My wife and I have often joked that we should invest into the resthome business. Assuming we had any spare money to do so, of course. And with two boys who are seemingly bottomless pits when it comes to eating (and who are only two and four years old!) spare money is something we’re not used to…so our dreams of becoming part owners of a rest home are stillborn. But with the rising numbers of elderly people in New Zealand (as in so many other countries around the world) investing in rest homes should be money for jam we thought.

So I was surprised to read of this report by Westpac Bank’s industry sector that suggests that resthomes aren’t actually that profitable and, if we are not to be faced with a shortage of resthome beds, the government needs to increase its subsidies to the industry. This is a major problem because in the next 25 years the number of New Zealanders aged over 65 will double to 1.25 million people. And you would think that building retirement home would be a surefire economic winner – the number of potential users is only growing for the next few decades! The trouble seems to be, according to the report, that smaller, independent retirement homes are not profitable. As David Norman, the report author, states:

“Any home with less than 125 beds could not turn a reasonable profit, because they lacked the scale required to cover their costs, particularly as they faced an increasing administrative burden.”

Further, the initial investment in new retirement homes can make the entire process uneconomic, because of rapid rises in construction and land costs in many parts of the country. Thus, many small rest home operators in cities and towns were going out of business, or being bought out by the larger operators. This is a problem if smaller communities are left without a resthome facility and elderly who have no other options must move to a larger centre at a time of life when they wish to be settling somewhere that is comfortable and familiar. Alternatively, hospitals will have to house elderly patients while they wait for alternative accomodation. Which, as the report notes, could cost three to six times as much as a retirement home place.

The answer, according to the report, is for the government’s subsisdy (currently between $884 and $972 a week per person) to be increased by at least 20%. Which is fine as far as it goes, but we must always ask: where are all those taxpayers going to come from to pay for this? Another economic burden that comes from a rapidly growing population. It looks as if Shannon and I will have to go back to our original idea of investing in adult diapers.

Marcus Roberts is a Senior Researcher at the Maxim Institute in Auckland, New Zealand, and was co-editor of the former MercatorNet blog, Demography is Destiny. Marcus has a background in the law, both...