The affordable housing shortage in the U.S. has been documented for years. But the sound bites frequently fail to dive into the distinction between affordable housing for those in the workforce and an aging population that is nearing or already in retirement.

The demographic outlines are familiar and sobering. By 2023, all 73 million members of the Baby Boom generation will be 65 or older. Four years later, those older adults will outnumber children for the first time. That trend coincides with significant hurdles to meet the needs of that segment of the U.S. By 2021, 11.2 million Americans could be classified as cost-burdened because they spend 30 percent or more of income on housing, utilities, taxes and insurance. The total is up significantly from 9.7 million in 2016. That’s according to the Harvard Joint Center for Housing Studies, which issued its latest report on senior housing last November.

The finding highlights the damper on new development placed by rising construction costs and capital markets constraints.

In 2024, such economic dynamics and the lingering possibility of a recession will likely exacerbate the shortage of affordable housing of all types, noted Robert Koerner, chief investment officer at Standard Communities. The firm recently bought Huntington Towers, a 214-unit affordable senior community in suburban Chicago, and is preserving its affordability for 30 years.

“Unfortunately, many seniors trying to get by on fixed incomes are struggling to keep up with inflation, and they are facing hard choices,” Koerner said. “While many luxury senior communities have been built, there continues to be an unmet demand and need for quality, affordable senior housing.”

Huntington Towers

Standard Communities recently acquired Huntington Towers, a 214-unit senior community Mount Prospect, Ill., a northern suburb of Chicago. The deal preserves its affordability for 30 years. Image courtesy of Standard Communities

Closing the gap

The options for low-income seniors are few. Many may qualify for age-restricted affordable housing financed by federal low-income housing tax credits (LIHTC) in deal structures that mirror family-oriented affordable housing deals.

But among other difficulties, LIHTC investors’ expectations for returns have climbed in tandem with interest rates, said Andrew Anania, managing director of investor relations for affordable housing tax credits at Berkadia. That has put downward pressure on credit pricing, making it more difficult to raise equity for deals.

Tax credits have been trading around 88 cents per credit nationally, on average, for the last several months, according to CohnReznick. The credits typically fetch a premium on the coasts, where Community Reinvestment Act drives LIHTC deals, and lower prices in less populated areas, Anania reported. In both cases, tax credits are still trading for less than they were a year ago.

Further complicating the issue, high interest rates are creating challenges in securing the debt needed to fund projects, particularly in light of elevated construction costs. Consequently, developers often face a sizable shortfall when trying to structure financing.

To fill the gap, some states are adding new tax credits and are tapping $350 billion provided by the American Rescue Plan Act of 2021 to make low-interest loans and grants to affordable senior housing developers, said Anania. Developers have also been able to secure additional federal tax credits, but that could negatively affect the ability to finance projects in the future.

“The need for affordable seniors housing is increasing—we’re not seeing a slowdown in any way,” he remarked. “But there’s still not enough development to absorb the demand.”

Osprey Point

Berkadia invested in low-income housing tax credits to fund the equity of Osprey Point, an 85-unit affordable project for seniors and residents with special needs in Little Ferry, N.J. Regan Development developed the community, which opened in October. Image courtesy of Regan Development

Adding Support

Berkadia invested in the tax credits to finance Osprey Point, a recently opened 85-unit affordable project for seniors and residents with special needs in Little Ferry, N.J., a close-in Manhattan suburb. One drawback of age-restricted housing financed by tax credits is that the projects typically lack the dining, health care, activities and other amenities found in market-rate continuum-of-care communities. In some cases, operators may partner with non-profit organizations to provide transportation, Meals on Wheels and other services, Anania said.

Another drawback: LIHTC was developed for working families whose incomes tend to rise over time, not for seniors who are out of the workforce, said Lizbeth Heyer, vice president & interim CEO at 2Life Communities. As a result, seniors who rely on Social Security can’t afford the rental rates in affordable age-restricted projects, nor do they qualify for more robust care and housing services under Medicaid.

2Life taps a variety of funding sources to build and operate senior housing communities, including state bond funding, state rental vouchers, LIHTC, and Department of Housing and Urban Development grants for elderly housing. It also raises funds from foundations and philanthropic organizations and receives government grants to pay for services like health care, meals, and social and cultural programming.

But the services are generally scaled back compared to market-rate communities. While 2Life has kitchens in a few buildings and in some cases provides a HUD-certified dining program, for example, a centralized kitchen prepares meals for delivery on a non-daily basis to other communities, she said.

“All of our projects, regardless of how they are financed, address the comprehensive needs of seniors – housing plus care coordination,” Heyer explained. “We really focus on addressing both chronic loneliness and economic insecurity, both of which are at epidemic proportions in Massachusetts and also nationally.”

Brooke House

2Life Communities is developing 127 units of senior housing as part of Olmsted Village, an intergenerational development planned for the former state hospital site in Boston’s Mattapan neighborhood. HUD is providing $7.6 million in financing for the senior project, named Brooke House. Rendering courtesy of MASS Design Group

Unrelenting Need

In October, HUD awarded 2Life $7.6 million to help finance a 127-unit affordable senior housing project at Olmsted Village, an intergenerational community under development on the former state hospital site in Boston’s Mattapan neighborhood. 2Life’s project, called Brooke House, will include a community center for recreational and educational programming as well as a health clinic and childcare for all Olmsted Village residents.

All told, 2Life has nearly 900 units across five projects in various stages of development, but that’s not likely to make much of a dent in the supply shortfall for any of the communities it serves. 2Life’s senior residents have a median income of about $12,000 a year compared to Massachusetts’ median senior income of around $19,000, Heyer said. 2Life has opened three communities in as many years, and the overwhelming number of applicants is telling. The communities total about 200 units, divided roughly equally between them, and more than 1,000 seniors applied to each new property.

“The wait lists for our communities are between three and seven or even eight years, depending on the property,” Heyer reported. “The demand is just extraordinary.”

Read the January 2024 issue of MHN.

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