Facilities that provide aged care are not thriving. They are losing money and closing down, leaving many regions without any rest home care. But it’s not as simple as just throwing money at the industry, and Budget 2026 is the perfect opportunity to start laying the groundwork for a major overhaul of New Zealand’s current system.
The 2025 Care in Crisis: Manaaki i te Raru report, published by the New Zealand Nurses’ Organisation, states that: “Aged residential care cannot meet the level of need for care in the community at current bed capacity.” It added current funding rates are “insufficient and inflexible”, and the existing funding model is “a direct contributor to unsafe care.”
Without aged care facilities in the community, elderly Kiwis are more likely to end up in hospital for longer, which puts pressure on our already struggling healthcare system. According to a 2024 submission to Government by the New Zealand Aged Care Association, the estimated cost of public hospital care can be up to $1,700 per day, whereas residential aged care costs around $370 a day.
By increasing investment in residential care, the government can effectively ease pressure on hospitals and cut its total costs.
Funding needs to be flexible, so let’s rethink it entirely. For those who can afford it, a refundable accommodation bond could be a welcome option.
How would this work? When an older homeowner sold their house, they would have the option to pay a large lump sum for their residential care which would be repaid at the end of their stay.
Where we see this applied successfully overseas, the sum is typically around 65% of the median home in the area. For example, an Aucklander might pay a deposit of $650,000, or someone in Christchurch might pay $455,000.
At the end of their stay in the aged care facility, the resident or their family would receive their deposit back, minus fees that are set by the length of their stay. These fees might be 2% of the lump sum per year for up to five years, reaching a maximum of 10% of the bond. If the Aucklander left after five years, they would get back $585,000; if the Cantabrian stayed for just three years, they would receive a little under $428,000.
The accommodation bond can be used instead of, or in conjunction with, a daily accommodation charge, to give residents mix-and-match options for payment. Those who can’t meet their accommodation costs based on means assessment, can be subsidised by Government support.
An accommodation bond has some important advantages for the residential aged care sector. First, it provides an enormous cashflow boost to the sector, which would help fund the development of more facilities and possibly the reopening of recently closed rest homes. This is a cost-effective way to lend money to aged care facility operators, especially when you consider the likely alternative, which is direct government grants.
The bond money doesn’t come from taxes but instead from residents, putting less onus on taxpayers. In addition, more aged care facilities would immediately alleviate pressure on the healthcare system, freeing up hospital beds and cutting costs in primary healthcare. It would also take stress off families in underserved regions. Right now, they must choose between providing some type of in-home care or sending their loved one to a distant facility where visits might be few and far between.
Secondly, from the point of view of growing the sector, this funding model is also effective. Bonds reduce the amount a developer must borrow, cut borrowing costs, and makes the sector more attractive as an investment. The bonds sit as a liability on their balance sheets, to be paid back in future, and used in restricted ways to fund capital works. We know the key reason for the current lack of private investment in the sector is the inadequate returns on capital required to be invested in new beds. By clearly identifying the accommodation revenue and creating leverage opportunities, it becomes more attractive for the private sector to invest and see a return on investment.
We know from other countries around a third of residents typically choose to pay daily accommodation charges, and these provide cashflow for day-to-day operations. Another third of residents pay only with a bond, and the final third pay a combination of the two.
This isn’t a quick-fix funding solution. Setting up a novel funding model would require new legislation to manage risk and clearly set out operators’ responsibilities. Residential care facilities would become a sort of quasi-financial institution, and the bond scheme would need to be insured by the public sector. Providers would need to be thoroughly qualified to participate in a bond scheme, to ensure they spend money responsibly and pay it back as required. Like banks, they would need a certain amount of cash in hand and defined new reporting standards.
All of this would have a significant initial set-up cost and ongoing running expenses. However, we can see from international models an accommodation bond can work well. These schemes are popular with residents and their families, who like getting some of their money back at the end of a stay. And while they stay in aged care, their accommodation costs are capped, and not subject to price rises that might be seen with daily charges for accommodation.
While this approach does not address the ongoing challenge of funding care for the elderly, the reduction of Government funds for accommodation frees up funding for care costs. It would also force Government to differentiate between the costs of providing care and accommodation; currently, accommodation revenue raised from residents is being used to subsidise shortfalls in care funding.
Greater focus on these two cost buckets would deepen the conversation with providers to ensure the costs of delivering care are fully recognised and funded adequately by Government. This should include ensuring that care funding adequately keeps pace with rising wage costs in the sector.
Compared to simply pushing Government money into residential aged care directly, the bond system has some major benefits. It is not a perfect solution, because there is no one-size-fits-all funding model. We need options that can be tailored to a range of circumstances, as the needs of our rapidly aging population reach crisis point.
Without a major shift in how we fund accommodation in aged care, we leave families and hospitals as the default caregivers for our vulnerable elderly. This isn’t fair on anyone; it puts our healthcare system in peril and undermines our economy. Let’s explore accommodation bonds and other options for how we can support aged care – because this is a problem that’s only becoming more serious, less safe for our elderly, and more urgent.
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