Too few rest homes are being built to meet a massive rise in demand, because running them isn't profitable enough for the private sector, according to a new study of the healthcare sector.
Westpac's industry sector report suggests an increase in government subsidies will be necessary to stimulate rest home investment to provide care for an ageing population, which was expected to double in the next 25 years to more than 1.25 million people over 65.
Report author David Norman said the government was counting on the private sector to provide about 40 percent of the rest home beds, needed over the next decade, but there will be a substantial shortfall unless drastic action was taken.
He said the major reason for the gap was that stand-alone rest homes were not profitable.
Any home with less than 125 beds could not turn a reasonable profit, because they lacked the scale required to cover their costs, particularly as they faced an increasing administrative burden.
"They are just not making ends meet. It's as simple as that," Mr Norman said.
The government subsidy is between $884 and $972 a week, or capped at $139 a day to cover all basic care for a person, including accommodation, food and nursing support. The additional medical costs were often borne by the rest home, from a total budget of $1000 a week.
He said it would be difficult to estimate what an appropriate level of subsidy would be to stimulate investment, but people working in the sector believed an increase of between 20 and 30 percent would be required to make a rest home profitable.
In the meantime, many small rest home operators in cities and towns were going out of business, or being gobbled up by larger players.
Mr Norman said the implications were substantial, particularly for small towns, which would be left without a facility in the community.
He said the shortage of rest home beds would also place a greater burden on hospitals, who would have to house elderly patients while they waited for a placement, which could be three to six times the cost.
Another issue was that many existing facilities were old and in need of replacement, but rapid rises in construction and land costs made the investment uneconomic.