The Future of Senior Housing
Co-housing may be the solution to senior citizens’ housing needs—and an opportunity for investors.
From McMansions to mini homes, the housing market is ever changing. A major shift that’s occurring right now is being fueled by the aging of the baby boomer generation. According to the U.S. Census Bureau’s 2017 National Population Projections report, every person in this cohort of the population will be 65 or older by 2030—just a decade from now. And by 2034, 77 million people will be 65 or older compared to 76.5 million who will be under the age of 18.
Implications for the Housing Market
Millions of people are thinking about “downsizing” now that the kids have moved out. According to a Zillow report released in November 2019, four of 10 homes in the U.S. are owned by residents age 60 or older. That percentage increases if you shave off just another five years of age: five of 10 are owned by residents age 55 or older. The report notes that roughly 21 million homes are likely to be vacated during the next 20 years—either through downsizing or death.
What does this transformative shift mean for the housing market?
As the old adage goes, “There are two sides to every story.” And that’s true of the housing market implications created by aging Boomers.
On the one hand, seniors are in the market for a different type of housing than they’ve been accustomed to for decades—and that new type of housing is in short supply.
On the other hand, who’s going to buy the houses they currently own? The Silver Tsunami, as the transformation is sometimes called, is creating a glut of larger homes, especially in areas that are pricy and relatively exclusive, making them unaffordable for younger buyers.
According to the same Zillow analysis, retirement destinations such as Miami, Orlando, Tampa and Tucson will also likely experience much housing turnover down the road if future retirees aren’t as attracted to these areas and the homes available there.
Other regions of the country, including Cleveland, Dayton, Knoxville and Pittsburgh, may also see a bigger impact from the transition. In recent decades, these areas have lost younger residents who have left for better job opportunities. The result is an older population in those communities.
Let’s start with the first situation. For seniors, the home that worked for them when they were younger and raising a family may be very different from the home they need and want now. Many need a smaller and more senior-friendly home that still offers some space and privacy.
They don’t need the big 3,000- to 5,000-square-foot, four- to five-bedroom home on a half-acre lot they owned when all the kids lived there. They also don’t want to be isolated in an “adults only” neighborhood, but they still want an upscale setting with all the amenities.
Given this, many seniors would prefer a one-story or ranch-style home with a garage space or two. The problem? Those homes are not as easy to find as you may think.
The other side of the dilemma is this: Who wants to buy that big, older home from them? An older home that needs to be updated or remodeled isn’t as attractive as a new home is to a first-time homebuyer. Plus, many of those homes are too big for families that don’t need as much space because their families tend to be smaller.
For the real estate flipper, there may not be as many ready buyers in that size of a home or in that price range either. For the buy-and-hold real estate investor, the rental income may not be enough to cover the debt service and other expenses either. That is a problem for some—and an opportunity for others.
In many areas, the McMansions of the 90s that were so popular languish on the market for a longer period then smaller and newer homes.
The good news is, there just may be a better use for those homes.
Golden Girls a Model for the Golden Years?
There is a huge market for specific senior housing and a huge opportunity for builders and developers who get this next trend right. And there is another opportunity for the creative real estate professional who may use that home for a different purpose altogether.
These homes could be used as Airbnbs, or co-housing for students—or even as “Golden Girls”-style homes for seniors.
The concept of “co-housing,” in which a group of unrelated people such as students live with others who share some common interest, is catching on across the country. Students have been sharing homes for years, and many investors now see this as a lucrative alternative to renting one home to one family. Many students, given a choice, would rather live off campus and have more space. Being able to choose their roommates versus having them assigned is an added attractive benefit of this type of housing arrangement.
Co-housing for seniors is becoming more popular as well. We were all introduced to this concept in the 80s with the popular TV show “The Golden Girls.” Living with friends and sharing the expenses and upkeep are some of the reasons seniors like this model. The added benefit of having a community of peers their own age is a huge draw for them as well. It’s a trend that will likely continue to grow.
How do investors fare with this trend?
They can rent a home by the room and make a higher profit. For example, that same home may only be able to be rented for $2,000 a month to a family. But it could be rented to four or five seniors at $1,000 per room instead. The landlord might pay for the upkeep and the utilities, making it very attractive for the senior tenants. It would save the seniors money and remove the responsibility of maintenance, or even the uncertainty of future increases in property taxes. Because each market is different, the demographics will dictate the type of housing inventory that will be most desired. Investors are always looking for the “next” opportunity. Learning how you can profit from the senior housing market is essential for any builder, developer or investor in real estate.
