An aging population presents a number of challenges, including when it comes to basic necessities such as housing. At Lombard Odier Investment Managers we think this presents a variety of investment opportunities.
The developed world is increasingly characterized by an aging population, whereby rising life expectancies are contributing to a rise in the median age of a population. There are around 900 million people aged 60 plus today and that number is expected to reach 2 billion by 2050. At the same time, the number of people over 60 is growing three times as fast as younger generations.
This is going to present both challenges and opportunities for society as a whole. But this demographic also accounts for a large proportion of capital. Seniors and baby boomers control as much as two-thirds of financial assets, primarily in developed markets, which has given rise to the term the Silver Economy.
New Markets for Goods and Services
Older people contribute to the economy as consumers and stimulate new markets for goods and services across a range of sectors. It is then about identifying what the needs and requirements of this demographic are. For example, what does this demographic require in terms of living arrangements?
Better age-friendly housing can help people live longer independently and this has the effect of reducing the cost of long term care. Home adaptations have been shown to improve the quality of life for an estimated 90 percent of recipients, according to research from the European Commission, thereby enabling older people to remain in their own home for longer.
Attractive Investments
Equally, there is a growing need for affordable housing which is suitable for this demographic. There has already been tremendous growth in terms of 55 plus living communities in recent years. A number of the Real Estate Investment Trusts (REITs) that own and operate these communities have manufactured housing which costs one-quarter of the cost of the average cost of a single new family home. These REITs often represent attractive investments, with low betas, steady operating income growth, and decent dividend yields.
These services are also evolving in order to meet the needs of the older generation, opening up new potential market avenues and demonstrating the growth potential of this market. For example, in 2017, Manchester City Council announced the launch of the U.K.’s first retirement community aimed at lesbian, gay, bisexual and transgender people.
New Opportunities
Another market with high potential for growth is senior living facilities. These are generally aimed at older members of this demographic and often consist of independent living, assisted living, and dementia/Alzheimer’s care.
There is currently a shortage of care home places in a number of developed economies and this situation is predicted to worsen. The U.K. alone is expected to register a shortage of 42,000 care home beds within the next few years. Greater investment in this area is required in order to meet growing demand. This marks it out as an area with growth potential but also an area which has the kind of strong fundamentals typically required to weather a downturn. Even in the midst of the financial crisis, senior living operators in Spain performed well, despite the state of the economy.
Demographic changes are already having a significant impact. A consequence of this development is the rise of the Silver Economy which will continue to present new opportunities and challenges in the coming years. Housing is just one area which will require investment and innovation in order to meet demand.
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