Half the cost. Five times the speed. Why Australia still isn't building the beds.

1. Summary

Australia is short of residential aged care beds, and the cost of building one has approximately doubled in five years. In Western Australia the average new bed now costs around $645,000 to build, with some projects quoted approaching $1 million per bed, while occupancy across major homes sits at 96.5%.¹

Over the same period modular construction has moved from a marketing claim to a regulated category. The Australian Building Codes Board released its Prefabricated, Modular and Offsite Construction Handbook in November 2024, the first nationally consistent guidance on demonstrating National Construction Code compliance for offsite work.² Volumetric modular for NCC Class 9c compliant aged care modules is quoted at $95,000 to $140,000 per bed at the supply boundary, and $180,000 to $260,000 fully installed.³

Against $645,000 that is a reduction of roughly 60%, before any consideration of programme time. Yet the sector added 800 net beds nationally in 2024 to 2025, against annual demand that is at minimum five times that figure.

This note argues that the reason is straightforward and is regularly misdiagnosed. Cost is not the binding constraint in Australian aged care construction. Capital is. A sector that cannot fund a $645,000 bed does not automatically fund a $300,000 one. It funds the bed that works against forward revenue, with a credible operator and a recyclable refund.

2. The demand position

2.1 Western Australia faces a time-critical shortfall

The EY-Parthenon supply and demand analysis provided to the Western Australian Government in March 2026 describes the position as substantial and time-critical.¹

Residential capacity in Western Australia grew 1.8% over the five years to 2020, an average of roughly 400 beds per year. In the most recent year measured, capacity moved the other way. Beds in Western Australia fell by 119, the first annual decline in a decade, with 670 beds reported offline. Up to 2,700 additional beds are required by 2030 to meet projected demand, equivalent to twenty-seven new 100 bed facilities.

2.2 The national supply curve has rolled over

Bolton Clarke’s analysis of the Aged Care Service List recorded 800 additional residential beds delivered nationally in 2024 to 2025, a 60% reduction on the prior year.⁴

Bed delivery peaked at approximately 6,500 beds in 2018 to 2019, fell to an average of roughly 1,500 beds per year from 2020 to 2021, and has now compressed further. Departmental projections of 10,600 new residents per year may overstate demand growth; a more defensible range on Bolton Clarke’s analysis is 5,500 to 7,000 new residents per year over the next four years. On either figure the delivery rate sits well below the bottom of the range.

2.3 Construction cost has approximately doubled

The Western Australian analysis records average construction cost rising from roughly $500,000 per bed in 2024 to $645,000 per bed in early 2026, with some operators quoting figures approaching $1 million per bed for new builds. Expansions on existing sites are reported in the $300,000 to $500,000 per bed range.¹

Construction lead time for a traditional new residential facility in Western Australia is four to five years. At full pace, traditional new builds cannot close the Western Australian gap by 2030, and cannot close the national one at all.

3. The modular case

3.1 Cost

Structural steel volumetric modular for NCC Class 9c compliant aged care modules is quoted at approximately $95,000 to $140,000 per bed at the supply boundary, with fully installed costs of $180,000 to $260,000 per bed in metropolitan markets.³

Compared with $645,000 per bed for a traditional new build, that is a reduction of 60 to 72%. Compared with the $300,000 to $500,000 expansion range, modular delivery still sits at or below the lower bound.

The compliance pathway is no longer informal. The Australian Building Codes Board handbook, developed with Building 4.0 CRC, sets out the documentation route for evidence of suitability under existing NCC provisions.²

Traditional new build

WA average

$645k

Facility expansion

Traditional, existing site

$300k to $500k

Modular, fully installed

NCC Class 9c volumetric

$180k to $260k

Modular, supply only

Ex-factory, before site costs

$95k to $140k

3.2 Programme time

Programme time is the more useful figure. Indicative delivery for a twenty to forty bed aged care wing, including cladding and fitout, runs twenty-two to thirty-two weeks from engineering sign-off to on-site handover. Traditional new builds in Western Australia run four to five years.

Table 1. Time to bed, twenty to forty bed wing

Delivery method	Weeks to handover	Basis
Traditional new build	208 to 260	Four to five years end to end. WA reported lead time including approvals, construction and commissioning.
Traditional expansion	80 to 130	Existing site and existing approvals, still subject to standard construction, trade and weather risk.
Modular wing	22 to 32	Factory built and site installed, engineering sign-off to handover. NCC Class 9c compliant volumetric.

For an operator at 96.5% occupancy with a waiting list, delayed delivery is not a notional cost. At average refundable accommodation deposit pricing in the high $500,000 range, together with AN-ACC subsidy, every empty bed-month is a measurable revenue loss. Modular compresses that window by roughly 85% against a traditional new build.

The question is who has the capital to take the saving.

4. Six conditions an investor should test

The cost case for modular aged care is not contested. Volumetric Class 9c modules have been delivered in Australia for years, and there are at least half a dozen credible suppliers with healthcare project history, including Ausco, Modscape, SHAPE, Fleetwood, EcoPrestige and Australian Modular Structures. The constraint does not sit on the supply side.

It sits with whether existing operators, holding land but running an average operating deficit of $1.04 million per home, can commission anything at all.⁵

Table 2. Conditions required for the demand picture to convert into beds

Condition	Current position
Operator solvency	StewartBrown's survey of 1,200 homes reports an average operating deficit of $1.04 million per home and 61% of operators running at a loss. EBITDA per bed has fallen to under 1% of revenue, against the $20,000 to $22,000 per bed per annum long identified as the level required to make the sector investable.5
Accommodation pricing	The accommodation margin deficit widened to $13.30 per bed per day, reflecting construction, maintenance and financing costs rising faster than deposits and supplements. Modular reduces capital cost. It does not repair revenue per bed.5
Refund structure	Refundable accommodation deposit adequacy and refund risk under the Aged Care Act 2024 remain unsettled. Industry calls for permitted retention of 4% per annum have not been actioned at Commonwealth level. Without predictable capital recycling, operator confidence in funding capital expenditure is limited regardless of construction cost.
AN-ACC fit	From April 2026 metropolitan residential providers face funding reductions where care minute targets are not met. Direct care margins fell to $6.15 per bed per day, from $19.08 a year earlier. Capacity expansion only makes sense where new beds can be staffed to the required thresholds.5
Compliance pathway	The Australian Building Codes Board handbook materially clarifies the NCC compliance route. NCC 2025 adoption is staggered: live in Victoria, the Northern Territory, Tasmania, the ACT and Western Australia from 1 May 2026, deferred in New South Wales, Queensland and South Australia to 1 May 2027. Multi-state builders carry two code frameworks simultaneously.2
Reference projects	Several suppliers have delivered modular healthcare and aged care work. The first compliant Class 9c expansion wing delivered on time and on budget in a given state remains the strongest unlock for that state's pipeline, because reference cases reduce diligence cost for the next buyer.

5. The Mercurian position

5.1 Underwrite the operator first

No modular cost saving repairs a balance sheet running an accommodation margin deficit. The unit of analysis is the operator’s capacity to commission and recycle capital, not the price of a module. We diligence the buyer before the build.

5.2 Treat manufacturing as commodity

The Australian modular healthcare supply base is real and competitive. Capital deployed into a new factory in this market chases an asset that several incumbents already own. Where we engage with modular, we engage through the delivery, compliance and project management layer rather than the production line.

5.3 Lead with expansion, not greenfield

A twenty to forty bed wing on an operator with existing land, an existing certifier relationship and existing revenue is a fundamentally different procurement problem to a new facility on raw land. The first is fundable. The second, at present margins, mostly is not.

6. Where we are spending diligence time

We are not committing capital to modular manufacturing capacity. A new entrant building a factory has no defensible position against incumbents already supplying healthcare modules.

We are spending diligence time in three adjacent areas. First, residential aged care operators in Western Australia and on the east coast that hold land and face capacity constraint, where the bottleneck is project delivery rather than market access. Second, project delivery and compliance advisory capability, where small teams with Class 9 experience hold value disproportionate to the capital required to back them. Third, the policy and regulatory track, particularly refundable accommodation deposit retention reform, because no operating thesis in the sector survives if that settles unfavourably.

Adjacent sectors under review include construction services to healthcare, covering civil, fitout and mechanical, and specialist disability accommodation where providers are NDIS approved and modular ready.

7. Conclusion

The defining question for Australian aged care over the next two years is not whether modular construction works. That question is settled.

The defining question is whether the operators that need to build have the balance sheet to commission anything at all, and whether the Commonwealth settles the refundable accommodation deposit retention question in a way that restores capital recycling. Until both move, modular will remain a credible technical answer to a problem the sector cannot yet afford to solve.

For an investor in the lower middle market the implication is precise. The opportunity is not in financing a factory. It is in being correctly positioned at the moment those two settings change, with relationships, advisory capability and operator coverage already in place.

Cost is the easier of the two problems to solve. It is also no longer the one that matters.