Why won’t $5 billion in village sales build a single care bed?

The gap is now $650 million and widening

Westpac’s latest sector report lands with a number the aged care industry has been shouting about for years. The funding gap between what it costs to look after New Zealand’s elderly and what the government pays reached an estimated $650 million in 2025, up from $170 million in 2014. That is a 290 percent widening over a decade.

Westpac industry economist Paul Clark puts it plainly. The gap reflects “a persistent mismatch between government funding and the actual cost of care,” with labour, clinical, compliance, insurance and capital costs rising faster than funding. The sector runs 41,500 beds on total funding of just over $2.7 billion in 2025, of which residents themselves paid $1.2 billion.

Plenty of money, wrong pocket

Here is the part that turns a familiar sector complaint into something sharper. Clark estimates retirement village operators are pulling in roughly $5 billion a year from occupation rights agreement resales, calculated on around 8,000 units changing hands at $600,000 each. There is no shortage of capital in the retirement sector. The shortage is in the willingness to point that capital at care.

The reason is brutally simple. Care does not clear the financial hurdle. The July 2024 funding review found the internal rate of return on new aged residential care sits below the weighted average cost of capital, meaning the investment destroys value. In 2022/23, more than 56 percent of facilities made net losses, bleeding $4.24 per operating bed day.

A single new bed costs upwards of $250,000 to build and takes about five years from land purchase to admitting a resident. Ask any business owner to sink that much capital into a loss-making line with a five-year lag and inelastic demand, and they will politely decline. That is exactly what the sector is doing.

Capacity is going backwards

Clark’s most telling observation is not the size of the gap but what it does to behaviour. Integrated operators can use property income to offset care losses, but he notes it is “resulting in less investment being made in aged residential care” because it simply is not profitable enough.

The data confirms it. New bed construction slowed from 2,400 beds added between 2013 and 2018 to only 1,900 in the following five years. Meanwhile 21 facilities have closed since January 2021, stripping out 969 beds. A Te Whatu Ora-commissioned projection warned of a potential shortage of almost 12,000 beds by 2032 if historic build rates hold. Build rates have since fallen, so the real number is likely worse.

This is a textbook case of price controls suppressing supply in a market with rising, inelastic demand. EY analysis cited by Treasury in 2024 found it “difficult to earn an adequate return from either small or very large facilities”, a structural pricing failure rather than an efficiency one.

The small operators have no buffer

The integrated players at least have property income to lean on. Around 59 percent of facilities are run by small operators or charities with no development pipeline to cross-subsidise care. They take the full force of the gap, and they are the ones closing.

Even the giants are straining. In May 2024, Ryman Healthcare reported net profit down 98 percent to $4.8 million after $283.9 million in impairments, and shifted more of its development pipeline to Australia. In April 2024, BusinessDesk reported funding pressures were driving listed providers out of aged care altogether.

The bill does not disappear, it moves

The fiscal maths should embarrass Treasury. The government’s own breakeven estimate for hospital-level care is $372 per day, and it is not even funding to that level. The alternative, a public hospital bed, costs $1,700 a day, more than four times as much. Every bed that fails to get built pushes an elderly patient toward the most expensive part of the health system.

The diagnosis is not new. Back in 2016, a Westpac report found stand-alone rest homes were already unprofitable and needed a 20 to 30 percent subsidy lift. In 2022, NZIER research found “little incentive” to invest in new beds under the existing model. A decade of consistent warnings, and the gap has done nothing but grow. For the many business owners now managing care decisions for ageing parents, that means longer waits, fewer beds and higher premium charges. The demand is guaranteed. The capacity is not.

Sources

• Aged care sector faces $650m funding gap, despite $5b a year in village sales (2026-08-14)
• Aged Residential Care Sector Profile 2024 (2024-03-06)
• Aged care service model and funding review (2024-07-22)
• Aged Care in a Changing World: good, better, best (2025-06-16)
• Analysis undertaken recently by EY on costs in Aged Residential Care (2024-05)
• Funding ‘crisis’ drives listed providers out of aged care (2024-04-10)
• Too few rest homes for NZ’s aging population – report (2016-10-07)
• Assessing the equity issues facing aged residential care over the coming decade (2022-07-15)