A Simple Fix for Low Occupancy

Insights | July 30, 2018 | by Stephen Maag

Life plan communities need to get busy growing the supply of senior housing and finding new ways to attract younger residents to that housing, writes Steve Maag, director of residential communities at LeadingAge.

I cringe every time I remember the day several years ago when I unveiled my latest home improvement project to my wife. Frankly, I thought this one was one of my best. I’d given it a lot of thought. I’d devoted a ton of time to making sure it would be perfect. I loved it. I was sure she would love it too.

And then came the moment of truth. I gleefully shouted, “Ta-da!” She paused.

I waited for my pat on the back. And then she gave me a look that implied—although she would never say it—that the project wasn’t exactly the worst thing I’d ever done around the house. But, clearly, it wasn’t my best work either.

That scene came to mind recently when I read an analysis of occupancy rates by the National Investment Center for Seniors Housing & Care (NIC). The best thing that NIC could say about our sector was that occupancy rates during the first quarter of 2018 were “not the lowest on record.”

Not stellar. Not even that good. Just not the lowest.

Ouch.

The NIC MAP® Data Service analysis covered all senior housing, including both independent and assisted. That sector had a first-quarter occupancy rate of 88.1% in 2018, the lowest rates we’ve experienced since 2011. Over the past 9 quarters, inventory growth in our sector has exceeded demand by 23,000 units. That translates into an occupied penetration rate of 9.9%.

Many senior living organizations might look at these numbers and feel sure they’ve been right to hold back on new projects or campus expansions over the past few years. Why build new housing that no one wants?

But Beth Burnham Mace, NIC’s chief economist, thinks you may be thinking about this the wrong way.

Supply and Demand

In a recent blog, Mace used data from the U.S. Census Bureau to underscore the important role that demographics must play in our thinking about our market.

  • Between 2017 and 2025, the number of Americans over age 83 is expected to increase by 1.6 million, which suggests a need for 164,000 additional units of senior housing. No problem, says Mace. Given current rates of housing production, we’ll have no trouble building that many units over the next 4 years.
  • Conduct the same analysis for Americans who are 80 years and older, however, and our ability to meet demand doesn’t look so good. We’ll probably see an increase of 3.2 million people over age 80 between 2017 and 2025, which suggests the need for 316,000 additional units of senior housing. Unless we boost production now, we can expect to end up 45,000 units short of reaching that goal by 2025, says Mace.

What’s really going to happen in 2025? The reality will probably fall somewhere between these two projections, says Mace.

Her advice? Get busy growing the supply of senior housing. And, while you’re at it, find new ways to attract younger residents to your communities.

Pay Attention to the 90%

Mace’s suggestions might sound familiar to anyone who has heard me speak about this topic over the past few years. My message to conference participants, management teams, and boards of directors has been consistent:

It’s time to start thinking about the 90%.

Ninety percent of Americans say they want to stay at home and not move. And, as the 10% penetration rate suggests, 90% of Americans are remaining true to their word.

Does that mean we shouldn’t expand our communities because there are simply not enough potential consumers out there? Absolutely not.

The analysis by NIC, and the projections from the Census Bureau, present clear evidence that we are not hurting for potential customers. In fact, the current 10% penetration rate for senior housing is woefully small, given the current and projected size of the older population.

The real question is whether we are building the type of housing, or offering the type of services, that will attract the 90% of consumers who have turned their backs on our sector.

In my mind, there are 2 ways for life plan communities to find an answer to that question. Both involve paying close attention to the 90%.

Assess our products: First, we need to take a hard look at our current housing options. Do they represent a lifestyle that the 90% want for themselves?

We can’t answer that question alone. We need to ask potential end-users, current and future, about their hopes and dreams for their later years. We need to show a value proposition by demonstrating how our services will essentially enhance a consumer’s life, including health, relationships, security, leisure, and purpose. Next, we need to design and build communities to accommodate those hopes and dreams. And then—and this is critical—we need to convince consumers that their stereotypical ideas about senior living no longer match reality.

Expand our reach: Second, we need to pay more attention to that segment of the 90% who will never move to our communities, either because they don’t want to or can’t afford to.

These consumers aren’t lost to us, by any means. Rather, they represent a huge, untapped market. They will need services no matter where they live. It’s time to figure out how our organizations can provide the kind of at-home products and continuing care at home models that these consumers are most likely to accept.

And for both of these markets, don’t forget technology. It can and will be a game changer for providing services to seniors and we need to incorporate it for both those who live in our communities and those we can serve in their homes.

Stop, Look, and Listen

I often think that I could have been more successful with my home improvement project if I had simply shared my ideas in advance with my wife, asked her opinion, and listened to her suggestions—before going off on my own to complete the project I thought was best.

I’m sure my wife would have agreed with that approach if I’d given her half a chance.

My guess is that the 90% will like that approach too.