Australia’s residential aged care sector is becoming increasingly full but significantly less financially sustainable, with nearly two-thirds of aged care homes now operating at a loss despite strong occupancy and ongoing funding reforms.
The latest StewartBrown Residential Aged Care Financial Performance Survey found 62% of residential aged care homes recorded an operating loss during the nine months to 31 March 2026, up sharply from 49% a year earlier. The report is based on financial data from 1,173 aged care homes representing almost 96,000 beds.
Average operating performance deteriorated to a loss of $9.16 per bed per day, compared with a small surplus of $0.91 per bed per day in the previous year. In contrast, average operating EBITDA fell to just $4,835 per bed annually, less than one-quarter of the $20,000 to $22,000 per bed that StewartBrown says is needed to attract investment in new developments and refurbishments.
The findings reinforce growing concerns that while the sector has largely adapted to the new Aged Care Act and associated reforms introduced in late 2025, providers remain under mounting financial pressure.
“StewartBrown says the biggest challenge continues to be balancing higher staffing requirements with sustainable funding.”
Direct care funding increased during the reporting period through higher AN-ACC prices, but labour costs rose even faster as providers worked towards mandated care minute targets and absorbed Fair Work Commission wage increases.
Direct care revenue increased by 6.6% over the year, while direct care costs climbed almost 11.7%, compressing the average direct care margin from $18.46 per bed per day a year ago to just $5.91. The report warns that this margin is likely to come under further pressure during FY26 as providers continue increasing staffing levels.
At the same time, providers continue to lose money on accommodation and hotel-style services.
Although the introduction of the higher hotelling supplement from September 2025 narrowed losses in everyday living services, providers still recorded an average deficit of $1.96 per bed per day. Accommodation remained the sector’s weakest performing area, with losses widening to $13.11 per bed per day despite reforms allowing providers to retain a small proportion of new Refundable Accommodation Deposits (RADs). StewartBrown said those reforms will take years to have a meaningful financial impact because they apply only to new residents entering the system after November 2025.
Despite the deteriorating finances, demand for residential aged care continues to strengthen.
Occupancy reached 95.2%, up from 94.2% a year earlier, with StewartBrown forecasting occupancy will remain above 96% over the next five to 10 years as Australia’s ageing population grows and new bed supply remains limited.
However, StewartBrown argues higher occupancy alone will not solve the sector’s problems.
It warns Australia faces a significant shortage of residential aged care places over the next decade unless providers can generate sufficient returns to justify new investment.
Government data cited in the report projects demand for residential aged care residents will more than double from around 204,000 residents in FY25 to approximately 412,000 by 2045, requiring more than 10,000 additional residential aged care beds every year. Yet only 802 net residential aged care places were added during FY25, with investors continuing to favour acquisitions over new developments because building new homes remains financially challenging.
StewartBrown says the recent Independent Review of Residential Aged Care Accommodation Pricing and the Australian Government’s initial $1.7 billion response are positive steps, particularly reforms aimed at improving accommodation funding and supporting new developments.
However, it argues these measures alone will not close the gap between current earnings and the level of financial returns needed to make the sector genuinely investable.
Without stronger operating margins and more reliable returns, the report concludes, providers will struggle to secure the capital needed to refurbish ageing homes, replace outdated facilities and build the additional capacity Australia will require in coming decades.
