NEW ZEALAND | The cost of developing new aged care facilities has become a central issue in New Zealand's residential care funding debate, with the Ministerial Advisory Group proposing substantial changes to make new beds commercially viable.
Its A Place to Grow Old report recommends funding increases over two years, followed by a pricing structure that recognises the different costs of operating older facilities and financing new developments.
In 2027/28, the group recommends an average increase of 7.1 percent above inflation in prices paid per residential care bed day, through government subsidies and resident contributions. Greater increases would be directed towards rest home and dementia-level care, and facilities in areas with higher land costs.
The second stage, proposed for 2028/29, would differentiate funding according to room age and characteristics.
Under the group's modelling, newly built rooms would attract a further 13.8 percent increase above inflation, compared with 3.8 percent for existing modern rooms. Older, smaller rooms classified as legacy accommodation would receive inflation adjustments only in the second year.
Across the two years, the model indicates an increase of approximately 21 percent above inflation for newly built rooms.
The distinction is important because the current funding model does not adequately account for differences in capital investment. Older facilities and newly developed accommodation can receive the same funding despite carrying very different construction, financing, and depreciation costs.
The report also proposes a condition for providers seeking the highest new-room funding rate. They would need to increase the number of rooms without premium charges by at least one for every two new rooms constructed.
This would link increased development funding to the availability of standard residential care accommodation, an issue providers have already raised as non-premium beds decline.
For smaller and rural operators, the report recommends considering targeted capital assistance where otherwise viable developments face investment barriers. Possible arrangements include loans, underwrites, or equity investment.
The advisory group estimates that planning and building a residential care facility takes approximately five years. Its modelling indicates that if bed supply fails to keep pace with demand, the country could face a shortage of more than 9,000 residential care beds by 2037/38.
The proposed increases are not yet government policy. The group has acknowledged limitations in the available financial data and stressed that its funding estimates are illustrative, not rates providers should use for individual investment decisions.
The recommendations nevertheless put a specific proposition before government: differentiated funding that recognises the cost of developing new accommodation, while providing sufficient support to retain existing residential care capacity.
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