As senior housing construction activity moves toward a high-growth period, labor shortages persist and continue to add pressure on construction costs, a new report by the American Seniors Housing Association (ASHA) shows.
“Over the past two to three years, there’s been more availability of construction capital, coupled with a very hot acquisition market, so that’s going to stimulate development that you might not otherwise see,” ASHA President David Schless tells SHN. “Certainly when there’s a lot of construction taking place — across single family, multifamily and seniors housing — you see labor costs go up.”
Skilled construction labor is expected to be an ongoing challenge in the coming years as there are 5.5 million workers in construction today, down from a peak of 7.5 million in 2007, according to the report, published each year by ASHA and prepared by full-service general contractor The Weitz Company.
“Twenty-five percent of the workforce left the industry; what’s going to bring them back? The draw back to the industry unfortunately is going to be money,” says Michael Hass, director of senior living at The Weitz Company. “To attract a new 2 million workers, there’s going to be wage inflation just rebuild the workforce.”
Additionally, over the next 12 months, composite labor material costs are expected to increase by 3% to 4%, and the cost of land has increased since the downturn, driven by a “tremendous amount” of construction in several housing sectors, Schless says.
Based on senior housing units in 20 of the largest cities in the U.S., construction costs per gross square foot range from $62 for underground parking at mid-level projects to $335 for commons (non-revenue amenity space, such as dining and office space) for high-level projects, the ASHA report shows.
As defined in the report, mid-level projects generally are of wood-framed construction with standard amenities and finishes, and typically target the more moderate income senior. On the other hand, high-level projects generally are of steel or concrete construction with high-end luxury amenities and finishes, and typically target the higher income senior.
Construction costs per gross square foot for independent living ranged from $118 to $140 for mid-level and high-level projects, respectively. Assisted living proved more expensive, ranging from $145 to $184. Still higher, skilled nursing ranged from $175 to $211 per gross square foot.
The generally rising costs of construction, then, are pushing the industry to find ways to build more product with fewer people. Using prefabricated or modular homes, automating some of the construction with robotics, or creating prototypes that serve as a model for other facilities are all options senior housing players are considering, Hass says.
Recommended SHN+ Exclusives
“The industry is taking a good hard look at the reality that the labor shortage is provoking, to say ‘How do we innovate and increase productivity, getting the same — or more — output with fewer people?’” he says.
Written by Emily Study