There's a Market for Affordable Seniors Housing
 While numerous baby boomers have net worths sufficient to purchase expensive homes, many are going broke. Divorce, job layoffs, medical costs, bankruptcy and seductive credit cards, as AARP reports, are spinning a new group into the near impoverished.
These factors coupled with a growth spurt in the 55+ age group spell continued opportunities for builders who build affordable rental housing that targets seniors. Yet, building affordable rental housing and attracting seniors is not a slam dunk. Knowledge about customers’ motivation for moving as well as unit mix, design features and site location preferences must be accompanied by financing know-how. Expertise in each of these areas minimizes risk. Market demand is measured by assessing the demographics, understanding buyer behavior and differentiating the competition. These factors help forecast cash flow and, in turn, capital and equity requirements. Lenders, too, must feel comfortable that the property will achieve a net cash flow sufficient to cover the monthly debt service over the term of the loan. The Low Income Housing Tax Credit Program (commonly called tax credits) is the key financing source for affordable seniors housing. The program’s parameters set forth the maximum rent a builder can charge plus the maximum income that qualifies for an apartment unit. A household’s maximum income cannot exceed 60% of a locality’s median area income, adjusted for household size. In areas with a high median income, such as Washington, D.C., the maximum income for one person, such as a widow, is relatively high at $30,450. In areas such as Washington the program reaches moderate-income seniors. However, the aggregate number of households with incomes that meet the qualifying parameters is limited. For example, if monthly rent with utilities is $700 and seniors pay up to 40% of their income for rent and annual income cannot exceed $30,450 for a one-person household, the income span for the property ranges only from $21,000 to $30,000. The income ceiling is somewhat higher for couples. Potential residents with annual income less than the minimum will quality with a rent subsidy. Those with more than the maximum allowed do not quality for a unit. Since the tax credit program’s inception in 1986, millions of units for seniors have been developed. However, the program is highly competitive. Developers compete with each other through their state agency for each year’s limited credit allocation. The states receive a federal allocation based on a formula that takes into account population, and in turn, distributes dollars to owners for their proposed properties. Each state sets its priorities for selecting properties. A property’s targeted residents, location, design features, services and management expertise are factored into the state’s selection choice. New construction and rehabilitating a building qualify for tax credits. Several programs supplement the tax credit program’s funding. The HOME program through local participating jurisdictions with federal-state dollars allocates funds for affordable rental housing. The Federal Home Loan Bank Board has its Affordable Housing Program through which funds are available for rental as well as homeownership properties. Conventional financing and HUD also play a role in funding affordable rental housing for seniors. In some localities, ages 60+ are drawn to affordable rental seniors housing. In most localities, renters are typically over age 75. But more significant than demographics is buying behavior. Seniors are not pressured to move from their current homes. In fact, most will not move from their existing home — even if is ill-suited to them. Evidence shows that potential renters of affordable apartments are just as fickle as those of market-rate seniors housing. Renters prefer large, two-bedroom units with a dishwasher, garbage disposal, washer and dryer hook-up, high-tech capabilities and design features tailored to an older population. Features that ease movement, such as lowered light receptacles, higher electrical outlets and widened hallways also are part of the design plan preferences. Affordable housing developers are meeting these demands. Amenities include a multi-purpose room with large kitchen, library, equipped fitness center and computer/activity room. Also, a van for trips to events, shopping and medical appointments is available in many affordable rental properties for seniors. Once seniors move to affordable rental housing, they stay for a long time, unlike family rental housing where unit turnover can range from 70%-100% annually. Pre-leasing also is atypical, as seniors like to see a finished model before renting a unit. The duties of an onsite manager are coupled with that of a service coordinator. Local nonprofit agencies are tapped for services to those who develop physical limitations. Affordable seniors housing has become a component of mixed-use developments, planned unit developments and active adult communities. There also are joint ventures with nonprofit agencies to include public housing agencies as well as with for-profit, for-sale housing developers. In fact, the upcoming Building for Boomers & Beyond: Seniors Housing Symposium will address the multifaceted active adult industry targeting baby boomers and beyond. This includes affordable rental housing for the not-so-wealthy older population. Evelyn Howard is the president of Howard & Associates, a Bethesda, Md.-based firm that specializes in studies and market positioning for all types of seniors housing. Since 1987, Howard has helped developers plan residential products and services best suited for their local marketplace. Howard, an active member of the NAHB Seniors Housing Council, is a featured speaker at Building for Boomers & Beyond: Seniors Housing Symposium 2005 on May 16-18 in Chantilly, Va. She will discuss, “Affordable Seniors Housing: Meeting the Challenges — Making It Work.” For more information, e-mail Howard, or call her at 301-652-9100.
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