Responding to Aged Care sector challenges

In our recent Aged Care Seminar we hosted guest speaker Arie Dekker from First NZ Capital, alongside our Partner Gillian Service and Senior Associate Travis Tomlinson to discuss challenges facing the Aged Care sector and how organisations can best respond.

We have summarised the key points from the seminar below.

Current issues in the employment space

Current legislative change in the employment space is topical for the aged care sector. The Equal Pay Amendment Bill (which had its first reading last week) aims to improve the process for progressing pay equity claims and to prevent discrimination on the basis of sex, particularly in relation to lower pay in female dominated industries. The Government has also recently announced the creation of a Fair Pay Working Group that will work toward establishing Fair Pay Agreements as a sector-level bargaining system; such agreements would set minimum terms and conditions for all workers in an entire industry or occupation. The outcomes of the Bill and the Working Group are likely to have substantive effects for the care industry – watch this space!

The construction industry's impact on the Aged Care sector

Despite the relevant legislative framework (e.g the Building Act and Construction Contracts Act) being reasonably settled, the construction industry is going through change and challenge in the sense of how much activity there is in the market. The demand for construction is positive for New Zealand, but creates challenges such as competition for Principals/developers and a strain on resources. To mitigate the impacts, we discussed that Village developers: (1) go to market with certainty; (2) make the tender process easy for contractors; and (3) spend time on risk allocation settings. We also discussed the ways in which projects can be proactively managed during delivery, and how early contractor engagement can be a successful mitigant to these challenges, provided that it is structured properly and contractors have clarity on what is required from them.

Economic challenges facing the Aged Care sector

Arie Dekker, Head of Institutional Research at FNZC, noted that the retirement village industry is currently in a strong position and has had a period of continued growth. Growth in the industry has been supported by favourable demographics, a rising property market, an attractive product proposition, and the equity market has rewarded growth operators. Despite the recent success of the sector to date, Arie warned of challenges that the industry will potentially face in both the short and long term future, including a slowing of the property market, increasing resale stock, management of liquidity, and maintenance of assets.  In order to pro-actively provide comfort to potential occupants, it was suggested that: (i) operators could consider differentiating themselves by promoting their financial strength and restricting dividends; and (ii) statutory supervisors may wish to move beyond comfort in shareholders’ equity which is based on an assumption that nothing goes wrong and highlight their comfort on liquidity and sector debt – and ability to refund against property market conditions and the local competitive environment.

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