Meeting the needs of an aging nation - Opportunities in Canada’s senior housing sector

The baby boomer retirement boom

As baby boomers continue to retire, seniors remain the fastest-growing demographic in Canada. According to Statistics Canada, the number of people aged 85 and older more than doubled between 2001 and 2021, currently representing 2.3% of the population. Despite significant impacts of the pandemic on the oldest Canadians, the population of seniors aged 85 and over could triple to nearly 2.5 million people by 2046, with seniors aged 65 and older expected to make up a quarter of the country's population by 2068. As a significant proportion of people aged 85 and older have activity limitations or health-related issues, more than one-quarter currently live in a collective dwelling, such as a nursing home, long-term care facility or seniors’ residence. The proportion increases with age as these limitations grow, and with more seniors now living to 85 and beyond, the need for appropriate housing options and support services becomes more profound.

This trend has been increasingly capturing the attention of real estate and institutional investors, developers and operators looking to expand and diversify their portfolios. Already, we are seeing increased levels of investment in seniors housing across the entire care continuum, with the demographic trend potentially transforming it from an alternative asset class to a mainstream asset class. Returns for seniors housing, for both income and appreciation, often exceed other sectors, including multi-family.

What style of accommodations do seniors prefer?

Based on seniors’ ability to perform essential everyday tasks and activities that allow individuals to remain independent, appropriate accommodations might range from seniors’ apartments to independent or assisted living communities, or long-term and specialized care facilities. With limited available government funding, the need for seniors housing is strong across the entire continuum and is particularly critical for care-intensive residences. Options for seniors’ housing and support reflect a progressive level of need – as care needs become more intense, the options become more limited and/or costly. According to research, 95% of Canadians say being able to age in place would allow them to maintain their independence, comfort, and dignity as they get older. Over three quarters (78%, -1) would only consider moving into an assisted living facility if they couldn’t afford in-home care. Waitlists for long-term care homes in Ontario are some of the longest in Canada with fewer senior’s care spaces relative to the size of senior population indicating a supply gap for this type of care. With a strong preference for aging in place, a strong trend for continued care has emerged in the industry, with residences offering a complete range of care proving particularly successful.

On the heels of the pandemic, we have seen a continued rebound of the seniors housing sector with decreasing vacancies and increasing rents for independent and assisted living – a trend which also signals a shortage among less care-intensive facilities. Despite many investors taking a defensive position in 2023 in response to high interest rates and rising inflation, strong rental growth and occupancy gains continued to offset the higher cost of capital. With strong demand drivers and persisting supply shortages, the senior’s housing sector is expected to transition from recovery into a growth cycle, potentially outperforming traditional real estate asset classes over the next decade. An increasing number of investors reveal plans to expand their assets in the seniors housing sector in 2024.

Based on Altus Group’s in-house demand model, by 2041, the population of seniors aged 70 and over is expected to grow to a total of 815,590 households in the Greater Toronto Area (GTA) and 330,230 households in the Vancouver Census metropolitan areas (CMA). This translates to an average annual growth of around 20,000 households in the GTA and around 7,100 households in the Vancouver CMA between 2021 and 2041. Based on historic capture rates and additional market and health considerations, this growth could generate an average annual demand of 1,200 independent and assisted living units in the GTA and 720 units in the Vancouver CMA. An additional 1,000 and 360 long-term care units are expected to be required annually to accommodate demand for long-term care in the two markets. In the Calgary CMA, the population of seniors aged 70 and over could increase to 175,000 households by 2041, averaging 5,300 new households annually. This would translate to an average annual demand of 450 independent and assisted living units and 265 long-term care spaces.

Figure 1 - Estimated annual demand for seniors housing (2021 – 2041)

Conclusion

With the seniors housing sector experiencing a strong post-pandemic recovery, the demand-supply gap will likely persist in the near term across these three major markets, with the supply side currently being constrained by a range of economic factors that limit the construction industry’s capacity to deliver new product. With the right strategy, this asset class represents an excellent opportunity to strengthen and diversify real estate portfolios and leverage higher returns.

By leveraging in-house demand projections, market data and insights, Altus can deliver detailed market recommendations for new seniors housing development and redevelopment of existing residences as the seniors housing sector continues to evolve based on changing needs and preferences of seniors. Click here to learn more.

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