Key Takeaways
- New Zealand’s aged‑care sector faces a funding crisis, with many providers losing money and closing facilities.
- An “accommodation bond” – a lump‑sum deposit paid when a resident enters care and returned (less a modest fee) at the end of the stay – could inject much‑needed capital.
- The bond would be set at roughly 65 % of the local median house price (e.g., $650 k in Auckland, $455 k in Christchurch) and would carry a fee of up to 10 % of the deposit over five years.
- Using bonds alongside or instead of daily accommodation charges gives residents flexible payment options and protects them from rising daily rates.
- The model has worked in Australia, where government funding is split between care and accommodation, allowing providers to access private capital for expansion.
- Implementation would require legislation, a prudential risk‑management framework, and government underwriting to safeguard residents’ deposits.
- Successful adoption could ease pressure on hospitals, improve access in underserved areas, and make aged‑care a more attractive investment.
Current Funding Challenges in New Zealand Aged‑Care
Pam Newlove, partner and retirement‑village, aged‑care and healthcare services lead at Grant Thornton, explains that many aged‑care providers are operating at a loss and are being forced to shut down. The sector’s financial strain stems from a mismatch between government subsidies and the actual cost of delivering care and accommodation. Without sufficient revenue, operators lack the capital to maintain existing homes or build new ones, leaving a growing gap in services for older Kiwis.
Impact on the Wider Health System
Newlove warns that the absence of local aged‑care beds pushes elderly people into hospitals for longer stays, exacerbating pressure on an already stretched healthcare system. Hospital care costs roughly $1 700 per day, whereas residential aged care averages only $370 per day. Each avoided hospital day saves the system significant money and frees beds for acute patients who need them most.
Rising Daily Fees Despite Subsidies
Many providers now charge fixed daily fees on top of the government subsidy, sometimes as high as $85 per day. These extra charges can make care unaffordable for families who qualify for public support, pushing them toward either costly in‑home care or distant facilities where visits become infrequent. The practice highlights the need for alternative funding mechanisms that do not simply shift costs onto residents.
How an Accommodation Bond Would Work
Newlove proposes an accommodation bond model: when a resident sells their home, they could elect to pay a large lump‑sum deposit for their aged‑care place. This deposit would be held by the provider and returned at the end of the stay, minus a pre‑agreed fee that reflects the length of occupancy. For example, a deposit of $650 000 in Auckland would incur a fee of up to 10 % (i.e., $65 000) if the resident stayed five years, leaving them with $585 000 upon departure.
Bond Size Linked to Local Housing Values
The bond amount would be calibrated to local property markets, typically set at about 65 % of the median house price in the area. Consequently, an Auckland resident might contribute roughly $650 000, while someone in Christchurch could expect to pay around $455 000. This approach ties the deposit to an asset the resident already owns, making the contribution feel like a reinvestment of housing wealth rather than an out‑of‑pocket expense.
Fee Structure and Repayment Example
Fees would be modest and transparent—perhaps 2 % of the lump sum per year, capped at 10 % after five years. Under this scheme, an Aucklander who departs after five years would receive $585 000 back; a Cantabrian who stays only three years would get back just under $428 000 (a fee of about 6 %). The predictability of the fee schedule helps families plan financially and reduces anxiety about hidden costs.
Flexibility in Payment Options
The accommodation bond could replace or complement daily accommodation charges, giving residents a “mix‑and‑match” choice. Those who cannot afford the lump sum through means‑tested assessment could still receive government support for the care component, while the bond covers the accommodation side. This flexibility aims to make aged‑care accessible across income levels without imposing prohibitive daily fees.
Lessons from Australia’s Experience
Newlove notes that Australia’s aged‑care system already separates funding for care and accommodation, with substantial government support directed toward care services. The accommodation bond model there has proven popular with residents and families, who appreciate the return of their deposit and the protection against rising daily charges. The success overseas demonstrates that the concept is viable when paired with clear regulatory oversight.
Capital Benefits for Providers
By accessing bond proceeds, providers would gain a new source of capital that could be used to build or refurbish facilities without relying heavily on bank loans. This influx of funds would lower the debt burden on operators, improve balance‑sheet health, and make the sector more attractive to investors seeking stable, long‑term returns. The bonds would appear as a liability on providers’ books, to be settled as residents depart.
Need for Legislation and Risk Management
Implementing bonds would require specific legislation to safeguard residents’ money. A prudential framework must be established to manage financial risks, ensuring that operators cannot misuse the deposits. Newlove argues that the government should underwrite the scheme, guaranteeing that funds are protected even if an operator faces insolvency—similar to how retirement‑village occupational rights are supervised under existing statutes.
Path Forward: Collaboration and Structural Change
Ultimately, Newlove calls for a coordinated effort between government, providers, and future operators to design the necessary financial structures and legislative framework. Separating accommodation costs from care costs could allow the state to focus its funding on the care component, while private capital fills the accommodation gap. Such a shift could revitalize the sector, increase the number of available beds, reduce hospital pressure, and give families more dignified, locally‑based options for their loved ones.