Aged care reform 2026: What the new settings mean for residential aged care development feasibility

Australia’s 2026 Federal Budget includes a $3.7 billion aged care package aimed at delivering more beds, more in‑home support and improved system oversight. Within this, the most material shift for residential development feasibility is the Government’s $1.7 billion commitment to incentivise construction of up to 5,000 aged care beds per year, alongside new capital subsidies for supported residents and provisioned changes to the Accommodation Supplement.

While the reforms aim to lift supply, the practical impact for the sector is clear: projects may now be able to close the ‘missing capital’ gap that has constrained development for over a decade, creating a renewed pathway for providers to bring forward projects that were previously unviable.

The settings are most favourable for not-for-profit and mission-aligned providers with established supported resident delivery models. These organisations are uniquely positioned to respond, given their existing resident mix, operating models and alignment with policy intent. By contrast, development models that rely heavily on self-funded residents and large accommodation deposits may need to adjust to tighter funding conditions and more explicit supported resident requirements.

For many years, residential aged care development feasibility has depended on Refundable Accommodation Deposits (RADs) from self-funded residents to offset capital costs, often now cited at $550,000 to $650,000 per bed. This dynamic has pushed development towards higher socio-economic catchments and reduced investment in supported-resident markets.

The reform package, targeted capital subsidies, changes to the Accommodation Supplement and a proposed concessional loan scheme, begins to rebalance that equation. For some providers and investors, it creates a more credible pathway to new-build viability in supported-resident-dominant markets.

The implication is immediate: projects that are well-structured and delivery-ready will be better placed to access funding as program settings are finalised and capital is allocated.

Market context: a persistent supply deficit, driven by feasibility

Australia’s residential aged care system continues to face a persistent supply gap. Recent development activity has slowed, with fewer than approximately 1,000 new beds delivered annually in recent periods. This compares with an assessed requirement of more than 10,000 new places per year to meet projected medium-term demand.

The imbalance is not uniform across jurisdictions. Victoria has demonstrated modest net growth in residential capacity, while Western Australia, New South Wales and Tasmania have experienced net declines in available places in recent years. At the same time, population ageing and increasing care complexity continue to lift demand, particularly across metropolitan and outer-metropolitan markets.

Ownership patterns are also relevant. Not-for-profit and mission-aligned operators account for approximately 55–60 per cent of residential aged care services and beds nationally. This positioning becomes increasingly important under reform settings that favour supported-resident delivery models.

Policy reset: what changes in the development economics

The most direct intervention is the introduction of targeted capital subsidies linked to supported residents.

Budget and sector commentary indicate the capital subsidy is designed to directly support homes that deliver accommodation for supported residents. For newly built homes, the subsidy has been described as $30 per supported resident per day for up to 25 years, with a lower payment for significant expansions of existing homes (noting public reporting of $15 per day for up to 15 years). These design features reinforce the policy intent: to shift feasibility in markets where resident means would otherwise limit development.

The indicative level of subsidies for new builds equates to around $10,950 per year per supported bed. On a capitalised basis, this represents approximately $125,000 to $160,000 per bed, depending on assumptions and methodology.

For a typical 120-bed facility with a 40 per cent supported-resident mix, the subsidy may equate to around $6.0 to $6.5 million on a present value basis which is approximately 10 per cent of total project cost.

While this is not sufficient to underwrite development on its own, it is material. In effect, it acts as a partial replacement for the ‘missing capital’ that has historically constrained development in supported-resident markets.

The proposed concessional loan scheme has the potential to further reprice the capital stack. Under existing conditions, construction finance is typically priced around 6–7 per cent, with conservative lending parameters reflecting sector risk and asset specificity. Replacing or supplementing this with low-cost government debt would reduce the cost of capital and improve feasibility.

This effect is particularly significant for not-for-profit operators, whose cost of capital is structurally higher due to limited access to equity markets. Even partial substitution of commercial debt can generate meaningful savings during construction and over the life of the asset.

In parallel, increases to the Accommodation Supplement, along with additional loadings for facilities with higher proportions of supported residents, are expected to improve operating sustainability. While not a primary development lever, these measures reinforce the broader policy intent to back supported-resident provision.

Supported resident mix becomes a funding and governance issue

The defining feature of the reform package is not only the availability of capital, but the conditions attached to it.

Access to key funding mechanisms is contingent on achieving and maintaining minimum supported-resident thresholds. These conditions are reinforced through penalty provisions, including a 25% reduction in subsequent monthly payments.

This fundamentally changes development dynamics. Mission-aligned and not-for-profit operators are structurally advantaged, given their resident profiles and service models. By contrast, developments that rely more heavily on self-funded residents, including some co-located retirement living models, may face increased complexity in maintaining compliance.

Resident mix is no longer solely an operational outcome. It becomes a financial, governance and risk management variable that must be embedded in feasibility analysis, project design and operating models from the outset.

Development readiness: why delivery-ready projects are likely to benefit

While detailed program settings are still being finalised, it is reasonable to expect that funding will be prioritised towards projects closest to delivery.

In practical terms, this includes developments that have secured planning approval, completed detailed feasibility work, engaged with builders, and established a clear delivery pathway. The structure of the funding mechanisms suggests that concessional capital is more likely to accelerate existing project pipelines rather than originate new ones.

This shifts where value is created. Organisations that have already progressed feasibility, planning approvals and delivery pathways are now in a position to translate policy intent into funded projects, with a clear opportunity to accelerate delivery ahead of broader market mobilisation.

The investment gap and first-mover dynamics

Despite the scale of the funding commitment, a structural gap remains between projected demand and targeted delivery.

Government policy is currently framed around the delivery of approximately 5,000 beds per year which is materially below the assessed requirement of more than 10,000 beds annually. As a result, the underlying supply deficit persists.

This environment is likely to favour early movers. Organisations that progress projects ahead of full policy implementation may benefit from earlier access to suitable sites, potentially more favourable construction pricing, and earlier access to concessional funding.

As development activity increases, competition for sites, construction capacity and funding allocation is also likely to intensify. Timing is therefore expected to be a key determinant of outcomes.

Risks and key variables to watch

Several critical variables remain uncertain, including the design of the recommended concessional loan scheme, subsidy eligibility thresholds and the framework for prioritising capital allocation.

Implementation timing and administrative complexity will also influence the speed at which projects progress from approval to delivery.

These uncertainties do not change the direction of reform, but they will shape the pace and scale of market response. The priority for providers is therefore not to wait for complete certainty, but to advance projects to a level of readiness where they can respond as programs become operational.

Implications for the sector

The reform package is expected to stimulate renewed development activity, particularly in previously underserved markets. It is also likely to increase participation from mission-aligned capital and drive further portfolio repositioning across the sector.

Most importantly, it changes the basis of competition. The sector moves from a position where access to capital has been the primary constraint to one where the ability to structure viable, compliant and delivery-ready projects becomes the defining advantage.

How BDO can help

The reforms create meaningful opportunity, but they also introduce new feasibility, compliance and governance considerations that need to be addressed early.

BDO’s project & infrastructure advisory team works with aged care providers, investors and funders to convert policy settings into investable and deliverable projects. Our support includes:

• Development feasibility and funding strategy, including project modelling, sensitivity testing around supported-resident mix, construction costs, operating assumptions and capital structure
• Capital structuring and financing support, assessing how concessional funding interacts with commercial debt and project risk allocation
• Portfolio and pipeline prioritisation, identifying which projects are most likely to benefit from the reforms and sequencing development accordingly
• Governance, risk and compliance advisory, embedding supported-resident thresholds and eligibility requirements into operating and governance frameworks
• Delivery readiness support, strengthening planning pathways, procurement strategies and project controls so developments can progress quickly when funding programs open

With the right preparation, organisations can move beyond policy intent and into practical delivery. Get in touch for support to assess feasibility, structure funding and bring delivery-ready aged care projects to market with confidence.