The foundation found that the need for rental houses for older people was projected to increase 81 per cent over the next 12 years, from 2120 houses to 3830.
A third of older people rented from social housing providers, and the rest from private landlords.
The council owned 246 units in nine villages across Tauranga - four in Mount Maunganui, three in Tauranga and two in Greerton, according to nformation provided to the committee in a meeting agenda said
Combined, the villages were worth $31.3m in 2015.
The villages provided affordable housing is for people aged 65 and over who would otherwise struggle to find a home.
While well located, the review found the units were small and poorly designed by modern standards. There also were not enough to meet forecast demand.
The ageing villages were built between the early 1960s and 1985. More than a third of the units were more than 50 years old, and none less than 25.
One village was estimated to need redevelopment within five years, with another three within 10 years. The potential cost of upgrading or redeveloping those houses was a major factor in the foundation's recommendation.
Only a third of the portfolio met minimum standards to a 'good' rating. Most do not have secure storage for mobility scooters and one had no on-site parking for residents. One village has a communal laundry and in some villages, the units were so small tenants could not fit their fridge in their kitchen.
The council had no long-term plan or funding set aside for upgrading or replacing unity, according to the review.
"As such we believe Council's Elder Housing service as currently operated is not sustainable for meeting Tauranga's increasing elder housing demand as its properties are poorly placed, limited in number and do not meet current elder housing standards.
The reviewers considered options that also included the council retaining ownership, retaining ownership and redeveloping the villages, and leasing or partnering with a community housing provider.
Exiting the service altogether and selling the portfolio on the open market was discounted as it could be bad for residents and the wider community.
The reviewers also thought it unlikely a commercial operator would be able to keep the rent affordable without losing money, considering the work that was needed.
Whakatane District Council and Hamilton City Council also sold pensioner housing to community housing providers.
The review and its recommendations will be presented to the council's Community and Culture Committee meeting next Tuesday.
You can read the report on the council's website.
