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For-Profit Corporations Enter the Licensed Private Senior Housing(Yuryo Rojin Home)Sector in Droves

By Masako Osako, Ph.D
(Member of ILC-USA Project Advisory Committee)


The private senior housing sector is growing rapidly in Japan. The number of senior housing facilities meeting government criteria for care-providing private senior homes ( "yuryo rojin home," "licensed private senior housing," or "LPSH") jumped from 350 in 2000 to 1,144 in 2005. This increase is attributable in large part to a provision in the Long-Term Care Insurance (LTCI) Law of 2000 that made it possible for the elderly living in a LPSH to benefit from the insurance. The revision also helped LPSH to attain a degree of financial stability, because it is now reimbursed by the LTCI for the insurance eligible services it offers to its resident elderly. Approximately 75% of owners of LPSH are for-profit entities including major corporations in a variety of industries. LPSHs in Japan resemble assisted living facilities in the U.S. in terms of function and financial operations but are differentiated from their US counterparts by being required to meet the Japanese government's specification as to unit size and services offered (Inoue, 2005).

Overview of Long-term Care Facilities in Japan

The large majority of long-term care facilities in Japan are operated by governmental units or social welfare foundations (shakai fukushi hojin) as shown in the chart below. LPSH currently represents about 13% of available elderly housing in terms of the number of residents cared for. However, this sector has been growing rapidly for the last six years, and the trend is expected to continue. Demand for LPSH is reportedly strong, partly because there is a long waiting list for government operated long-term care facilities (see table below) and partly because affluent elderly are looking for high quality facilities. Many LPSH units specifically cater to upper income seniors. However, compared to other types of senior housing, the occupancy rate of LPSH is moderate at 72%, which is partly attributable to the fact that many LPSH were recently opened.

# of
Growth of
facilities #
Yogo Rojin Home (Homes for the elderly) Municipal governments or shakai fukushi hojin(social welfare foundation) 67,181 949 962 1.4% 95%
Tokuyo Special nursing homes for the elderly Municipal governments or shakai fukushi hojin(social welfare foundation) 363,747 4463 5291 18.5% 95%
Keihi rojin home Homes for the elderly which charge a moderate fee Municipal governments , shakai fukushi hojin(social welfare foundation), for-profit entities 60,951 1444 1928 33.5% 90%
Yuryo rojin home Licensed private senior housing Municipal governments , shakai fukushi hojin(social welfare foundation), for-profit entities 76,128 350 1045 299% 72%

Source: Ministry of Health, Labour and Welfare
Note: 2004 is the latest year for which data are available from the Ministry.

Dominance of For-Profit "Entities among LPSH Owner/Operators

As of August 2005, there were a total of 1,398 LPSH facilities. Of these 76.2% are owned/operated by for–profit entities, while the rest are owned/operated by social welfare foundations (shakai fukushi hojinn) (14.2%) or others, including foundations and cooperatives.

What accounts for this active interest in senior housing on the part of for-profit corporations? Being keenly aware of the impact of population aging, in the last five years, many Japanese corporations entered the senior housing market as part of their business diversification strategies. Participating industries range widely from utilities, real estate, and insurance to manufacturing. Some acquired or established joint ventures with senior housing management companies, while others started their own operations from scratch. These ventures into the senior housing market often met another need. As part of the corporate restructuring that took place throughout the 1990's, a large number of Japanese corporations had to dispose of non-core facilities, such as employee dormitories and resort houses. Conversion of these properties into senior housing units was considered a desirable solution.

A small number of corporations, including Toyota Motor Corporation, entered the senior housing market with a somewhat different motivation. They viewed the move as a human resource measure. For instance, in 2005, Toyota announced the construction of a senior housing facility with the primary beneficiaries being their retirees and employees' aging parents.

Examples of Licensed Private Senior Housing Facilities

As shown by the examples below, it is possible to identify three types of licensed senior housing facilities by the type of contract between the facility and the resident. (Fujiwara 2006). In the life care type facility (shuushinn riyouken houshiki), which is most common, residents pay an initial deposit (commonly $200,000 to $500,000) plus monthly fees for management, meals, utilities and care (co-payment). In these facilities, each resident has the right to reside in the facility for life. On the other hand, in the rental facility model (tatemono chintai hoshiki), similar to a common commercial apartment, each resident pays rent and monthly fees. Lastly, in the life-rental model,a variation of the rental facility model, a tenant has a right to rent the unit until his death. While the purpose of this contract is to guarantee older persons stability in his living arrangement, this type of contract is still uncommon. LPSH can be also devided into several types by the nature and extent of services available for residents.

Case 1. Kobe Steel, Ltd. has built four assisted living facilities that provide care services. The company opened one facility in June 2006 which caters to affluent customers. Of the total of about 200 units, 105 are for healthy seniors and 97 are for those requiring care services provided under the LT.
Case 2. Hitachi Manufacturing (Hitachi, Ltd.)manages a couple of senior housing facilities through its affiliate, Nikkyou Create Ltd. The first facility was opened in Yokohama in January 2003 and the second in Tokyo in September 2004. The Tokyo facility is located in the environs of the University of Tokyo, a prime residential location in the middle of the City of Tokyo. With an initial deposit in the range of $200,000 to 300,000 (24 to 36 million yen) , these facilities target affluent seniors.
Case 3. An affiliate of Osaka Gas Co.,Ltd. ACTIVELIFE,.Ltd, opened Active Life Toyonaka for upper middle class elderly. This facility does not require an initial deposit, but its monthly maintenance fee is stiff at about $4,000 (425 thousand yen.)
Case 4. SECOM Co.,Ltd., the leading home security company in Japan, operates nine long-term care facilities for the elderly, of which two are under life contract. SECOM believes that its brand name recognition as a home security company is an asset in marketing their senior housing units.

Is Senior Housing a Viable Business for For-Profit Corporations?

The growth of LPSH appears to meet Japanese elderly's diverse needs. But do these ventures meet the needs of for-profit entities? It is still too early to make a definitive evaluation, but market competition appears keen among operators. According to the MHLW survey, occupancy rates for LPSH have ranged between 70% and 74% since 2000. In another nation-wide survey of senior housing operators conducted by Community Network Association, 54% responded that it is a challenge to maintain satisfactory occupancy levels in their facilities (Inoue 2005). The national survey of LPSH providers by MHLW (2004) reports the average gross margin (before tax) was at 4.9%, but no information is publicly available about the number of facilities in the red.

Regulatory oversight

In view of the proliferation of LPSH facilities, Japanese regulators are keenly aware of the importance of regulatory guidelines and oversight. The 2006 revision of the Elderly Social Welfare Law (Rojin Fukishiho) includes several new provisions regarding the handling of residents' deposits, disclosure requirements, and other matters. New provisions include:

The 2006 revision of the LTCI also addresses the issue of excessive market competition that could negatively affect the well-being of residents. The revised law contains a new provision similar to the certificate of need requirements in the U.S. Each prefecture in Japan estimates its needs for long-term care units in its 3-year long-term care support plan. Each prefecture government then has the right to decline any application if its area's needs for licensed senior housing units are already being met (Ono 2006).

References (in Japanese)

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