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As America’s baby boomers redefine old age, a tectonic shift in housing demand is underway. The traditional image of seniors settling into retirement homes may soon be as outdated as dial-up internet. Instead, more seniors are looking to “age in place”—remaining in their homes and communities with the support needed to live independently.

This trend is reshaping the real estate market, and developers and investors alike are eyeing a new breed of housing options to meet these changing demands. However, as this market unfolds, the real investment opportunity lies not in traditional senior housing but in innovative, flexible housing solutions that cater to older adults’ evolving preferences.

Traditional senior housing is projected to surge in occupancy as the aging population booms. Occupancy rates in senior housing have rebounded, reaching levels nearly back to pre-pandemic figures, with a projected 91% occupancy rate in key markets by 2026. AEW Capital Management, managing 70 senior housing assets valued at over $3 billion, has positioned senior housing as its top investment category for 2025, citing a positive outlook driven by demographic momentum.

Yet, while this growth is promising, it doesn’t fully capture the nuances of baby boomers’ preferences, which increasingly lean toward independence and community-based living rather than traditional senior housing.

According to Harvard’s Joint Center for Housing Studies, the U.S. population of adults aged 65 and older has soared by 34% over the past decade, and the oldest boomers will soon enter their 80s. This cohort is rewriting the script on aging, with more than 80% choosing to live in their own homes rather than specialized facilities. By 2040, the number of U.S. households headed by someone aged 80 or older is expected to more than double, setting the stage for a new wave of housing demand.

For many seniors, aging in place doesn’t mean staying put in a house that’s too big, outdated, or ill-equipped for mobility needs. Active adult communities—a cross between multifamily apartments and senior housing—offer an appealing middle ground. These communities provide independent living with amenities and social opportunities, allowing residents to enjoy a “younger” lifestyle in retirement without the clinical feel of senior housing.

According to Michael Levine, Senior Managing Director at Greystar, the active adult sector is growing, with 6% to 8% rental growth rates in recent years despite challenges in the broader multifamily market.

Active adult communities command a premium over standard multifamily rentals, typically between 12% and 23%, thanks to the added value of social programming and accessibility features that appeal to seniors. However, they’re not immune to financial challenges, especially in markets with high multifamily vacancy rates. As investors consider where to place their capital, understanding these dynamics will be key to capturing the value within this sector.

The real opportunity, however, may lie in retrofitting the existing housing stock and creating hybrid living options that meet older adults’ needs without uprooting them from their communities. Housing affordability remains a critical issue, with nearly 11.2 million older Americans classified as cost-burdened, spending more than 30% of their income on housing—which has climbed steadily over the past decade.

This burden is particularly pronounced among low-income renters and homeowners with mortgage debt.

In response, some housing providers are exploring "naturally occurring retirement communities" (NORCs), neighborhoods that develop organically as older residents age in place. These communities often lack formal support but could benefit from coordinated services, potentially creating low-cost, high-impact solutions for aging Americans.

Municipalities are supporting NORCs and providing affordable housing options for older adults by developing accessory dwelling units (ADUs), adopting flexible zoning policies, and implementing state-supported housing modifications.

The shift toward aging in place presents challenges and opportunities. While traditional senior housing has value, particularly for those with high acuity needs, the aging population’s strong preference for independence suggests that the bigger opportunity may lie elsewhere. In today’s environment, housing that promotes social engagement, affordability, and adaptability will likely capture the interest—and wallets—of the next generation of seniors. The future looks promising for developers and investors willing to think beyond the conventional model.

SNIPPETS

1️⃣ Housing Hope: Fannie Mae's Home Purchase Sentiment Index rose to its highest level since February 2022 in October, reaching 74.6 points. However, this optimism may be short-lived as mortgage rates have since rebounded sharply. While four out of six index components improved, including buying conditions and mortgage rate outlook, 80% of Americans still believed October was a bad time to buy a home. (Inman)

2️⃣ Foodie Retirement: According to a survey by Age of Majority, 71% of boomers consider food quality "very important" when considering a move to a new community. This preference for high-quality cuisine has led many retirement communities to upgrade their culinary offerings, hiring top chefs and nutritionists, designing elegant dining facilities, and organizing food-related activities to cater to the sophisticated palates of potential residents. (Realtor.com)

3️⃣ Mortgage Mates: Fitch Ratings projects a positive outlook for nonbank mortgage lenders in 2025 despite the initial rise in mortgage rates following Donald Trump's election. The agency expects declining rates to boost mortgage origination volumes, leading to increased profitability for these lenders. Industry forecasts predict a significant increase in mortgage originations, with estimates ranging from 28% to 28.5% growth. (HW)

4️⃣ Zillow's MLS Prophecy: At NAR's annual conference, Compass CEO Robert Reffkin sparked controversy by suggesting Zillow could become the national MLS, criticizing NAR's Clear Cooperation Policy. The debate highlighted tensions between industry competition and consumer interests, with Zillow's representative, Errol Samuelson, defending the current MLS system as fair and efficient. (Inman)

5️⃣ Neom's CEO Mirage: Nadhmi al-Nasr, CEO of Saudi Arabia's ambitious Neom megacity project, has stepped down after six years in the role. The abrupt departure comes as Neom faces numerous challenges, including scaled-back targets, financial issues, construction delays, and human rights concerns. Aiman Al-Mudaifer, a real-estate executive from the Public Investment Fund, has been appointed acting CEO. (Business Insider)

6️⃣ Home Sweet Inflation: October saw a 2.6% annual inflation increase, primarily driven by rising housing costs, which accounted for half the overall figure. This uptick complicates the Federal Reserve's efforts to lower interest rates and declare victory over inflation. Paradoxically, higher interest rates may contribute to increased housing costs by making it more difficult for homebuilders to borrow and construct new homes. The situation could lead to a slower pace of monetary policy normalization, potentially resulting in a rate pause rather than another cut in December. (Realtor.com)