Construction of new seniors housing units has slowed by 12% over the last year largely due to the frozen credit markets and building activity is likely to decline even further in the months ahead, a new report concludes.

About 45,000 seniors housing units were under construction in the 100 largest markets at the end of March, compared with about 54,000 units at the same time in 2007, according to the "Seniors Housing Construction Trends Report-2008."

"What we are starting to see is a significant drop in new [building] starts," says Robert Kramer, president of the National Investment Center for the Seniors Housing & Care Industry (NIC).

The report by NIC and the American Seniors Housing Association was recently released at NIC's annual conference in Chicago.

While Kramer expects the projects now under way to open in the next two years, he says new product will become scarce after 2011. The credit crunch that has upended global financial markets and led the U.S. government to devise a $700 billion bank rescue package has caused developers to curtail or postpone new projects. It remains uncertain, however, how the government bailout may impact the opportunity for new deals going forward.

The building data shows that independent living units represent about 37% of the total units under construction, followed by apartments (29%), assisted living (17%) nursing care units (11%) and memory care (6%).

The report also includes the first-ever history of inventory growth of the industry going back to 1985. It shows that the highest rate of growth for independent living buildings peaked at 11.6% in the late 1980s.

Assisted living topped out at 14.4% in the late 1990s. Meanwhile, the highest rate of growth of nursing care units peaked in 1989 at just 4.5%.

"These numbers put things in historical perspective for the investor," says Kramer. The growth experienced in the last several years in the independent living and assisted living sectors "pales in comparison" to the growth that took place earlier in those sectors, he adds.

Meanwhile, the construction of new nursing homes continues to decline. There are currently 5,123 nursing beds under way, which is just 0.6% of the existing supply in the 100 largest markets. In 2007, the percent of nursing care beds under construction was 0.8% of the existing supply.

"We see growth in all forms of seniors housing except for nursing care," says Kramer. "We will reach a point in the next 10 years where skilled nursing will no longer be the primary [seniors housing] segment."

By market, Chicago has the most seniors housing units under construction (2,870). Seattle ranks second (2,602), followed by New York (1,747), Denver (1,719) and Phoenix (1,704). These five metro areas represent 24% of all seniors housing units reported under construction in March 2008.

Dallas has had the most new projects (59) open over the last five years, followed by Chicago (46), Los Angeles (40) and Seattle (40).

Looking ahead, today's construction decline might not necessarily translate into big profits for operators in the near future, Kramer says. The average age of new residents has gradually been creeping up.

In assisted living, the average age of new residents is 84, compared with 82 several years ago. So fewer people might be moving. And the big wave of baby boomers won't be ready for seniors housing until about 20 years from now, Kramer says.

"The industry will have time to find out what boomers want," says Kramer. "And they will want something different from their parents."

Kramer says the focus will be on lifestyle and experience. The whole notion of successful aging will be important, and buildings will have to focus on fitness, nutrition, active learning and socialization.

It will be up to the industry to draw the contrast and show what it will be like to live in a vital community versus living alone at home, emphasizes Kramer. "Boomers will want to maximize the [retirement] experience, not avoid it.”