A Senior Affordability Crisis Is Coming, And No One Can Make The Housing Math Work

Ray Kuniansky may be a developer now, but to explain the barrier to building affordable senior housing, he draws on his past life as a math teacher.  

Each senior housing unit costs about $200K to build, he explains. But a one-bedroom rent for those who qualify for subsidized housing caps around $795 a month. With costs of $500 a month just to operate a unit, not including debt service, it is hard to make the arithmetic work out. The cost of building units isn't bound by what federal subsidies pay out and is, in fact, only rising. In sum, the numbers are looking direr and direr for those developers who want to break into senior housing that won't break the bank for residents.  

"People chuckle at me when I say that it's a math exercise ... but it really is. It's kind of that simple," said Kuniansky, the chief development officer at Atlanta-based Columbia Residential. 

Residential developers are trying to tackle the increased need for senior living, assisted living and other residential care targeted toward those 55 and older, especially as baby boomers age out of the workforce in droves as part of what has been dubbed the silver tsunami.

But it is only growing more expensive to create new residential developments, and developers are increasingly losing funding sources that would allow them to build new units for those seniors on limited fixed incomes in the traditional retirement havens of the Sun Belt.

The issue extends past the lowest-earning seniors. For several years, a growing percentage of impending retirees has been identified as in need of middle-market housing, or housing that is neither luxury or subsidized. The number of  Americans 65 or older is projected to reach nearly 73 million by 2030 and more than 83 million in 2050, yet a study by the National Investment Center for Seniors Housing & Care, or NIC, found that by the end of this decade, more than half of middle-income seniors would earn $60K or less annually, falling far short of the $62K projected annual price tag for assisted living and medical costs alone.

Senior housing developments have soared in recent years, but many include medical and staffing amenities that, like the cost of building new properties, developers say are almost impossible to replicate affordably. Though many seniors are still heading to the stereotypically retirement home-friendly South, experts in sunshine states are frank that affordably targeting those in need of housing remains an unsolved puzzle, as Sun Belt markets like those in Florida see their housing prices explode. 

At the new The Watermark at Houston Heights, the first retirement community in Houston's Heights neighborhood, residents can work with a personal trainer, golf at a small putting green, take enrichment classes and hop between in-house restaurants. But they can't live there without paying more than $3K per month. The property, developed by Hines and Watermark Retirement Communities, is one of several senior living properties that Hines is building around the U.S.

Watermark Retirement Communities Chairman David Freshwater told Bisnow he hasn't been able to reconcile providing amenitized retirement homes with medical staff and lower rents.  

"To be affordable for lower income individuals, rent would have to be 50% to 60% [of] what we are now charging for our newly constructed Elan Collection communities," Freshwater said in an email. "The math just doesn’t work. Rents simply don’t support the cost of staffing. Upward pressure on wages that we have seen in the past year only exacerbates this dynamic." 

NIC has spent years beating the drum on the need for affordability in senior housing, and the pressure is only intensifying. Health Affairs research from 2019 suggested that by 2029, 54% of seniors won't be able to afford senior housing of any kind, even if they spend every last dime of income on it.

Because of costs associated with new development, Kuniansky said, the industry can't create new senior housing easily. 

"When the cost of building the unit goes from $130K a unit to over $200K a unit in just a couple years but the resource base hasn't really changed, nor have people's incomes … it's creating a lot of issues and a lot of problems," he said. "At some point, that has to get acknowledged and decisions have to be made. Is this where [we] want to invest money as a country, as individuals? This isn't going to get done by any one segment of the population on its own." 

Columbia largely creates affordable and mixed-income housing but is seeing too many applicants and too few available opportunities in each state to receive aid. For middle-market properties that don't receive government aid at all, developers are left trying to figure out how to cut costs to remain affordable.

Ryan Brooks, senior principal of health care strategy at NIC, said providing healthcare to those in senior housing is the largest hurdle to affordability. Seniors also need dignity in their housing, he said. Kuniansky said that means units with large enough spaces for seniors to keep their mobility and independence.

Senior living facilities are already notoriously short-staffed, another drag on affordability. The Watermark is trying its own way of skirting that issue, allowing residents to create an a la carte style of health services, choosing which are needed and which aren't. Other developers are tapping into Medicare for resources like Institutional Equivalent Special Needs Plans, which provide services akin to long-term care. Brooks also said some developers partner with physician groups that are dedicated to a property's residents to achieve cost savings.  

The biggest way developers can cut costs, Brooks said, is to cut luxe amenities like frequent housekeeping, private fitness instructors and expensive dining options.  

"The thing about the middle-market consumer — and I'm going to generalize here — but this is a group, we often say, doesn't need to valet their car," he said. "They can park it themselves." 

Brooks also pointed to developments that are tapping residents as volunteers to cut staff costs, such as manning in-house libraries or acting as greeters, presenting it as a way for residents to socialize.

At The Watermark in Houston, residents tap into their skills or previous careers to teach classes to each other.  

"Resident volunteerism does reduce operating costs," Brooks said. "I think [they're] even viewed as an attraction for residents."  

Even so, Brooks said it is more difficult than ever to build middle-market properties from the ground up due to the cost of construction. That has led to some developers repurposing spaces, he said. One Columbia Residential project, 2100 Memorial in Houston, was originally a Holiday Inn before it was turned into senior housing in 1997. The property was flooded during Hurricane Harvey in 2017 and is only now beginning its rebuilding process, with a groundbreaking happening this month.  

"We're looking at purchases from developments that are already on the ground, that we may have to go in and do some retrofits, and we'll look at that as far as the cost and if it works economically for us," said LaRence Snowden, chair at Houston Housing Authority, which owns 2100 Memorial. 

Snowden cited the cost of materials as a reason to look for ways to create new affordable properties that aren't completely new builds.  

"We're trying to manage the expectations," he said. "We're having to, oftentimes, because the pricing of lumber, supplies, things of that nature is rising, the cost per unit is starting to rise." 

Affordability in housing has always been an issue, Kuniansky said. But it has gotten to the point it is prohibitively difficult for developers to realistically create enough affordable developments.  

"Housing is a big piece of stabilizing a community and stabilizing lives. If you're spending your world worrying about where you're going to sleep tonight, getting a job and that kind of thing becomes much more difficult," Kuniansky said. "[Affordable] housing is really critical to a large segment of our society. Our goal is to produce as much of it as we possibly can."  

In Columbia's case, that equates to roughly 1,500 to 1,800 units a year. But in the coming decade, more than 11 million seniors will retire with incomes that effectively lock them out of many housing options, according to NIC.  

"[Financial] factors create a significant unmet future need, which demands new housing and care solutions to support the emerging generation of America’s seniors," Health Affairs said in its study. "Creating and financing those solutions will require innovation from public and private stakeholders to bring more affordable seniors housing options to the market and to enable people at all income levels to access the care they need and want as they age."