Overbuilding concerns have plagued the senior housing industry as of late, with new competition recently challenging the likes of Brookdale Senior Living (NYSE: BKD) and Five Star Senior Living (Nasdaq: FVE). But come January, these woes may subside.
Under the Trump Administration, the United States is likely to experience higher interest rates and rising inflation—which could directly impact the amount of construction in the senior housing market.
That’s according to a recently published report from Institutional Property Advisors (IPA). IPA is a division of national brokerage firm Marcus & Millichap, which specializes in serving institutional and major private real estate investors.
Now, the Federal Reserve will likely increase interest rates in December, and a “more aggressive Fed in 2017 is increasingly probable,” the report says. This development, according to IPA Executive Director Mark Myers, could help curb senior housing overbuilding concerns.
“A slight rise in interest rates helps people tap the breaks on overdevelopment,” Myers told Senior Housing News.
Meanwhile, the infrastructure spending, deregulation and reduced taxes Trump promised during his presidential campaign will increase inflationary pressure and result in economic acceleration, IPA anticipates.
“The belief is the Trump administration will spur a little bit more growth,” John Chang, IPA’s first vice president, research services, explained to SHN. “They have ideas to lower taxes and also to add to infrastructure, which is going to boost economic momentum.”
Higher interest rate environments can be good for different types of commercial real estate investments—including senior housing—though a bid-ask gap could emerge in dealmaking over the short term, Chang noted.
‘Up in the air’
Meanwhile, senior housing will always be a demographics-driven product, regardless of who’s Commander-In-Chief. Under Trump, the aging U.S. population “will remain a powerful driver” for senior housing, the report says.
“The Trump election itself will likely have little effect on the demographics,” Chang explained.
Some of Trump’s proposed plans, like repealing the Affordable Care Act (ACA), could impact the senior housing customer base. Still, if Trump were to repeal the ACA, it would likely take some time for actual policy changes to take place, the report says.
And seniors shouldn’t have to worry too much about entitlements under Trump, Myers and Chang agreed. While Republicans in Congress advocate for changes to entitlements, including block grants for Medicaid and increased Medicare privatization, Trump himself did not float concrete policy reforms during the campaign for president.
“In terms of Medicare and Medicaid, Trump indicated in his campaign that he didn’t really plan to do much to change those programs,” Chang said. “Really, from a legislative side, there’s little on the horizon that’s visible today that will impact senior housing.”
Additionally, the same rapid economic growth that may incite inflationary pressure and propel interest rates higher could potentially lead to stronger wage growth and more jobs. Both of these would be good news for the commercial real estate sector in general, as well as for senior housing, the report indicates.
“The more people have a job, the more help people will have to pay for care,” Myers said.
No matter how many predictions are made, there are still a lot of unknowns when it comes to Trump’s upcoming presidency.
“It’s up in the air in some ways as to what’s going to happen,” Myers said. “Overall, there’s probably not going to be a huge change [for senior housing].”
Written by Mary Kate Nelson
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