Care Homes for Older People – a tale of two markets
LaingBuisson has today published the 30th edition of its much-respected, industry-leading report, Care Homes for Older People UK Market Report.
The value of the UK care homes market (residential and nursing care) was £16.5 billion in the year to March 2019, equivalent to around 1% of the UK’s gross domestic product. The market has been static in volume terms but in value terms its growth has outstripped inflation, with a CAGR* of 3% in cash terms (2009-2019).
The story behind these figures is the continuation of a two-track market. The greater part of this value (51%) was generated from private pay fees, though by volume private pay residents only account for 45% of the market. The CAGR in cash terms over the 10 years to 2019 in the private pay sector was 6.1% This growth is expected to continue over the next 20-30 years as the ‘owner-occupier peak’ moves to the 85+ generation – those who are most likely to be admitted to a care home.
The private pay premium, when compared with fess paid by local authorities, remains more than 40%. Fees paid by councils are often lower than the providers’ average costs and this is only sustainable so long as there is a level of cross-subsidy from private payers. The other lever that councils have been able to pull is containing the volume of demand that they pay for, which has resulted in spare capacity in many areas, despite an ageing population.
Given the highly-localised nature of care home markets (typically a radius of 5-10 miles), market power lies with council commissioners, dealing with a highly fragmented market. But there are questions about how long this will last, with a market running at 90% of its available capacity possibly becoming a sellers’ market. Taking both negative and positive drivers into account, LaingBuisson predict additional demand for another 24,000 places in the next five years.
A potential answer to this conundrum is the re-entry of a number of local authorities into the market. While there is no realistic prospect of a nationalisation of the for-profit care home sector, no matter the result of the forthcoming General Election, LaingBuisson has become aware in the past 12 months of a number of councils giving serious consideration to re-entering the residential care market. Their motivations for doing so are improving access for their service users at a price that the public sector can afford, while gaining additional income by taking private payers.
Another trend that LaingBuisson has seen in the past year has been reduced nursing home capacity, as providers shift from nursing to residential care as a result of nurse shortages. Five-thousand registered nursing home beds have been lost since 2015. There have been further unquantifiable losses and LaingBuisson has become aware of several cases where nursing homes have stopped taking nursing care placements without changing their registration status.
William Laing, report author, said:
“We expect that in the near-term future, the public sector will continue to bear down on fees and profit margins, so long as they able to do so. But this depends on the extent of spare capacity and the demand pressures in areas which have an older population. As a result, refining the understanding of demand and capacity is fundamental to predicting the future of the market. This is something that LaingBuisson has started to investigate in this report in the light of new information that we have from CQC which is different from the widely accepted norms of the market and will continue to refine. Should this show that availability of supply is lower than anticipated, this will have consequences for the market and, in particular, local commissioners who may struggle to meet demand, especially as care home owners increasingly focus on the more lucrative private pay end of the market. However, it is worth noting that in spite of these pressures, the independent care home sector continues to be attractive to investors, and there is clear interest in well managed businesses and good development propositions.”
Find out more about the Care Homes for Older People UK Market Report here.