Nap Time is Over

America has a childcare problem. Actually, scratch that – America has a childcare crisis.

And like most crises in real estate, the gap between supply and demand is where the opportunity lives.

There are ~15 million children under five who need formal childcare in the United States.

There are only 11 million slots available.

That's 4 million kids with nowhere to go!

A 28% gap between the children who need care and the spots that exist.

Meanwhile, families are paying more than ever. The average household now spends $13,128 per year on childcare – up over $1,500 from just a year ago, outpacing inflation by 7%.

In 45 states, the annual cost of childcare for two kids exceeds annual mortgage payments. 

Read that again. Childcare costs more than housing.

So demand is massive, prices are surging, and supply can't keep up. A real estate dream, right?!

It is. But not the kind you might think.

The Commercial Daycare Trap

The traditional playbook – lease a commercial space, build it out, get licensed, open the doors – sounds simple enough.

It isn't.

The zoning gauntlet is real. Opening a daycare in a commercial space triggers a completely different regulatory regime than most small businesses.

To name a few:

• Conditional use permits

• Public hearings

• Parking mandates

• Proximity-to-outdoor-space requirements

• Fire safety clearances

• ADA compliance

Each one a potential project-killer that adds months to a timeline.

In many municipalities, childcare centers are only allowed in a narrow slice of commercially zoned land. 

And even if you clear every zoning hurdle, there's a bigger problem. The biggest problem, actually.

People.

The Staffing Crisis No One Can Solve

This is the part that really grabs our attention. 

The median hourly wage for a childcare worker in the United States is $15.41. That's $32,050 per year.

Half of what the median U.S. worker earns. Less per hour than the average fast food worker or retail salesperson.

These are the people responsible for the safety and development of your kid. And in the metros where childcare demand is highest, $32,050 doesn't cover rent, let alone rent and the cost of raising your own kids. How exactly is someone supposed to build a life on that?

Spoiler: they can't. So they leave.

Childcare employment plummeted more than 30% during COVID. It's rebounded some, but remains below pre-pandemic trends and well below what's needed to meet demand.

So you've got a sector where demand far outstrips supply, prices are rising faster than inflation, the regulatory environment is hostile to new entrants, and you can't find or keep workers at the wages the business model supports.

Economists call it "a textbook example of a broken market." 

Hard to argue with that.

Enter the Home-Based Daycare

Here's where it gets interesting – and where the staffing problem starts to look more like an opportunity than a dead end.

The fundamental issue with commercial childcare is that the economics don't work for the worker. You're asking someone to commute to a commercial facility, work a physically and emotionally demanding job, and accept $15/hour for the privilege.

No wonder they leave for Target.

Home-based daycare flips this equation. 

What if you can offer them a market rate pay, but also nice, safe housing as part of their compensation? When the lead caregiver lives in the home where they operate, the math changes. Dramatically. There's no commute. There's no rent payment eating up their income. 

A home-based provider earning the same gross revenue as a commercial center employee is functionally earning far more, because a massive chunk of their living expenses are absorbed by the business.

Businesses should like it too – a caregiver is far less likely to leave for another opportunity when they are getting a place to live as part of their job. So you get an engaged, thoughtful leader that is happy to do something they are passionate about and still be able to afford to live!

That's the unlock.

The regulatory picture is simpler too. 

In many states, home-based providers in residential zones can skip many, or all, of the aforementioned zoning pitfalls. They can get a license and hit the ground running. 

Why This Matters to Us

If you've been reading this newsletter (Housing Housing Housing), you know we love the OpCo/PropCo model. Home-based daycare is a textbook case.

The PropCo – the residential real estate – is the home itself. And unlike a commercial daycare lease, a home retains its full residual value as… a home. The real estate risk is fundamentally different.

The OpCo – the childcare operation itself – is increasingly enabled by technology platforms that handle licensing, enrollment, billing, marketing, and compliance. And most importantly, curriculum building and operator oversight! 

Massive demand-supply imbalance. High barriers to traditional entry. A broken staffing model that home-based care structurally solves. A technology layer making it easier for new operators to get started. And residential real estate as the underlying asset.

This is exactly the kind of niche, operationally-driven, tech-enabled opportunity we look for. We're actively evaluating the space and talking to operators, platforms, and investors who are building the next generation of childcare infrastructure – one home at a time.

We’re actively investing in the space. If you want to learn more, reply here or shoot us a note at [email protected].