Senior living providers aren’t in imminent danger of pricing themselves out of the market, despite continuous monthly rent hikes and alarming reports on seniors’ financial security in retirement, researchers agree.
While it is difficult to determine the breaking point for price elasticity, it may be decades before rent rises beyond residents’ affordability.
During the first quarter of 2013, annual asking rent growth for senior housing accelerated 2.3% on a year-over-year basis, according to the National Investment Center (NIC). This increase for 2013 is 90 basis points higher than what it was during the first quarter of 2012.
But while growth in this area has been rising modestly in the last year, says NIC Senior Research Analyst Chris McGraw, it has been moving in line with current inflation rates.
Core inflation rose 1.9% during the first quarter of 2013, notes McGraw, up from a 1.4% year-over-year increase recorded for the same period in 2012.
“Rent growth trends are rising on par with inflation right now,” says McGraw. “This implies that rent increases are keeping pace with expenses growth.”
Annual asking rent growth reached its peak just as the economic recession was beginning to take hold in the largest 31 metro markets, rising 3.8% year-over-year during the fourth quarter of 2007, according to NIC MAP data.
Since then, growth has declined steadily for the most part before bottoming out with a 0.9% increase during the fourth quarter of 2010.
With exception of the first quarter of 2012—where rents increased 1.4%, compared to the previous quarter’s yearly growth of 1.7%—annual asking rents increased modestly for each quarter to the 2.3% level they are today.
“Rents bottomed out in the fourth quarter of 2012, but there’s been a relatively gradual recovery,” says McGraw.
Elisabeth Borden, principal for The Highland Group, Inc., has also noticed similar growth trends for average monthly rent increases in her company’s mainstay of Colorado.
In Colorado, assisted living saw the highest year-over-year rent increases, rising 3.4% during the first quarter of 2013. Skilled nursing posted the second highest rent growth, increasing 2.8% during the quarter, and independent living came in at a close third, reporting a 2.7% increase.
Despite these increases, the point at which rents become too much for residents to afford is difficult to determine, says Borden.
“Where the breaking point is for price elasticity, no one can be sure,” says Borden.
National data indicate that many residents aren’t paying for long-term care services out of their current income.
Many have relied on assets such as pensions, Social Security, private annuities and even selling their own homes to help afford senior care services, according to data from the Center for Retirement Research at Boston College.
A vast majority of residents, over 84%, report that they are the primary payer by themselves, either with current income or combining it with spending down their savings or assets.
About 40% of residents in the independent living portion of independent living/assisted living communities reported that all of their expenses are covered by their current income. In contrast, only 21% in the assisted living portion reported the same.
“There are a lot of indicators that age groups moving into retirement are not likely to have as much income or higher level of assets as people may have thought,” says Borden.
Older boomers might even be the last generation to retire on track with enough savings and assets to maintain financial security through their retirement years, according to a recent report from Pew Research.
A gradual shrinking of retirement incomes and public benefits stemming from Medicare and Social Security stand to widen the gap between who can afford long-term care and who cannot, says Borden.
“It’s a slow burn,” she says. “If that gap continues to grow, higher percentages of people might start to make other choices.”
Written by Jason Oliva