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Labor Is a Challenge–A Familiar Lament

Increasingly, operators of seniors housing and care properties are reporting labor shortages in all occupations across their operating platforms, ranging from care managers to executive directors. More broadly, U.S. employers in April advertised the most job openings in 16 years, yet hiring fell and fewer people quit work.   Indeed, job openings rose 4.5% in April to more than 6 million, the most since December 2000, while hiring fell 4.8% to just over 5 million.  Moreover, with the national unemployment rate falling to a 10-year low of 4.3% in May 2017, the challenge of recruiting and retaining employees is expected to only grow.

Shortages in the health care professions as well as other industry sectors, such as the construction trades, are slowly putting upward pressure on wage rates. In the 12 months ending in May, national average hourly earnings for all employees rose 2.5%, up from 2.3% in 2015 and 2.1% in 2014. For seniors housing operators, average hourly earnings are rising at a faster clip and were up between 3.8% (skilled nursing workers) and 4.2% (assisted living workers) as of Q1 2017, according to estimates provided by the Bureau of Labor Statistics (BLS).  Concerns about labor shortages and rising labor costs are of paramount importance to seniors housing operators and owners because labor expenses can account for up to 60% of their expenses.

In the past, feasibility studies largely considered the demand side of the market (i.e., the number of income-qualified seniors and adult children caregivers in a primary market area) and the supply side of the market as it relates to existing and new competition.  Now, studies consider the supply side of the market as it relates to labor, as well.   It is not uncommon to hear operators and developers lament the lack of labor as a reason for not moving forward on a development or acquisition opportunity.

For savvy operators, this challenge, while seemingly daunting, can present a number of opportunities to create a workplace environment that will be sufficiently attractive and desirable to maintain a strong workforce and create a competitive advantage to secure strong growth and promote NOI enhancements. As Richard Branson, founder of the Virgin Group, has said, “Train people well enough so they can leave, treat them well enough so they don’t want to.”

Workplace environment, training and educational programs, benefit packages, and integrative support and camaraderie systems are among the solutions that operators can implement to alleviate some workforce challenges. Relationships are also important. This includes relationships between staff and residents, relationships among staff, and relationships between managers and staff. Less tangible but equally important is an employee’s sense of purpose, especially in this sector, defined largely by service and care. The latter is something that can be created by corporate culture and corporate mission, which needs to be driven from the top.

In addition, creating staff redundancy and implementing systems that can mitigate a single source of failure in the operation is becoming a paramount consideration among business leaders. The creation of assistant executive director programs, for example, is one solution being implemented to help protect the operation from the loss of an experienced and well-regarded executive director, a position often viewed as an operator’s single most important and critical resource for a property’s success.

However, despite these and other efforts by business leaders to address sector-specific labor challenges, a bigger solution regarding labor shortages is needed.  And this bigger solution may be a political issue (at least initially) because it may require changes in U.S. immigration policies toward those entering the United States legally. This is particularly the case for the seniors housing and care sector, since many of today’s hands-on, front-line labor force are new or relatively new immigrants into the United States.

In this environment, operators will need to boost their operational efficiency and staff productivity through technology, training, and mentoring in order to grow their NOI and maintain the bottom line.

About the Author

Beth Burnham Mace

Beth Burnham Mace is the Chief Economist and Director of Outreach at the National Investment Center for Seniors Housing & Care (NIC). Prior to joining the staff at NIC, she served as a member of the NIC Board of Directors for seven years and chaired NIC’s Research Committee. Ms. Mace was also a Director at AEW Capital Management and worked in the AEW Research Group for 17 years. Prior to joining AEW in 1997, Ms. Mace spent ten years at Standard & Poor’s DRI/McGraw-Hill as the Director of the Regional Information Service. She also worked as a Regional Economist at Crocker Bank, the National Commission on Air Quality, the Brookings Institution and Boston Edison.

Ms. Mace is a member of the National Association of Business Economists (NABE), the Urban Land Institute (ULI), ULI’s Senior Housing Council and New England Women in Real Estate (NEWIRE/CREW). In 2014, she was appointed a fellow at the Homer Hoyt Institute and was awarded the title of a “Woman of Influence” in commercial real estate by Real Estate Forum Magazine and Globe Street. Ms. Mace is a graduate of Mount Holyoke College (B.A.) and the University of California (M.S.). She has also earned The Certified Business Economist™ title (CBE) from the National Association of Business Economists (NABE). Ms. Mace is often cited in the Wall Street Journal, the New York Times, Seniors Housing Business, Seniors Housing News and McKnight’s Senior Living and has a bi-monthly column in the National Real Estate Investor.
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