If aged care is a utility, why can’t it afford to build?
At the 2024 LEADERS SUMMIT, Simon Miller observed that Government sees aged care as a utility.
Basically government infrastructure that should make minimum profit at government expense.
The comparison is an uncomfortable one, but the more you think about it, the harder it is to dismiss.
Utilities are essential services. Electricity. Water. Telecommunications. They are services society depends upon, regardless of economic conditions. Governments expect them to be there when people need them.
That increasingly sounds like aged care.
But there is a contradiction at the heart with this thinking.
Utilities are allowed to generate enough return to maintain and expand the infrastructure that delivers the service. Electricity providers invest in poles and wires. Water authorities invest in dams and pipelines.
The system recognises a simple reality: if society depends on an asset, someone must pay for that asset to be built, maintained and eventually replaced.
Aged care operates differently.
A utility without utility economics
Providers are expected to deliver care, maintain ageing facilities, navigate growing compliance obligations and somehow find the capital to build the next generation of homes.
The Federal Government continues to remind us that Australia needs a new aged care home every three days for the next two decades. New research suggests that figure is closer to two days.
Yet when we look across the sector, only a handful of operators are actively building.
Think Arcare. Think Opal HealthCare. Think Rockpool Residential Aged Care.
These organisations are not waiting for the details of the Federal Government's $3 billion stimulus package. They are getting on with the job because they believe demand will continue to grow, regardless of the policy settings of the day.
The rest of the sector tells a different story.
Projects have been paused. Development pipelines have slowed. Boards are questioning whether the risk and return justify new investment.
Can we really blame them?
Fortune favours the courageous
In speaking with our Editor, Lauren Broomham for tomorrow’s edition of SATURDAY, Rockpool Aged Care CEO Melissa Argent tells us that Governments need to get more comfortable with profit. Only then will capital flow, and providers be willing to build.
Perhaps.
But what is striking about operators like Rockpool, Arcare and Opal is not that they are waiting for the perfect conditions.
They are building despite the current funding environment.
They have accepted that aged care may never enjoy the economics of a traditional utility or that funding models will change.
Yet they continue to invest.
The sector needs more beds. Everyone agrees on that.
What it also needs are leaders who have courage – and are willing to back their conviction, deploy capital and build for a future they know is coming.
George Bernard Shaw once wrote that “all progress depends on the unreasonable man.”
Looking across the aged care sector today, perhaps the future belongs to the providers unreasonable enough to build while everyone else waits.
We will look at 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.
