Introduction to Affordable Assisted Living Market Studies White Paper – Draft for Approval

Prepared for the National Council of Housing Market Analysts By: Nathan Young (Vogt Strategic Insights) December 2022


The purpose of this White Paper is to serve as a guide for market analysts and for those who rely on such analyses pertaining to affordable assisted living communities. For the purpose of this analysis, affordable assisted living refers to an assisted living community that is developed or financed with Low-Income Housing Tax Credits (LIHTC). Furthermore, the residents in affordable assisted living communities are expected to utilize Medicaid waivers to subsidize the costs for meals and assisted living services. Assisted living services include, but are not necessarily limited to, the following: assistance with activities of daily living, health care services, and housekeeping services (i.e., laundry and linen services and room cleaning).

A subset of care that is often discussed and associated with assisted living is memory care. Memory care is a specialized long-term care for individuals with cognitive decline that requires stay in a facility where the individual can be monitored and cared for. In many instances, the individual with cognitive decline also has declining physical health warranting the need for assisted living services. It is common for assisted living communities to have separate wings or facilities that cater to individuals with cognitive decline. From a practical standpoint, memory care residents are considered within the broader discussion in this Affordable Assisted Living White Paper.

While there is a plethora of programs (federal, state, and private) that subsidize the costs for assisted living services, the Medicaid program is the broadest and is a reasonable proxy to other programs from an underwriting perspective.

As Medicaid is a federal program administered by the states, there are programmatic requirements for individual states that may require specific and nuanced underwriting strategies. This White Paper does not attempt to cover the underwriting and programmatic specifics for each individual state but merely serves as a general guide. State-specific amendments to this White Paper are currently under consideration.

This White Paper will not specifically address all aspects of performing a market analysis as many of the foundational best practices in conducting real estate market analyses have been addressed in various White Papers adopted by NCHMA.

Why use LIHTC and Medicaid to Develop Affordable Assisted Living?

By separating the assisted living services from housing, developers can utilize the LIHTC program to subsidize the physical structure of an affordable assisted living community and then bring in separate service providers for the health care services to allow seniors to age-in-place and receive assisted living care at a price-point that would otherwise not be available in the marketplace. Note that there are nuances to the financing and allocation of LIHTCs for affordable assisted living as each state’s Medicaid structure differs and has their own guidelines for the allocation of credits. Thus, this White Paper will broadly discuss market analysis principles and methodologies for Assisted Living financed with LIHTCs.

Who is Income and Asset-Eligible?

For an individual seeking residency in an assisted living community, monthly adjusted gross income cannot exceed the Medicaid yearly income limits (specific to the project location), which are, in most cases, lower than the programmatic income requirements under the LIHTC program.

In addition to income limits, there are asset limitations under the Medicaid program. Certain assets and property are exempt from Medicaid’s accounting of net worth including a home, car, and personal property such as furniture and jewelry. A home is only considered an exempt asset if the homeowner lives in the home and there is a maximum amount of equity that can be exempt. Further asset exemptions apply if the prospective resident in an affordable assisted living community is married.

Who is Age-Eligible?

Under Tax Credit guidelines, affordable assisted living developments will generally be restricted to seniors 55 or 62 and older. Under Medicaid guidelines, however, resident age is restricted to 65 and older. In certain circumstances, an individual under age 65 may still qualify for Medicaid. In practice, most residents of this product will be at least age 75. When forecasting the demand for affordable assisted living, analysts should consider those age 75 and older.

Factors to Consider for Determining a Market Area

The methodology for determining the market area for an affordable assisted living development does not deviate significantly from the methodology in determining the market area for other multifamily housing alternatives. The NCHMA White Paper on Determining Market Areas is a good starting point and serves as the theory base for the specific asset class of an affordable assisted living community.

Market analysts and other users of market studies should be aware of the following factors and issues when determining the affordable assisted living Primary Market Area (PMA):

  • The PMA for an affordable assisted living community will generally be both geographically and demographically larger than the market area under the alternative development assumptions of a traditional senior housing rental community (no integrated health care services) or even for a market-rate assisted living community with no affordability component. The rational for this is that when a housing alternative is limited, potential residents will travel further to procure such housing alternative of need.
  • Affordable Assisted Living communities are somewhat unique from other senior housing alternatives in that a larger share of support originates from outside of the PMA. The support component that originates from outside of the PMA is primarily from resident sponsors (i.e., the adult children of prospective site residents) who oftentimes reside in the PMA but have an aging parent that does not. In many cases, the adult child will have significant influence on the place of residency for an aging parent, especially in circumstances where the aging parent has declining health, thereby warranting stay within an assisted living community. Oftentimes, the adult child will choose to place the aging parent in a community within relative proximity of the respective adult child’s home. In some circumstances, it is appropriate to determine and present a Secondary Market Area (SMA). However, since the specific geographic location of the out-of-market support is generally unknown and can be quite vast from a geographic perspective, the presentation of a defined SMA may not be appropriate or necessary.
  • Depending on the alternative housing types that may be considered in the analysis when stress-testing the feasibility of an affordable assisted living community to operate as something other than its intended use, separate market areas may be presented. For example, an analyst may evaluate the hypothetical feasibility of an affordable assisted living community to operate as a private-pay, market-rate assisted living community. Under this hypothetical scenario, the private-pay, market-rate assisted living community would have a different PMA than the proposed subject development operating as an affordable assisted living community. While the presentation of multiple market areas in a respective analysis may be appropriate, analysts should be cautioned so as to not confuse the reader.
  • Interviews with representatives of existing assisted living alternatives will provide valuable insight in determining the PMA for a proposed affordable assisted living community. Given the relative newness and novelty of the affordable assisted living product type, it is likely that there will be no existing affordable assisted living communities in the respective market of study (or at least the availability of such communities will be limited). Thus, interviews will be limited to private-pay assisted living communities. A secondary source for existing community interviews can come from representatives at skilled nursing care communities. In many instances, a low-income/asset senior with declining health warranting stay within a care community will be placed in a nursing care community in which Medicaid will subsidize one’s stay. An understanding of where these lower-income/asset seniors originate from will inform the analyst as to the likely geographic area an affordable assisted living community can draw support from. Additional questions for representatives of the existing assisted living and nursing care communities in the market and region include, but are not limited to, the following:
    • Is the resident single?
    • What is the average age of the current residents and the average age of residents when they entered the community?
    • What is the gender profile of the community?
    • What is the income profile of current residents and the income profile of residents when they entered the community?
    • What product type did current residents move from (another facility, single-family home, apartment, etc.)?
    • Why did the resident move from their previous home?
    • Why did the resident choose the current property?
    • If individuals are turned away, what are the primary reasons?
  • As detailed earlier, resident sponsors (i.e., the adult children of prospective residents) have significant influence on the residency of an aging parent with declining health warranting stay within an assisted living community. This also applies to low-income/asset seniors who would be the targeted tenant profile at an affordable assisted living community. Insight as to the behavior of resident sponsors is important in informing the analyst of the PMA of the subject development. When interviewing representatives at existing assisted living and nursing care communities in the market and region, questions should be asked as to how many residents were strongly influenced by a resident’s sponsor and what portion of residents receive financial assistance from a resident’s sponsor.
    An alternative interview source could be discharge representatives from hospitals in the area. Oftentimes, these representatives will share the specific communities where senior patients are being sent for housing needs/care.

Demographic Characteristics & Factors to Consider for Analyzing Affordable Assisted Living Demand

Under LIHTC program guidelines, resident age in an affordable assisted living community is generally restricted to those either age 55 and older or 62 and older. Under Medicaid guidelines, age is further restricted to those 65 and older. In reality, most residents of an affordable assisted living community are age 75 and older. While it is appropriate to present demographic data of the programmatic age-restricted cohorts of 55, 62 and 65 and older under LIHTC and Medicaid guidelines, analysts should also present demographic data for the 75 and older age cohort as this represents the likely tenant profile for an affordable assisted living community.

In evaluating the demand for affordable assisted living communities, there are essentially four variables of consideration. The first variable is to segment by the targeted age profile, which for the purpose of this discussion, are those age 75 and older.

The second variable is to estimate those households age 75 and older who are income- and asset-qualified to reside in a LIHTC property utilizing Medicaid waivers to subsidize the costs for assisted living services. Note that the income restrictions under Medicaid guidelines are generally more stringent than the income restrictions under LIHTC guidelines. Even though an individual is income-eligible under LIHTC guidelines does not necessarily mean the individual is income-eligible under Medicaid guidelines. This is especially the case when the LIHTC set-asides target higher Area Median Income (AMI) households (i.e., units are restricted to households earning up to 60 percent of AMI).

Much like the demand evaluations for other housing alternatives, data providers such as Ribbon Demographics, Claritas, Esri and other private vendors provide demographic data estimates segmented by age, tenure, and income. In conjunction with income qualification, there needs to be an estimation of asset-qualified households to qualify under Medicaid guidelines. Asset qualification is more difficult to estimate as this variable is not segmented by age within readily available data presented by the U.S. Census Bureau or the American Community Survey (ACS). ESRI does provide net worth estimates by age.

There may be other private data providers that can furnish this information. In most markets, it is reasonable to assume that the majority of those individuals age 75 and older who are income-eligible under Medicaid guidelines are also asset-qualified under Medicaid guidelines as Medicaid does allow for certain exemptions of assets and equity in one’s home. Analysts should be prepared to make market-specific adjustments to the derived number of age-and income-qualified households in high-net-worth regions to limit the potential for over-estimation in the number of age-, income- and asset-qualified households.

The third primary variable of consideration in forecasting the demand for affordable assisted living is segmenting those households that are age-, income-, and asset-qualified who also have the declining health warranting stay within an assisted living facility. This is commonly referred to as the assisted living affliction rate. There are several data sources where analysts can make assumptions and extrapolate the data to estimate the number of senior households who will have the declining health warranting stay within an assisted living community. For example, the American Community Survey provides data of the number (and percentage) of senior households who have a disability prohibiting one to live independently (ACS Table B18107). Another data source is the Center for Medicare & Medicaid Services which publishes a yearly survey which includes data on those that are in need of assisted living/nursing care. The U.S. Department of Health and Human Services (HHS) also publishes frequent reports that evaluate the share of the senior population who will eventually require stay within a residential facility with integrated health care services. However, HHS generally does not provide detailed estimates of senior housing stay statistics specific to geographies.

Given the very specific housing type of affordable assisted living and that assisted living is housing of need rather than of choice, higher capture rates than traditional rental housing alternatives are achievable.

The fourth variable of consideration is the evaluation of the existing supply in the market that is already serving the targeted tenant profile. As detailed earlier, there will likely be limited or no other affordable assisted living communities in the respective market of study. Those individuals that are age-, income- and asset-eligible and have the declining health that would qualify for stay in an affordable assisted living community are currently being housed somewhere. The alternative housing can include staying and receiving care from family members, receiving in-home care, receiving financial support from family members while residing in a market-rate assisted living community, and residing in a nursing home utilizing Medicare subsidy. Analysts should make a reasonable estimate of the competitive overlap with existing facilities in the market to derive a penetration rate. Much like the capture rate, an acceptable penetration rate for affordable assisted living may be high. The analyst should provide a discussion of the achievability of the penetration rate.

Rental Supply & the Competitive Environment

Affordable assisted living communities that are financed with LIHTC and also operate with Medicaid waivers subsidizing the costs for assisted living services are a very specific housing alternative. The only ‘true’ comparables are other affordable assisted living communities. As previously discussed, there are likely no other affordable assisted living projects in the PMA. To stress-test the feasibility of the subject development, and to further mitigate risk, analysts may consider evaluating the hypothetical scenarios of the proposed subject development operating as a private-pay, market-rate assisted living community (no consideration of affordability) or as a traditional senior LIHTC community (no consideration for the assisted living services). Some states allow private-pay facilities to accept Medicaid waivers, it is important to understand the state policy around this as well as any Medicaid limits private-pay facilities put in place and an estimate of house many Medicaid households are being served.

The methodology for the selection of comparable/competitive properties is documented in the Selecting Comparable Properties White Paper.

Potential Red Flags

  • An unsupported PMA delineation: Oftentimes, analysts will document a PMA that is too large from both demographic and geographic perspectives when evaluating the feasibility for a residential health care community. While PMAs for this product type will be larger than the PMAs for other housing alternatives, the PMA should still be reasonable.
  • Considering too young of an age cohort: Under LIHTC or Medicaid guidelines, residency can be programmatically restricted to those age 55+, 62+ or 65+. In reality, most residents that will respond to an affordable assisted living community will be age 75+.
  • Double Counting Demand: When evaluating those senior households who are income- and asset-qualified, it is important to not double-count the individual variables of consideration as this can overestimate the overall demand.
  • Consideration of Competitive Supply: While a senior individual may be income- and asset-qualified to reside in an affordable assisted living community, this individual may not choose residency within such a facility. For example, a resident sponsor may provide financial support to procure housing in a private-pay, market-rate facility. Thus, the private-pay assisted living landscape should be considered when evaluating a proposed project’s feasibility.

Additional information can be found by reviewing the Evolving Thought Document titled: Affordable Assisted Living: New Frontiers for Aging in Place.