Policy Paper

Australia had about 225,000 operational mainstream residential aged care (RAC) places at June 2025. The Department of Health, Disability and Ageing projects that the number of people using residential care will rise from about 198,300 in 2024 to about 409,700 in 2044. The Independent Review of Residential Aged Care Accommodation Pricing estimates that net capacity may need to increase by approximately 10,600 places a year over the next two decades (Ray and Sutton 2026). Recent supply growth is far below that requirement. Net operational places increased by an average of 3,212 a year over the decade to 2025, but by only 1,470 a year from 2020 to 2025; the net increase in 2024-25 was 802 places.

The supply shortfall reflects the interaction of accommodation under-funding, rising operating and construction costs, long development timeframes, changing prudential requirements, workforce constraints, demand uncertainty, and policy uncertainty. These pressures affect for-profit and not-for-profit providers differently and are especially acute in thin regional and remote markets, but the investment challenge is sector-wide.

The Independent Review and the 2026-27 Budget propose substantial accommodation payments, construction finance and targeted capital support. This paper examines complementary reforms that could improve investment conditions, regulatory fit and resource use, largely within the funding envelope created by recently announced reforms. Targeted public capital or risk sharing may nevertheless remain necessary in thin and underserved markets.

The paper advances five proposals for policy consideration.