The latest UARC Report has confirmed the capital challenge facing aged care providers, but there are operators that say they are prepared to build new aged care beds – when the Government releases its response to the Aged Care Taskforce.
The latest issue of SATURDAY highlighted the hurdles facing developers looking to build, but aged care providers face an additional challenge: capital financing.
Last Thursday, the UTS Ageing Research Collaborative (UARC) released its Australia’s Aged Care Sector: Mid-Year Report 2023-24 for the six months to 31 December 2023.
The Report notes that the increasing demand for the refurbishment of current aged care facilities and new development requires between $55 and $72 billion in investment over the next decade alone.
“For the residential sector to sustain sufficient capital investment, its returns on capital must equal at least the cost of capital invested and be competitive compared to other health-related investments,” it states.
Back-of-envelope calculations based on the current 220,000 aged care places and the $72 billion price tag suggest that the sector will need to find $89 per bed day – or $32,000 per bed per annum – to generate a return greater than the cost of capital.
The latest StewartBrown figures show that aged care homes are averaging $7,222 per bed per annum.
The proportion of assets held as equity has also declined, with Refundable Accommodation Deposits now financing two-third of the sector’s assets (see the graph above).
Sector starved for capital
In short, the numbers just don’t stack up.
“Policy uncertainty and the sector’s poor financial performance will make raising sufficient capital to meet capital requirements in the coming decades highly challenging,” the report concludes.
But despite this concern, there is renewed optimism that change is coming in the form of the Government’s response to the Aged Care Taskforce.
This week, I met with the CEO of a large Not For Profit in our Balmain East offices.
With zero beds currently in its development pipeline, the organisation is now hoping to more than double its number of aged care beds to 5,000 in the coming years through new developments and acquisitions.
“We’re hopeful that the Taskforce outcomes will be positive for the business,” they stated.
“We feel that there will be growth in the business and people will start building again, looking at sites, refurbishing facilities … because we have to, and Government knows that that has to happen. They just need to support that it gets done so I’m ever optimistic.”
Plans to grow and build
There are no simple solutions here – as we recently highlighted in our Development issue of SATURDAY, many operators are turning to larger sites to make the business case for new developments stack up.
Private operators face even greater challenges because of the need to pay payroll tax and stamp duty.
But the incentive – and intent – to build and grow is now there – provided there is bipartisan support for the recommendations and future funding reform.
“It doesn’t matter what Government is in power, the growth of the population over 65 will be every Government’s response,” said the CEO.
“I … believe that all parts of our Parliament are listening to the needs and that … this is a problem that they collectively have been voted by the Australian public to fix.”
