Life plan communities have a number of opportunities ahead of them, and many challenges to boot. But until certain factors change, stability may be the best the sector can hope for.

That’s according to Margaret Johnson, senior director for life plan communities and senior lead at Fitch Ratings. On a webinar Thursday, Johnson said that although things aren’t necessarily getting worse for life plan communities in 2024, they also aren’t getting better.

“LPCs still face a number of considerable headwinds heading into 2024,” Johnson said.

In 2023, Fitch Ratings downgraded the outlook of seven life plan communities to “negative,” an increase compared to the two communities that received such downgrades the previous year.

Among the factors leading to the deteriorating outlook are cost inflation  of supplies and workforce costs and higher interest rates than in recent years. Volatility in the housing sector is another potential landmine given that many residents use home sales to fund their move into senior housing.

According to Johnson, payrolls are below pre-pandemic levels and year-over-year hourly earnings growth is above historical averages. That affects life plan communities with higher exposure to skilled nursing, given the staffing involved in that setting. But life plan communities without substantial skilled exposure also will feel the pain of persistent higher wages.

Life plan communities do have the ability to shift their unit mixes in favor of changing times, particularly by taking skilled nursing beds offline to adjust staffing levels, Johnson said. Life plan communities also can pass rate increases to residents to offset their increased costs.

“The one big bright spot of the sector that we think will continue to drive demand and keep LPCs occupied are the demographics,” Johnson said. “The LPC model of communal living has a distinct competitive advantage over aging at home and other models of senior living. And this is especially in light of a recent surgeon general advisory about the negative health impacts of loneliness and isolation, especially among seniors.”

The life plan model, she said, appeals in particular to the baby boomer generation. Ongoing demographic shifts could push the sector into a more positive outlook, but in order for that to happen there has to be a “significant stabilization” of the availability of workers, how much they are paid and in housing prices.

“The best we can probably hope for the sector is it’s stable,” Johnson said. “Even with supportive demographics, there does come a point where LPCs become unaffordable and uncompetitive from a price standpoint.”

She added: “Given the wealth indicators we’re looking at I don’t think we’re there just yet, which in turn will start to affect occupancy, which is the engine that drives the ship.”

However, the industry as a whole is resilient, Johnson said, especially if it can survive through the Covid pandemic and still generate demand and occupancy.

What could hold LPCs back are the opportunity costs of “not being able to fully meet the demand” due to construction and capital limitations. Some operators may forego expansions given the volatility of such costs, imperiling their ability to innovate and grow.

Despite the headwinds, the fact that the industry has favorable demographics ahead, coupled with the fact that it has “only hit the tip of the iceberg” when it comes to mergers and acquisition opportunities and affiliations, are reasons for optimism, she said.

Life plan communities’ ability to attract older adults belonging to the incoming baby boomer generation is going to depend on their locations, especially given that they often cater to niche markets, Johnson said. Regions such as Washington and Seattle tend to be “younger” cities, causing a lower demand for LPCs, whereas Pennsylvania is “always a stalwart” for demand, she added.