Reading Statistics in Senior Housing Trends

A recent newsletter article written for investors in senior housing (mostly REITs) captures a curious U.S. dynamic.  The population of older persons is rising; occupancy in senior housing is mostly down; rental rates in senior housing are going up.  Push, pull, push.  And despite a clear 12-month downward trend in occupancy rates, another push, as new construction in senior housing is still robust.  The Seeking Alpha article (fully available behind a registration firewall) summarizes:

In 2017, 45,000 new units of supply were delivered into the [senior home] market. To put this in perspective, approximately 140,000 people turned 83 in 2017, which is close to the average age in senior homes.  Currently about 10% in this age group reside in senior homes.  So, with 140,000 people turning 83, and additional demand was created for about 14,000 home units.  You can hence see where a 45,000 unit supply can create a decrease in occupancy.  

After analyzing returns in three specific REITs, the newsletter make a broader prediction that is relevant beyond the context of investment advice: 

There might be light at the end of the tunnel.  The same inflationary forces that are making life difficult for senior home operators are beginning to bite the senior home construction companies.  From labor shortages to rising lumber prices, they are not facing a different cost curve than they did a few years back.  Their ability to pass some of this is currently limited as purchasers of said properties are struggling to pass on higher rents to operators.  If this actually succeeds in slowing down the supply, senior housing could become a great investment concept once again.  

My own reaction to this type of an article (and I see a lot of articles that attempt to explain drops in senior occupancy) is that no one has successfully integrated the impact of state and federal government policies on funding (limited though that funding may be) for home care, nor the strength of the “age in place” preference of future seniors.