Why are Colo. senior housing starts leveling off?

Shawn Donohoe
Business development, Catamount Constructors Inc., Denver

According to a recent Bankrate.com survey, Colorado ranked as one of the top states for both retirement readiness and senior happiness, making it the second-most attractive state for retirement in the country. This enthusiasm for our colorful state is shared by institutional investors and senior living operators looking to capture the demand for this market.

These factors, combined with our steadily growing population of people living beyond age 85 (projected to triple from 7.3 million to 21 million by 2050), are keeping the senior living industry in motion. In Colorado, the State Demography Office projects that by 2030, Colorado’s 65-and-older population will be 77 percent larger than it was in 2015, growing from 719,000 to 1.27 million. Colorado has been one of the nation’s top markets for future growth of senior housing.

As the economy rebounded from the 2008 collapse and baby boomers began retiring, construction of retirement and assisted-living housing began to sprout again. Development teams focused on building new facilities and expanding their operations. Recently, though, construction starts nationally have leveled off, according to data from the National Investment Center for Seniors Housing & Care. Our 2017 supply has exceeded demand and absorption rates have cooled in this hot market.

Factors contributing to this cooling period are: increased construction costs (partially due to labor shortages), traditional banks tightening construction lending, increased competition, challenges in adjusting to continuum of care needs, buyer budgets and buyer demands.

A major factor for this cooling period is the increasing demands and expectations from residents, families and regulatory bodies. Operators are researching ways to adjust to the changing demands of the baby boomers that will transition into senior living in the coming decades, while balancing the implications of a new administration on the health care landscape. These factors present challenging opportunities. In the past, assisted living was an attractive option for banks as it is tied to health care and the perception that users can’t defer the decision to move into such a facility. But now, the impending cuts to Medicaid and Medicare are casting doubt on the future user’s ability to afford that level of care.

Another contributing factor to the cooling period is the ability of buyers to afford senior housing options. Those most exposed to the housing shortfall are those who grew up assuming that the pension system their parents enjoyed – generous income, retirement in their mid-60s – was the norm. The reality is most now presume they will work until their 70s and will receive limited support from the state.

Operators are researching ways to adjust to the changing demands of the baby boomers that will transition into senior living in the coming decades, while balancing the implications of a new administration on the health care landscape.”

According to a study published by Ryan Cooper in August 2016, less than half of families have any sort of retirement account, and the percentage has actually fallen by 4 points since 2001. The average account size has barely budged since 2000. The percentage of employers offering such accounts fell from 61 to 53 percent from 1999 to 2011. The homeownership rate has plummeted to the lowest level since 1965. And real median income has fallen by 7 percent since 1999. Most of this is the result of the recent Great Recession.

Based on these market dynamics, affordable senior housing is expected to experience the most growth in the near future. In fact, the report Housing and Care Facility Needs Forecast, Gaps and Opportunities published in August 2016 by The Highland Group states, “Overall, the existing housing inventory in most Colorado communities is largely based on past housing needs, when there was a greater proportion of families with children, and a lower proportion of older households. The existing housing inventory across the state will increasingly be a mismatch with the age and income mix of the population, not only due to the aging of the population. There is now and will be a growing need for a greater proportion of rental housing suitable for age 50-plus; more urban/walkable housing and less suburban/car-dependent; more multifamily/shared housing; more housing suitable for multigenerational families; more affordable housing; and more physically accessible housing.”

While Colorado has a long road to addressing the future needs of seniors, our 300-plus days of sunshine, abundance of cultural activities and walkability in urban areas are draws to this aging population. Americans’ priorities for selecting a retirement location are weighted heavily toward cost of living and health care. Colorado ranks relatively high on both. So, while Colorado does not offer as warm of a climate for seniors as Florida or Arizona, our great state offers lifestyles which translate into healthy aging, and that can’t be replicated by those traditional retirement areas.

Featured in the July 2017 issue of Health Care Properties Quarterly

Edited by the Colorado Real Estate Journal staff.