Care home occupancy rates increase for the fifth consecutive year

With an ageing population and strong demand for elderly care facilities, this upwards trend is no surprise.

Figure 3 illustrates a 0.8% year-on-year uplift in occupancy.

Although personal care occupancy fell marginally by 0.5% in comparison to last year’s reporting period, it remained strong at 90.2%. Nursing care occupancy increased by 1% to 88.7%. Occupancy rates in personal care homes are consistently higher than those in nursing homes across all regions with the exception of the North West, where nursing care occupancy is marginally higher .

This trend is driven by a number of factors, including longer average length of stay for personal care residents, the continued growth of personal care for dementia and the increasing demand for personal care from self-funders.

Regional disaggregation of occupancy rates shows a range between 83.2% and 93.5%, across the UK. There is a correlation between occupancy and the percentage of self-funder income per region.

The regions with the highest percentage of self-funder income have the lowest occupancy rates, indicating longer fill periods for operators that are targeting the private pay market. The South West and South East are operating at occupancy rates of 83.2% and 86.3% respectively, with the self-funder ratio at 58.1% and 57.8% of income respectively.

Similarly, at the other end of the spectrum, Scotland and Northern Ireland are operating at a rate of 93.5% and 92.8% respectively, with the self-funder ratio at 34.9% and a very low 7.8% respectively.

As in 2015/16, Scotland, Northern Ireland and the North West have the highest occupancy levels, above the UK average. The most notable movements were in the North East which saw a sizeable increase in occupancy from 86.2% to 91.3% and the South West which fell from 86.3% to 83.2%.

With an ageing population, an increase in demand for dementia care and a significant and continuing shortfall of care beds in the UK, occupancy rates will remain strong. Average weekly fees (AWF) increased by 7.4% to £746 in financial year 2016/17. The increase in fees is above RPI inflation of 3.1% for the corresponding period.

This is the sixth consecutive year of growth and represents a record high. In real terms, AWF rose to the equivalent of £566, which represents only a 4.4% increase since 2006.

This has been driven by increased local authority fee rates, the large increase in the NHS funded nursing care (FNC), both an attempt to offset the implications of the NLW, as well as continued self-funder fee inflation above RPI and the shift towards the private pay care market.

Over 2016/17 care home operators mitigated the risk of increased staff costs by increasing fees. To support this further, income per resident had an annual increase of 8% compared with an annual increase of 7% in staff costs per resident. This is a strong indicator of demand in the market, as operators have had the ability to inflate fees at this rate.

The gap between nursing and personal care fee rates has widened even further this year, driven in most part by the increased FNC. The 40% increase in FNC was implemented in July 2016, backdated to April 2016, increasing rates from £112 per week to £156 per week, which had a noticeable impact on average nursing fees.

Since then, this rate has been marginally reduced to £155 per week from April 2017. The South East continues to dominate, achieving nursing care rates of £1,014, an increase of 13%. London and the South West follow with averages of £924 and £901 respectively.

 Figure 8 analyses AWF by both region and care type

Personal care rates follow a similar trend for these regions. The Southern regions are desirable for care home operators and developers due to the stronger affluence profile of the areas, coupled with demand for modern purpose-built facilities, fit for the 21st century.

Furthermore, 58% of income is derived from private revenue in both the South East and the South West as shown in figure 9 indicating greater demand amongst relatively wealthy individuals for the prime care homes. The viability of care home developments and operations are reliant upon self-funders in both locations.

58% of income is derived from private revenue in both the South East and the South West as shown in figure 9 

In the South East this is due to high land values and construction costs, while in the South West low local authority fee rates drive the dependency on self-funders. 

The East Midlands also had a high percentage of self-funder income at 52% which is encouraging for those developers and operators who over the last few years have increased development in this region. London had a lower mix of self-funder pay at 32% which is skewed by income from the NHS making 22% of total income.

In 2016/17 local authority fees increased by an average of circa 3.4% which is significantly below the 7% increase in staff costs per resident. The shift towards private pay is therefore understandable.

In the forthcoming year, we may continue to see a rise in self-funder income. However, Northern regions, Wales, Scotland and Northern Ireland remain heavily reliant upon government funding.

The 2017/18 financial year will see an average annual increase in Local Authority fees of 3.6% as per Laing Buisson’s “Annual Survey of UK Local Authority, Usual Costs 2017/18”.

The sector will also welcome council tax rises to fund social care. We will be reviewing this topic next year to see whether this will be sufficient to cover continued staffing cost increases.