The annual Consumer Price Index (CPI) plunged to 5.0% in March 2023, its lowest rate since May 2021. Despite this recent deceleration in price increases, it remains difficult to say if and when inflation will meet the Fed’s 2-3% inflation target.
Increasing costs are affecting communities at all levels. Argentum has labeled the “most acute” challenge in the industry: staffing challenges. According to a recent study by the American Health Care Association and National Center for Assisted Living, nearly 60% of assisted living communities said their overall workforce situation has gotten worse since 2020. To combat this ever-growing issue, many providers have substantially increased wages to attract and retain valuable talent.
What’s more, average costs for standards of living have increased. In just the last two years, average food prices and housing prices have each increased 6.1%; electricity prices have increased 6.6%.
Providers have options, but most are focused on increasing resident rates to offset these inflation-related spikes. According to the National Investment Center for Seniors Housing & Care (NIC), providers are slowly increasing resident rates to catch up with the steep increase in costs. But the question remains, will the market support higher resident rates?
“It is vital to understand what current and potential senior housing residents are willing to pay and the potential impact of higher rate increases on the pace of move-ins and move-outs,” says NIC. “Monitoring this relationship can help demand and occupancy recover faster, and inform the potential for future rate increases, especially as inflation eventually subsides.”
While more and more senior households have larger annual incomes and home values than projected over the last several years, that fact doesn’t necessarily translate to their desire to move-in and pay higher resident fees. Providers are seeing the current senior mindset become increasingly cautious and concerned about inflation and the economy. This mindset is pushing providers to offer an increasing level of incentives to make continued gains in occupancy. Providers are also seeing increasing levels of marketing spend to continue attract age and wealth qualified prospects.
Adjusting the resident pricing structure to help afford higher operating costs is the most logical solution. While managing costs is critical, it is impossible to save your way to prosperity. Understanding your market and how your brand is viewed in the current climate is critical to evaluating annual rate increases and adjustments to your resident pricing structure. Greystone is currently assisting providers to evaluate the market opportunity and make recommendations on how to adjust the pricing structure to broaden the market and create financial stability (known as a Strategic Pricing Analysis). Other providers are partnering with Greystone to expand their continuum to increase scale and financial horsepower to combat rising costs.
For more information how Greystone is actively working with providers to grow, adapt and change their business, visit our website at www.greystonecommunities.com/insights.