Mid-tier firm points to dire outlook for aged care

The residential aged care sector is unlikely to keep up with demand over the next decade, according to new research, with the number of required places expected to jump to 278,000 by 2025.

The Residential Aged Care Sustainability Review, compiled by national and advisory firm RSM with support by Macquarie Telecom and St George Bank, examined issues and trends relating to the viability and sustainability of the residential aged care sector.

RSM director Bruce Bailey said that according to projections by the Australian Bureau of Statistics, demand for residential aged care services is projected to increase by almost 68 per cent in the next 40 years.

The review indicated that despite this increase in demand, there is little evidence to suggest enough supply will be created to meet the most optimistic forecasts of residential aged care demand during the next 10 years.

RSM said the poor outlook for aged care supply is compounded by the finding that official estimates of demand are more likely to be underestimated rather than over-stated, with the base rate of demand potentially standing at 35,000 places above official forecasts, if current utilisation rates are maintained.

The review also found an emerging trend towards shorter residential aged care stays of between one and three months, which it said could be contributing to higher vacancy rates, despite falling supply trends.

The research also suggested the percentage of allocated places that are not being made operational is increasing.

“This may reflect the industry being more focused on investment returns than creating additional capacity,” said RSM.

Mr Bailey said many of the overarching industry trends we’re seeing in the residential aged care industry suggest that the profitability of the sector is actually declining, despite increasing demand.

“Although there was improvement in operating performance in 2014, the industry is no more profitable than it was in 2012,” said Mr Bailey.

The research, he said, also suggests that in addition to declining profitability in the sector, return on assets and equity in the sector is also declining.

“As a result, the industry is likely to become increasingly reliant on short-term finance in the form of resident loans, which increases the risk profile of the industry.”

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