Funding shortfall: New Zealand faces impending aged care crisis 

A recent article from New Zealand news source The Post has outlined how Australia’s neighbour is at risk of a ‘full blown crisis’ if funding issues are not addressed and its shortage of aged care beds is fixed.

Here in Australia, the number and percentage of older Australians is growing with long-term projections revealing that the over-65 population will account for between 21% and 23% of the population by 2066. Currently, the figure sits at just over 17% of the population. 

New Zealand’s over-65 cohort is projected to reach 20% of the population by 2028 and it could be between 24% and 32% in 2073. For a nation of 5.2 million people, its ageing population is placing heavy demand on aged care and retirement living. 

Meanwhile, roughly 32,000 people were living in residential aged care in 2022/23 with a further 80,000 receiving services in the community. The most recent estimate from New Zealand’s Aged Care Association stated there are 41,063 aged care beds nationwide. 

Those statistics suggest that the sector is nearing a tipping point where demand will outpace supply without immediate investments. External factors highlighted by The Post’s Miriam Bell will only add to the problem.

“A lack of capacity in the public health system means many elderly people are referred for care in private rest homes and retirement villages, and the situation is not expected to ease,” she wrote. 

“A report produced from the first phase of Health NZ’s ongoing review of the aged care sector found that if historic building rates continued, there could be a shortage of almost 12,000 beds by 2032.”

Providers consider scaling back

Rising costs and funding pressures have also forced some of the country’s top retirement village operators to make highly consequential decisions.

Summerset, which operates over 30 retirement villages across New Zealand, has scaled back new developments in the residential aged care sector. This is despite internal projections showing that the sector will have to double the amount of beds to over 80,000 in 15 years.

The organisation is also considering no longer accepting referrals from the public health system due to poor government funding. Approximately 70% of Summerset’s care beds are occupied by someone from the public health system. 

Summerset, which is listed on the New Zealand Stock Exchange, lifted its underlying profit in 2025 from $190.3 million to $206.4 million. However, Chief Executive Scott Scoullar told the Post there is a major gap between the government funding provided and the cost of running Summerset’s care centres.

“Our problem is that we have about $350 million worth of aged care facilities, and we generate about $2.7m from them. That’s a less than 1% return on assets,” he explained.

“We are not expecting to generate high returns, but we are just breaking even, and if you include office costs and other expenses, we are probably running the care centres at a loss.

“How do we justify that to our shareholders? How do we explain putting their money into something that generates that level of returns? The math just doesn’t work.”

He added that it’s difficult to justify the situation to residents who pay fees but feel like they’re subsidising the care of non-residents. He’s also concerned about the workload burden on staff.

“We need to focus on our residents. If the Government can’t provide a funding cap we can work with, it’s better for us to downsize and provide first access and better care for our residents,” he added. 

Mr Scoullar recognises that this decision would place more pressure on the public health system, saying ‘it’s not a step we want to take’. 

Tracey Martin, the Chief Executive Officer of New Zealand’s provider peak body the Aged Care Association, added that the loss of listed companies would have a big impact on residential care supply. 

“So if they, and other operators cut back on building and start to reserve their beds for residents,and with many smaller operators struggling to stay open, how many beds will really be available in the aged care system, especially in places like Wairoa and Reefton,” she shared. 

“But this Government has tightened up on funding across the board, and there is no indication the minister is making a Budget bid.

“About four years ago Australia’s situation was worse than New Zealand’s, but the reform of their system is positioning them for the future, and the same can be done here too if there is the will.”

Funding shortfalls hurt the sector

The total government expenditure in New Zealand is roughly $1.5 billion with Health NZ contributing $1.352 billion to residential care and $643 million to home and community care in 2022/23. 

A review of aged care funding and service models released in January 2024 identified five key issues for New Zealand’s aged care sector: 

• Aged Residential Care (ARC) and Home and Community Support Services (HCSS) are under-funded
• The funding models used to distribute funding to the sector are no longer fit for purpose
• There are material ethnic inequities in accessing aged care services
• The aged care sector continues to face significant workforce pressures
• Issues with aged care are exacerbated in regional and rural New Zealand

Mr Scoullar believes that a funding increase would make a difference if it led to justifiable returns. He said the sector is not even close to that point. 

“If large operators collectively announce they are going to reduce bed capacity because of this issue, they might build half of what was planned. So where are the beds that will be needed going to come from?”

Retirement Villages Association president Graham Wilkinson expressed similar sentiments with The Post. He says not enough beds are being built to cater demand and funding shortfalls are forcing larger providers to scale back operations. 

“There needs to be a reset of the whole funding model. If the Government doesn’t have any money, the only party that can pay are the residents, so it will have to become more of a user pay system,” he said.

“Currently, if you are a millionaire, then while you pay an initial amount (the maximum contribution) which is the rest home rate, the Government pays the top up for hospital or dementia or any increased assessment.

“Hence for a hospital assessed resident, the millionaire pays $200 per day and the Government pays circa $150 per day. Why does Government pay the $150?”

There is a push to increase funding and support for providers in the home and community care space, similar to what’s occurring in Australia with Support at Home. 

However, that’s not necessarily a move Mr Wilkinson believes is the right one given residential care still requires significant investment. 

“Not only are there question marks over the risk factors in that, but it is a short-term solution, and will just delay the coming tsunami a bit longer,” he added.

“Only some will be able to get into a facility, and many may only be able to afford hospital, and that fills up desperately needed beds in the public health system.”

Ms Bell reported that New Zealand politicians are watching and learning from what occurs in Australia with some interest in following suit to improve its aged care system and funding models. 

Minister for Seniors Casey Costello is among those who have visited Australia for consultations around aged care reform. She thinks there are elements from Australia’s approach that are beneficial, although it would have to occur at a far cheaper cost for the New Zealand Government. 

Improvements are unlikely to occur until findings from an inquiry into the aged care sector’s current and future capacity to support people living with dementia are released. The inquiry occurred in 2024, and its conclusion could provide real-world outcomes for the sector’s model of care.