Expenses and other pressures have put non-profit life plan communities in the U.S. in a tough spot. According to Fitch Ratings, those difficulties are still making life hard for the sector.

Many of the headwinds making it hard for such life plan communities to pay their debt service – chief among them the cost of staffing and decelerating real estate price growth – have persisted this year. So far, operators of life plan communities have subsisted on growing occupancy driven by “healthy demand” and rent increases for residents. But that may not sustain them in the future, according to Margaret Johnson, CFA and senior director at Fitch Ratings.

“Occupancy and demand could soften if rate increases continue above historical norms or if cost-cutting erodes service quality,” she wrote in the agency’s June 26 public finance compendium. “Decelerating growth in real estate pricing may also slow the current strong pace of independent living unit sales and limit an LPC’s ability to raise entrance fees to absorb cost inflation and pay refunds.”

Overall ratings outlooks for LPCs have been on the decline since 2022. The most recent overall stable ratings outlook shows 86% in 2024, down from 89% in 2022, with the number of negative ratings increasing to 10% from 7%.

For the ratings agency to revise the sector’s outlook to “neutral,” that “would require demonstrable improvement in labor availability, demonstrated efficacy of higher than average rate increases to counteract inflationary cost pressures and expectations for stable or improving real estate market performance,” the report’s author noted.

“While Fitch expects demographic trends to continue to support healthy demand, decelerating real estate price growth and cost inflation are significant headwinds that will continue to stall the sector’s recovery,” Johnson wrote.