RSM Australia

The balance between supply and demand for residential places

The release of the ACAR for 2015 and recent research undertaken by RSM for our Aged Care Sustainability Review 2016 provides an opportunity to consider how the supply management regime is working in residential aged care.

The below table from the RSM Aged Care Sustainability Review shows the degree of interest in recent Aged Care Approval Rounds:

 

2009 (Dec 2008)

2010 (Dec)

2011 (June)

2013 (Dec 2012)

2014 (June)

2015 (Sept)

ACAR places
offered/allocated

5,748

5,643

7,933

7,775

11,196

10,940

ACAR places sought

 

 

12,295

10,975

19,169

38,859

Places sought
relative to places
offered

 

 

1.6*

1.4*

1.7*

3.6*

Table 1 – Aged Care Approvals Round results 2009-2015.

While it is arguable that the dip in interest in 2013 relates to the uncertainty surrounding the reforms flowing from Living Longer, Living Better policy, 2015 clearly demonstrates provider support for the new accommodation charge regime and the increase in the accommodation supplement for supported residents. At this level the policy direction appears to have been a resounding success.

At the time of writing, the Aged Care Roadmap had been released and in the section What care is available?, the plan is to cease the process of allocation of places. As it takes on average 4.2 years to bring places on board this begs the question of why is there such a large increase in winning places in the ACAR?

Delving deeper into the data around places and investment in new building provides a clearer picture of what is happening to the stock of places. Table 2 shows the percentage of allocated places that are actually operational:

 

2011

2012

2013

2014

2015

Stocktake
Operational
places

185,559

187,941

189,761

192,834

195,953

Stocktake
Allocated
places

207,279

214,059

220,030

220,585

231,615

Operational
percentage

90%

88%

86%

87%

85%

Table 2 – Stocktake of operational vs active places.

Notwithstanding an increasing appetite to win places in the ACAR, a relatively small number of these places (3,000 in 2015) are being brought on line. As of 2015 the percentage of on line places was at an historic low of 85%.

The current official forecast of the investment required to meet the demand for new places as shown in table 3 and the level of building activity in table 4. These tables suggest that in financial terms there is a significant lag in construction that has to be addressed if the required additional places are to be brought on line to meet forecast demand. Practically this will require an increase of 300% to 400% in historical level of activity.

The table at the top of the next page shows the recent new construction building activity:

Year

2015

2016

2017

2018

2019

Investment required (billion)

$2.0

$2.3

$2.6

$2.9

$3.3

Year (continued)

2020

2021

2022

2023

2024

Investment required (billion)

$3.6

$3.7

$3.7

$3.6

$3.6

Table 3 – Investment required for new places 2015-2024.

 

2009

2010

2011

2012

2013

2014

Completed

$968

$1,028

$750

$523

$440

$703

In progress

$731

$441

$428

$464

$735

$865

Total

$1,700

$1,440

$1,050

$896

$920

$1,554

New building work ($ million).

Considering the rate at which places are coming on line and the level of building activity it may not be inappropriate to suggest that the interest in ACAR is more about developing investment pipelines and taking out insurance against the time to bring facilities on line than reflecting a current intent to expand capacity.

The Aged Care Amendment (Red Tape Reduction in Places Management) Act 2016 which came into force in February 2016 seeks to address the rate at which places are brought on line.

There are two key measures:

  1. the initial approval has been increased from two to four years
  2. there is a more limited scope for having extension approved

 

We see both of these as positive in terms of turning potential supply into active places.

Based on the above and other research undertaken by RSM we are firmly of the view that now is the right time to be actively expanding supply in appropriate regions. Those who act will either create first mover advantage in the event that supply is deregulated, even if deregulation of supply is delayed there is sufficient underlying demand to fill any expanded supply that can be created in the short term.