The economics, infrastructure and future of care home development in England
Developing a new care home in England has never been a simple undertaking. But in recent years it has become significantly harder. What was once a relatively predictable process of securing land, obtaining planning permission and delivering a new service has evolved into a far more complex exercise involving multiple layers of financial risk, regulatory scrutiny and operational uncertainty.
At the same time, demand for care continues to rise as England’s population ages. Expectations of care environments are changing rapidly, sustainability requirements are intensifying, and investors are becoming increasingly cautious about where and how capital is deployed.
Despite these pressures, new homes are still being built. Understanding why, and how development is evolving, is critical for the future of adult social care.
The development challenge: demand rising faster than supply
The long-term demand for residential and nursing care is not in question.
England’s population aged over 85, the group most likely to require residential care, is projected to grow rapidly over the coming decades. This demographic shift alone will require significant expansion in care capacity. Yet development levels are not keeping pace.
Analysis suggests that approximately 14,000–15,000 new care beds per year may be required over the coming decade to meet demographic demand. The sector has been delivering closer to 4,000–5,000 beds per year. In other words, the sector is currently building around one third of the capacity required.
In some areas, new homes are replacing older stock rather than expanding overall capacity, meaning the net growth in available beds can be even lower. This gap between demand and delivery has become one of the defining infrastructure challenges facing the sector.
The economics of care home development
At the heart of the issue is viability. Developing a care home requires substantial capital investment long before the home begins operating. Developers must typically fund:
- land acquisition
- planning and design costs
- consultancy and legal fees
- financing costs during construction
- construction and fit-out
- recruitment and mobilisation of the service.
Much of this capital is committed years before the home begins generating income.
Planning processes alone can take several years, during which time developers may already have committed significant funds with no guarantee that the project will ultimately proceed. These sunk costs represent one of the greatest risks in the development process.
Even once construction begins, capital remains tied up throughout the build period and early operational phase before occupancy stabilises and returns begin to materialise. For providers and investors, this creates a long investment cycle that must be carefully managed.
Construction costs and development risk
The past five years have seen significant cost increases across the construction sector. Developers now face:
- higher material costs
- shortages in skilled construction labour
- supply chain disruption
- longer delivery timelines.
Care homes are particularly complex buildings. They require specialised design, accessibility considerations, clinical infrastructure and high safety standards. Modern homes must also accommodate evolving expectations around privacy, wellbeing, technology integration and community engagement.
Each of these factors contributes to rising development costs. When combined with planning uncertainty and financing pressures, the result is a development environment where margins can become increasingly tight.
Sustainability and the rise of green development finance
Environmental sustainability is becoming an increasingly important driver of care home design. New homes are expected to meet higher environmental standards, incorporate renewable energy systems and reduce operational carbon emissions. Energy efficiency is particularly important given the rising cost of energy and the operational demands of care environments.
Many lenders are now offering green or sustainability-linked financing for developments that meet environmental performance criteria. These loans can provide improved borrowing terms but typically require:
- strong ESG credentials
- energy-efficient building design
- long-term sustainability strategies.
While these developments are positive for the sector’s long-term sustainability, they can increase the upfront costs of development. For many projects, the challenge lies in balancing sustainability investment with financial viability.
The viability divide: self-funders and publicly funded care
Perhaps the most significant structural factor influencing development decisions is the difference between self-funded and publicly funded care. In many areas, local authority fee rates remain significantly below the cost of delivering care in modern facilities.
As a result, many new developments are designed primarily around self-funding residents, whose fees better support the capital costs associated with modern buildings. This has several consequences.
First, development tends to concentrate in areas with stronger self-funding populations.
Second, new homes often incorporate hospitality-style environments and premium amenities designed to appeal to private payers.
Third, older homes with higher proportions of publicly funded residents may struggle to compete with newer developments.
Over time, these dynamic risks create a widening divide between modern care environments and legacy stock.
The challenge of ageing care home infrastructure
Much of England’s existing care home estate was built decades ago. Older homes often face challenges including:
- smaller bedroom sizes
- shared bathroom facilities
- inefficient layouts
- poor energy performance
- limited accessibility.
These buildings can be increasingly difficult to operate within modern regulatory and market expectations.
Energy efficiency is also becoming a major factor. Older buildings often have higher energy consumption and larger carbon footprints compared with modern developments designed around sustainability. For some operators, redevelopment or replacement becomes more viable than refurbishment.
Why development still matters
Despite the challenges, development remains essential. Modern care homes offer significant advantages:
- energy-efficient buildings that reduce operating costs
- environments designed around resident wellbeing
- better accessibility and infection control
- infrastructure that supports modern care delivery.
New developments also bring wider economic benefits. A typical care home may employ 60 to 100 staff, making it a significant local employer. Construction itself supports local economies through contractors, suppliers and professional services. In many communities, care homes represent important long-term infrastructure investment.
Emerging development trends
The development landscape is also evolving. New approaches are emerging to address viability challenges, including:
- partnerships between operators and specialist healthcare developers
- joint ventures with investors
- sale-and-leaseback funding structures
- ESG-linked financing
- integrated retirement and care developments.
Some developments are also exploring mixed-use models, incorporating community services, health facilities or housing alongside care provision. These approaches aim to diversify income streams and improve the long-term sustainability of developments.
The future of care infrastructure
Care home development sits at the intersection of social policy, infrastructure investment and demographic change. Delivering the next generation of care environments will require:
- sustainable funding models
- supportive planning frameworks
- investment in modern infrastructure
- collaboration between providers, investors and policymakers.
The sector’s ability to expand capacity while maintaining quality and financial sustainability will be one of the defining challenges of the coming decade. Understanding how providers navigate these decisions is therefore critical.
Contributing to sector insight
To better understand how providers are approaching care home development, Care England is gathering insight from organisations involved in bringing forward new homes.
If you are involved in development, estates or capital projects within your organisation, you can contribute to this sector insight by completing this short survey (under three minutes):
If a colleague within your organisation leads on development or property strategy, please feel free to forward it to them.
Your insight will help build a clearer picture of how the sector is navigating one of its most important challenges: delivering the care infrastructure of the future.
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