After two decades of static supply, the UK elderly care home sector is entering a demand-led growth phase, with a need for 139,000 additional beds over the next decade.
Key takeaways
- The UK Care Home development market is transitioning into a phase of demand-led growth, with demographic pressures becoming increasingly acute and supportive of long-term expansion
- Supply dynamics are tightening, with the 30,000 new beds delivered between 2020 and 2025 almost entirely offset by c. 29,000 beds being decommissioned
- Looking ahead, there is a requirement for around 139,000 additional Care Home beds over the next decade, equivalent to 30% of existing supply, with delivery rates needing to more than double to meet demand
- The current pipeline of c. 20,200 beds under construction or with detailed planning provides a good near-term base, but further scale will be required to close the supply gap
- Development has proven strongest in Southern England, which has seen over one third of completions (2020–2025) and has c. 40% of the current pipeline, demonstrating where fundamentals can support delivery
- New supply remains concentrated in more affluent private-pay markets, which highlights the significant untapped demand potential in lower-fee and local authority-reliant regions
- Planning delays, contractor constraints and elevated cost bases have slowed down delivery, but overall development conditions are starting to improve
- General building cost inflation has moderated to around 3.8% annually as of early 2026, a significant improvement from the peak of 15.5% recorded in June 2022
- Debt appetite has also strengthened, and a number of regions have shown that delivery will respond where fundamentals are supportive, providing a more positive backdrop for future growth if development can be brought forward in a wider range of areas
Introduction
The market has become progressively more constrained: occupancy, now at 87%, has moved above pre-Covid levels, but net new supply is limited, as modern delivery is still largely replacing obsolete provision rather than materially expanding overall capacity.
The central issue is the sector’s inability to respond at sufficient scale and in the locations where need is growing. New development is concentrated in the private-pay markets, while many lower-fee and less affluent markets, which are often already underserved, are still failing to attract enough new supply.
Although financing conditions have improved and construction cost pressures have eased from their recent peaks, planning delays, contractor constraints and uneven viability continue to limit new supply.
The result is a market with clear long-term care need and improving fundamentals, but in which future supply growth is likely to continue to fall short and remain unevenly distributed unless development broadens across a wider range of locations.
SUPPLY: FROM OVER-PROVISION TO DEMAND-LED GROWTH
After a period of rapid expansion in the 1980s and early 1990s, driven by the Income Support regime, which effectively provided uncapped public funding for Care Home places and underpinned strong growth in private provision, the sector moved into oversupply, particularly in areas with low land values such as Northern England.
Following the 1993 Community Care reforms, this dynamic shifted sharply, as responsibility for funding was transferred to local authorities and tighter, needs-based assessments were introduced, placing greater emphasis on supporting lower-dependency individuals in community settings.
In the late 1990s and early 2000s, many local authorities also exited direct Care Home provision, transferring assets to private and not-for-profit operators or closing homes entirely.
From the mid-2000s onwards, registered capacity has remained broadly stable despite continued population ageing, with total elderly care bed capacity now at c. 468,500 beds (according to LaingBuisson).
Over the last two decades, the market has increasingly shifted towards serving residents with higher acuity needs, as access to Care Homes has tightened and lower-dependency cohorts are more often supported in community settings.
This is reflected in a progressively older and more care-intensive resident profile, alongside shorter average lengths of stay, although this broad trend has been complemented by the gradual emergence of a premium private-pay residential segment.
The historically weak relationship between population growth and Care Home demand is due to several structural counter-drivers. Local authority commissioning practices have prioritised access for individuals with ‘substantial’ or ‘critical’ needs, effectively reducing state-funded admissions. At the same time, policy preference has favoured community-based care models, particularly for lower-dependency cohorts.
The expansion of alternative settings, such as Housing-with-Care and Live-in domiciliary care, has further absorbed demand that might otherwise have resulted in Care Home admissions.
Housing-with-Care offers self-contained accommodation with on-site care services, allowing residents greater independence than in a Care Home. There are currently c. 96,800 units across the UK, housing an estimated 144,000 residents.
Live-in domiciliary care, where a carer resides in the individual’s own home, serves as a more direct substitute for a Care Home, with over 600,000 people currently receiving care in this setting.
This cohort spans a wide spectrum of need, from minimal support to more extensive assistance, and so not all of these users would otherwise utilise or need a Care Home.
Over the past three years, however, the status quo has begun to shift. As at March 2026, Care Home occupancy was at c. 87%, with occupied beds estimated to have reached 406,900 (LaingBuisson), around 3% (c. 14,000 residents) above the pre-Covid peak. This recent increase reflects accelerating demographic pressure, with growth in the oldest cohorts now beginning to outweigh historical demand suppressants.
Moving forward, we expect there to be less diversion to alternative settings, on a proportion-of-the-elderly-population basis, meaning that future growth will be more directly driven by demographics (an ageing population).
With the UK’s 85+ population projected to almost double between 2026 and 2050, underlying demand is expected to increase materially.
Assuming consistent dependency rates across the 65–74, 75–84 and 85+ age groups, and occupancy levels in line with today, between now and 2036 there will be a requirement for an additional c. 139,000 beds across the UK – equivalent to 30% of existing supply.
RECENT DEVELOPMENT: NET CAPACITY GROWTH REMAINS LIMITED
The UK Care Home market has been characterised by a broadly flat level of overall capacity, despite around 6,000 new beds being delivered each year.
This “net standstill” reflects diverging trends within the sector: growth in modern, for-profit provision is being offset by a continued decline in both public sector and not-for-profit homes, as older, less viable stock is increasingly decommissioned, particularly smaller and non-purpose-built homes that are difficult to operate or refurbish to modern standards.
While over 90% of independent sector rooms are en suite, only 29% have wet rooms (rising to c. 50% in post-2010 stock), with many older homes hampered by layout and operational inefficiencies. This continues to underpin the need for new development and selective refurbishment / reconfiguration. Crucially, with demographic growth set to accelerate, this is not a localised requirement: sustained development will be needed across all UK regions to meet future requirements.
New bed delivery has been relatively stable across the country, albeit with a clear pandemic-related disruption in 2020. Bed delivery was subdued in 2020, with just 60 schemes and c. 3,700 beds completed as Covid-19 disrupted construction programmes and delayed site activity, before rebounding strongly as the market emerged from lockdown. Activity has since settled into a steady post-pandemic run rate of c. 80–90 schemes (5,000–6,000 beds) per year.
Across 2020 to early 2026 as a whole, over 530 new-build Care Homes and 30,000 beds have been completed, with the average scheme size remaining broadly consistent throughout at c. 60–70 beds.
Delivery has also been geographically constrained, with viability strongest in affluent southern markets where private-pay appetite is enabled by greater housing wealth. The South East has accounted for close to a quarter of beds delivered between 2020 and 2025, despite housing only c. 15% of the UK’s 65+ population.
New capacity between 2020 and 2025 averaged c. 63 beds per 100,000 people aged 65+ in the South East and 50-plus across the Midlands and East of England, compared with just c. 14 in Wales and the North East.
Rising build, finance and land costs have pushed much of the market towards higher-fee, private-pay locations, with many developers targeting affluent catchments where weekly fees can support development economics.
The consequence is that lower mid-market and more price-sensitive locations are harder to serve through new-build delivery.
However, for larger-scale developers and operators, lower regional fee levels can be offset by a more efficient cost base, particularly where staffing structures are centralised and labour costs are below those seen in London and the South East.
Comparing the early post-pandemic window with the most recent years, there has been improvement in development in the North: Northern England’s share of completed new-build beds has risen from around a sixth to closer to a quarter of new supply, while the Midlands has seen a slightly reduced share. However, the broad picture remains one of activity anchored to the more affluent southern markets.
The biggest issue is in markets where both existing provision and recent delivery are weak. Scotland and Wales stand out on both measures, combining relatively low bed provision and limited new-build activity. In both cases, supply is not keeping pace with need, so existing shortfalls risk becoming even more entrenched as populations continue to age.
In Scotland, viability was constrained by post-2018 and post-2020 design guidance that mandated smaller, lower-density schemes and higher space standards; however, following industry pushback, 2026 guidance has begun to ease these constraints, most importantly through allowing larger-format developments.
Beneath the regional averages there are substantial county-level variations too. In parts of the North, areas with relatively limited provision ratios are often also those attracting the least new development, which will only exacerbate their shortfalls. Northumberland and Cumbria illustrate this trend. Both sit below their regional and national provision averages, and both have also seen minimal new development over the last five years.
Notably, the picture is not uniformly weak across Northern regions. Although the North West overall is below the England average for provision, at 37.9 beds per 1,000 people aged 65+ (England average: 38.4), Cheshire has outperformed both its region and the national average, with around 41.0 beds per 1,000. Backed by wealthier catchments and the private-pay viability they offer, it has also attracted 11 new schemes since 2020. This shows that where underlying market fundamentals are supportive, development can and does follow.
The forward-looking bed supply is positive: in total, around 620 schemes, equating to c. 37,000 beds, sit across the pipeline from Under Construction through to Outline Application.
Importantly, the pipeline is skewed toward later-stage schemes. Just over half of total beds (c. 20,200) are already at Detailed Permission or Under Construction, including c. 8,900 beds actively being built and c. 11,300 beds with full consent.
Geographically, future stock closely mirrors historic delivery patterns.
The South East and wider Southern England remain dominant, with activity concentrated in areas supported by private-pay demand. London’s pipeline is notably thin, reinforcing the lack of development in the capital. The data does not indicate any material rebalancing of supply, either in volume or geography. Instead, it points to a continuation of the current steady state: consistent but insufficient output, concentrated in the most attractive markets and falling short of underlying demand growth.
Beyond pure viability, planning is one of the clearest constraints on new delivery. Developer feedback points not just to a localised and often subjective approvals process, but to extended timelines that can materially impair scheme economics.
In some cases, developers report planning applications taking multiple years to progress, with Section 106 agreements adding further delay even after a resolution has been reached. This stretches development timelines, ties up capital for longer and further discourages supply in all but the most resilient markets.
Targeted planning reforms could help accelerate delivery by reducing approval times and increasing consistency across local authorities.
Contractor capacity is also acting as a meaningful brake on new supply. The number of builders active in the Care Home market remains limited, restricting the sector’s ability to increase supply and leaving schemes more exposed to delay where contractors are overstretched.
The issue is not only the number of contractors in the market, but also the increasing reliance on smaller firms as developers seek to manage costs.
Where schemes cannot support tier-one pricing, developers may move down the contractor stack, which can improve headline feasibility but increase execution risk if smaller builders become overstretched or financially fragile.
DEVELOPMENT VIABILITY: IMPROVING ECONOMICS AMID EASING COST INFLATION
While viability conditions have improved meaningfully over the past two years, labour cost inflation and wider geopolitical risks continue to create uncertainty and downside risk.
Following the period of acute cost inflation in 2021–2022 following Covid, the construction sector has now entered a period of relative stability. General building cost inflation has moderated to around 3.8% annually as of early 2026, a significant improvement from the peak of 15.5% recorded in June 2022, though still above the 2.3% average seen through the 2010s.
Despite the recent easing in headline cost inflation, Care Home development economics remain materially more challenging than they were pre-Covid. Schemes are still being underwritten against a much higher build cost base than was typical before 2020.
Large development platforms have been better able to absorb volatility through forward purchasing, in-house construction capability and reduced exposure to subcontractor margins, meaning cost inflation has been felt more gradually than for smaller or less integrated developers reliant on spot pricing.
After a period of cost deflation in 2024, when prices fell by an average of 0.2% year on year, materials inflation returned in 2025, although it remained subdued. As of March 2026, annual materials inflation stood at 1.9%, well below the peak of 25.1% recorded in June 2022. BCIS forecasts suggest this more benign environment will continue, staying in the 2.4% to 3.7% range through to 2031.
Unsurprisingly, given recent increases in National Insurance and the National Living Wage, labour costs remain the most persistent pressure point. Despite easing from a peak of 9.6% in July 2023, annual labour cost growth of 5.8% as at March 2026 continues to be elevated relative to historical norms. Persistent skills shortages across the construction sector continue to constrain the pace of adjustment, with wages proving slower to moderate than materials cost inflation. BCIS forecasts anticipate labour inflation easing to around 3.4% by late 2026, with a return to the historical average of 2.4%–2.6% not expected until 2029–2030.
Overall, the outlook is considerably more favourable than two years ago. General building cost inflation is forecast to stay in the 3.3%–3.7% range through 2026–2027.
Notably, in the last 12 months, reduced activity from housebuilders appears to have improved site availability in some areas, as plots have come back to market. Recently, competition for land is coming less from other residential and Care Home developers and more from alternative uses, for instance, retail occupiers targeting similar locations.
Improved Care Home operational performance is further supporting development viability.
Strong fee growth and improving occupancy levels have underpinned revenue resilience, particularly in private pay-led markets. According to Carterwood, average private weekly fees for personal care reached £1,302 across Great Britain as at Q3 2025, representing an 8.5% year-on-year increase, while nursing care fees averaged £1,696, up 8.3% year-on-year.
However, risks remain. Geopolitical instability, including ongoing tensions in the Middle East, could lead to a rise in inflation and construction costs, the full impact of which has yet to be realised.
ESG
Market feedback suggests ESG has become less of a standalone investment narrative than it was a few years ago, with emphasis shifting away from the notion of a clear “green premium” and towards its value in terms of operational resilience, compliance, and cost control. In practice, developers are increasingly focused on measures that are mandated or economically rational.
This is particularly relevant in the Care Home sector given the continuous nature of operations and the sensitivity of profitability to utility and building costs. Sustainable measures such as gas-free systems and possible grid upgrade requirements, solar panels, heat pumps, and water reuse, can provide tangible operational benefits, and are increasingly aligned with broader objectives around cost resilience and future-proofing.
Over time, this is likely to further widen the divide between modern purpose-built homes and older stock, supporting the case for both replacement development and continued upgrading of the existing estate.
DEBT MARKETS
Financing conditions have improved materially over the past 12–18 months. Lender appetite for Care Home development has broadened, with both traditional banks and alternative lenders increasing exposure to the sector, making debt availability more competitive for established operators.
Alternative lenders have been willing to offer higher leverage than traditional banks. However, access to the most attractive terms are concentrated among larger, experienced platforms with strong balance sheets, repeat delivery capability and established operating track records. Smaller or first-time developers may still be able to secure funding, but typically at a higher cost and with tighter underwriting.
There is also an ongoing emphasis on adherence to best practice, with lenders prioritising operators that demonstrate robust governance, high standards of care, and sustainable business models, while also showing willingness to support viable assets through refinancing or operational challenges.
A CONSTRUCTIVE OUTLOOK
The UK Care Home market is far better positioned today than it was three years ago. With occupancy now having recovered above pre-pandemic levels and operator revenues proving resilient, the sector has re-emerged with strengthened fundamentals and is attracting renewed investor confidence.
A central driver of this is care resident fee levels. Average private weekly fees have increased faster than inflation over the last five years, supporting operator margins and underpinning development viability despite a higher cost base.
At the same time, build cost inflation has moderated significantly from its 2022 peak and debt markets have reopened, with both traditional banks and alternative lenders now competing for exposure to the sector.
In these respects, the UK’s Care Home market stands in contrast to much of continental Europe, where regulated or slow-moving fee structures have failed to keep pace with rising costs. In Germany, for example, post-Covid cost inflation, coupled with lagging fee growth, contributed to a wave of operator insolvencies - although performance has since begun to stabilise.
By comparison, the UK’s ability to pass cost pressures through via private fee growth represents a clear structural advantage, underpinning its relative resilience and helping to attract a greater share of institutional investment into Care Homes than any other European market in recent years.
The end user demand case is clear, fee pricing is better supporting viability, and financing conditions have improved. The challenge now is converting these favourable fundamentals into new delivery, particularly in regions where demand is high but lower fee levels make development economics more challenging.
There is scope to support broader development through a more efficient and consistent planning system, faster progression from consent to construction, greater participation from contractors with experience in the Care Home sector, and stronger planning policy support for older persons’ housing.
The Government’s forthcoming National Planning Policy Framework is expected to provide clearer direction for local authorities to assess need, allocate suitable sites and proactively plan for retirement housing, housing-with-care and care homes.
Together, these measures would help unlock viability and supply in underserved markets and ensure that future Care Home development increases and is better aligned with the UK’s growing care needs.