A Note on Senior Housing Penetration Rates

As a developer, using penetration rates to estimate the demand for assisted living may be hazardous to your financial health. Historically, the penetration rate (or market share) for independent living rentals (seniors housing with services) was calculated by simply multiplying the total number of households age 75 and over by some factor – say .05 (or 5%). If the total number of householders age 75+ was 3,500, the total market demand would be 175 at a minimum income of $30,000 a year and above. Assuming 65 percent of income for rent, this would mean a monthly attainable rent of $1,625.

For assisted living, using the same 3,500 pool of households perhaps 6% were frail or 210. At the same income level but at 80 percent of income, this would translate into a monthly base AL rent of $2,000 for meals, housekeeping, utilities, and 24 hour protective oversight (care would charged separately). If care were included, the rent would be higher.

This approach works adequately if the overall market (the labor market area) and primary market are one and the same – typically the county. But the approach fails to consider why these householders move – either within a county with many submarkets or from one county to another. Nationally, among those seniors age 75 and who move, half move to another county (either a county in their own state or to a county in another state). The other half move “locally”, that is within their current county of residence. 

In analyzing the prior residence of the occupants of senior facility, the question is not “Where from” but rather “Why to”. And the answer depends on who is the “decider” – the seniors, the adult children, or some combination of the two. In general, frail seniors age 75 and over aggregate in the vicinity of middle aged family members; thus for AL residents, this is a joint decision. For the independent living resident, the seniors alone more typically decided when, where and why they moved.

When considering assisted living, simply observing the total number of householders age 75 and over in the primary market of a large urban county, and applying a standard penetration rate just does not capture this dynamic. Frail seniors may be moving from the central city to the suburbs in order to be closer to the adult children. The better approach would be to calculate the total number frail seniors in the county, allocate those to the primary market, proportionately, using the number of adult children age 45 to 64, and then distribute demand based on the income of those already in the primary market. 

How do you identify this AL dynamic? The ratio of adult children to those ages 75 and over nationally is about 4 to 1. If the primary market has a higher ratio this would indicate a net inflow of frail seniors; a ratio below the national number suggests a net outflow of frail seniors. Markets with a low ratio may still be under supplied and/or have obsolete units, but these markets should be approached with caution when considering new assisted living construction.


Copyright by URBEK 2013


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