$3B aged care package may fund just three homes a year
Funding gap remains
- 275 beds: Package may support only around 275 additional aged care beds a year
- 5,000-bed target: Well below the Government’s annual supply ambition
- $550,000 per bed: Typical development cost excluding land
- Feasibility challenge: Current funding settings remain below development requirements
Colliers analysis suggests the Federal Government’s $3 billion aged care package may fund only around 275 additional residential aged care beds a year.
That is equivalent to just two or three typical 100-bed aged care homes a year – a fraction of the approximately 5,000 new beds annually the Federal Government has targeted to meet Australia’s ageing population.
While the broader package totals $3 billion, Colliers estimates only $606.5 million is directly linked to supporting new residential aged care supply, including $348.4 million over four years in capital subsidies.
A long way from 5,000 beds
“While we welcome the additional investment as a constructive step toward addressing long-standing undersupply in residential aged care, the package ultimately falls short of materially shifting the investment equation,” said Bruce Message, Director, Advisory Services – Healthcare & Retirement Living at Colliers.
“The structural gap between rising construction and capital costs and the returns supported under current policy settings remains too wide to unlock supply at the scale required.”
A key component of the Government’s package is an additional $30 per supported resident per day for new aged care homes.
While Bruce said the measure would provide some operational benefit, he argued it was unlikely to significantly change development feasibility.
“It’s nice to have from an operating perspective, but from a capital perspective, it is not enough to change investment decisions,” he told The Weekly SOURCE.
“My understanding was there had been discussion around increasing support by roughly $60 to $80 a day. When it came out at around $30 a day, based on my analysis it doesn’t do anything significant in terms of operators deciding to go and build.”
Construction costs still outweigh support
Total development costs are now approximately $550,000 per bed, excluding land, according to Colliers.
The firm argues the gap between development costs and available accommodation funding remains a significant barrier to new supply, particularly in metropolitan markets.
See their calculations below.
For now, Colliers argues the economics of new development remain problematic, raising questions about how Australia will deliver the residential aged care capacity needed over the coming decades.
Given the strain on the Budget, it’s unlikely that future funding announcements alone will solve the sector’s challenges.
But when demand continues to outstrip supply, waiting for Government is not a strategy.
“I think you’ve got to go out and be innovative and be aggressive to grow your bed numbers,” Bruce concluded.
We will explore the challenge of funding and delivering Australia’s next generation of aged care beds – plus retirement living and land lease homes – in this week’s edition of SATURDAY. Not a subscriber? Sign up here.
