New skilled nursing facility construction has fallen to its lowest level in 15 years, with industry data showing a 40% decline in projects underway compared to pre-pandemic 2019 levels. The slowdown reflects a combination of elevated construction costs, regulatory uncertainty, and shifting investor preferences toward home-based care models.
Cost Pressures
Construction costs for nursing home projects have increased approximately 35% since 2020, driven by labor shortages in the construction industry, elevated material costs, and stricter building code requirements. Current estimates place per-bed construction costs at $280,000-$350,000, compared to $180,000-$220,000 in 2019.
These elevated costs extend development timelines and reduce return on investment, making new construction less attractive compared to acquisition of existing facilities or investment in alternative care settings.
Regulatory Uncertainty
Developers cite regulatory uncertainty as a significant factor in project decisions. Questions about staffing requirements, even following the federal mandate repeal, create planning challenges. Additionally, certificate-of-need requirements in 35 states add time and uncertainty to the development process.
Some states have imposed informal or formal moratoria on new nursing home bed certification, directing Medicaid long-term care spending toward home and community-based alternatives.
Market Implications
The construction slowdown, combined with ongoing facility closures, is gradually tightening supply in some markets. Industry analysts project that bed supply will decline 2-3% annually over the next five years if current trends continue, potentially creating access challenges as the 85+ population grows.
Some developers are pivoting to renovation and repositioning of existing facilities rather than ground-up construction, modernizing older buildings at lower cost than new development.