Looking at the demographic trends in the United States, one analyst suggests investors shouldn’t look to McMansions but rather group homes:
A large majority of older Americans want to remain in their homes, and more importantly, in their communities. The homes they raised their families in might not suit their purposes any longer, so what are their options? In 2005 (before the housing crises) a survey was taken by AARP of adults over the age of 50, and they reported that the homes they currently lived in wouldn’t accommodate them “very well” as they aged. So these seniors have a push-pull of wanting to “age in place” but their homes aren’t suitable for them to remain independent.
Seniors in the early stage of making a housing transition will remain in owner-occupied or rental housing and live independently. Only about 4.7 percent live in a group home and 7-10 percent live in a senior facility.
I see group homes as an area of opportunity. Group homes could become the answer for many seniors. I have been preaching for the last year or two that new homeowners aren’t looking for McMansions. New buyers (Echo Boomers and younger) want something simpler that gives them more flexibility. So what will happen to these McMansions? Group homes could be perfect. Many of these homes were built with private baths attached to each bedroom, large kitchens and great rooms. These homes can be adapted for disabilities by adding lifts and rails in bathrooms, for example. Then these homes can operate very well as group homes. This can give seniors the option to stay within their community, but not be isolated. Not to mention it’s a cash cow for investors, I’ve seen these kind of properties create a 100% positive cash flow (this would include covering the debt service).
As seniors make the enevitable change they will release much more housing than they absorb, but it will be absorbed by newly formed households. For example, between 2000 and 2010, people who began the decade age 55+ moved out of 10.5 million housing units. Most of these were owner-occupied dwellings. During the same period households grew (under the age of 55) by 21.8 million. Thus leaving about 11.2 million new households needing housing. Take into consideration that forty percent of this time was during a major recession where we saw much slower household formation.
I can see two quick issues with group homes. First, some of these places today are very expensive as they can require residents to buy a unit and pay extra fees on top of this. Second, communities would have to approve the zoning necessary for these homes.
This reminds me of Kate Bollick’s Atlantic cover story “All the Single Ladies.” She ends the story by discussing a “dormitory” for women in Amsterdam that helps provide community while giving adults some individual space. Bollick suggests this sort of living space could be the wave of the future but I think it might take some time to catch on in the United States.