A recent article in McKnight’s Long-Term Care News, “Don’t bank on tsunami” suggests that “Potential residents will be plentiful…” and the article cites several experts who report that the demand for seniors housing will increase.

In order to “catch a wave” you need to know when the demand for seniors housing will arrive. One person quoted in the McKnight’s article suggests that, “…demand for senior housing and healthcare anticipated to spike around 2025.”  This prediction is at least five years too soon.

chart of live births in the US

In 2025, those who are 85 will have been born in 1940 (See the chart of births). In 1940, the birthrate was only beginning to recover from the Great Depression and Dust Bowl phenomena, and it isn’t until 1944 that the birthrate reaches the same level it had been in 1925. In 2025 there will be a growing number of 75-year-olds, and an increase in 80-year-olds, but the cohort of those over 85 doesn’t begin to grow until 2030.

One Size Does Not Fit All

A “market”, by definition, is group who share characteristics and who are able or likely to purchase a given product or service. Using this as a tool of discrimination, it’s easier to see that Mrs. Stackpole, an 87-year-old widow with neuromuscular disease who can no longer be cared for by her family, is not in the same “market” as Mr. & Mrs. Smith, who are also 87 years of age, yet who are not dependent on any ADLs.

Anticipating demand is specific to each market segment.

Age Ain’t What It Used to Be

By far the most common error in estimating demand among older cohorts is to use the wrong benchmark age. Since 1864, demographers and others have used 65 years of age as some magical threshold of aging. Ken Dychtwald in 1990, in his heralded book, Age Wave, used 65 as a threshold. However, the average age of relocation to AL is 86, and the average age of admission to SNF is 87. Ms. Mace in the McKnight’s article says that the age of admission to SNF is 82, and she may be using a different data source, but no responsible researcher is suggesting that 65 is a reasonable threshold for seniors’ housing or SNF demand, or that a high proportion of those 65-74 are electively choosing seniors’ housing.

The average age is 85.


 Penetration & Acceptance

It has been my sad experience to read many articles and market reports suggesting that, in each marketplace area, the lower the penetration of a product, the greater the opportunity. The logic goes something like this: If there aren’t many people who are in/using (fill in the blank) then there’s a bigger potential market for us. But this logic is fatally flawed. The marketing science clearly shows that the greater the level of penetration of any given product or service, the higher the acceptance. Marketplace areas where penetration or acceptance is at or below the national threshold may represent marketplace areas that are highly resistant to further acceptance.

Acceptance, in particular, is the Achilles’ heel of virtually all non-need driven seniors’ housing.

 

“Hope” Is Not a Strategy

The planning, development, acquisition or marketing of seniors’ housing or services does not have to be a guessing game, and it must not rely on the optimism of those who already have skin in the game. Demographics is destiny, and the current decline in the age qualified markets in the US and the UK was predicted by me and others in the 1990s.

Each service line or product, in each marketplace area has a predictable future market or markets.

The current poor occupancy rates among market-rate independent and assisted living residences are due in large measure to a miscalculation of the demographics, acceptance and demand in specific marketplace areas. The poor occupancy among SNF centers is also due to demographics to some extent, as well as progressively more astringent rules and regulations among intermediaries.

The Bottom Line

Market analysis must be done carefully and cannot be a cookie-cutter. To learn more, contactus@stackpoleassociates.com.