5%), and Las Vegas (82.9%) recorded the lowest.
Will those occupancy rates continue rising in the long term? It’s a safe bet. The oldest of the Baby Boom generation will turn 80 in 2026, and with the youngest of this 73-million-strong generation turning 60 last year, operators can expect a steady stream of new demand in the coming years. The question is whether the supply will be there to meet the demand.