Families brace for more childcare centre collapses

More childcare centre operators are expected to go broke this year, as soaring costs, slumping demand and cut-throat competition drives the sector to the financial edge.

Hundreds of families have been affected by the collapse of the Genius childcare chain, which operated six centres in Melbourne, and HEI Schools, which ran nine daycares in and around the city. More insolvencies are expected, despite the billions of dollars in government subsidies paid to the sector.

Nicole Ferraris with her son Sascha, who was at the now-closed Taylors Lakes Genius childcare centreCredit: Luis Enrique Ascui

Melbourne’s wealthier suburbs, where supply outstrips demand, are most at risk of childcare centre collapses, experts believe.

Desperate operators are offering parents free days and even weeks as daycares compete for a dwindling pool of children, driven by the declining birthrate and families cutting back on daycare amid the cost-of-living crisis.

Just over two-thirds of Australia’s childcare services are run by for-profit operators, and while the largest player in the market, G8, remains profitable, it offloaded 15 of its loss-making centres around the country last year to entrepreneur Darren Misquitta, the man behind the Genius brand.

Misquitta and the companies he controls are now being pursued through the courts by creditors with debts that could top $38 million, while families with children at its centres are left looking for alternatives.

Benjamin Balk, founder and chief executive officer of childcare app KindiCare, says that parents, educators and investors should brace for more trouble in the sector this year.

“We’ve seen insolvencies of childcare providers with Genius Childcare and HEI, and we will very likely see others close in 2025,” he said.

“For the first time in years, we’re seeing offers of free days, or free weeks, as providers try to encourage more parents to enrol in their services.”

Balk said that while some parents still struggled to get into early childhood education and care in some areas, overall demand had softened for long daycare.

“This is being largely driven by a higher cost of living for young families, a lower birth rate, as well as first-generation Australians increasingly relying on parents or relatives from overseas coming to help look after their young children, with childcare being out of reach for some families despite increased subsidies,” he said.

Balk said a 4.4 per cent cap on childcare price for two years, and the temporary government-funded wage increase for educators, was putting extra pressure on the sector, as well as increasing costs of doing business, licence fees and compliance, and inclusion costs not being met by fee increases.

“This will have the unintended consequence of actually impacting the quality of education and care, with a number of providers already experiencing hardship,” he said.

Balk said the federal government’s recently announced childcare policies – $1 billion for new centres in underserviced rural and regional areas and a universal guarantee to subsidised access three days a week – were unlikely to throw a lifeline to struggling metropolitan services because the underlying affordability problem remained.

He said he and his colleagues were seeing a clear link between high property prices and childcare centres in financial trouble.

“It’s generally the more expensive suburbs, where you’ve got property prices averaging $1.5 to $2 million ... where you’re going to see lower demand,” he said.

“What young family with two kids under five can afford to buy a house in Brighton?”

Nicole Ferraris, of Keilor Downs, knows how disruptive a daycare collapse can be to family life.

Her two-year-old, Sascha, had been at the Taylors Lakes Genius centre for just under a year when the centre had the first of its abrupt closures.

The second time, she pulled him out.

Farraris said the hardest part was the disruption to the family’s relationships with the Genius educators.

“So, leaving that and especially because my parents live in Queensland, we don’t have that support network here,” she said.

“We were very happy at that daycare – that’s the biggest thing, and for him to find those connections again, and for you to find those connections, and trust, with the educators as well.

“Then you have to start again. You start again from square one. It can be a bit of daunting process.

“It’s hard to say again at this age how it impacts them, we don’t know.”

Australia’s birthrate is declining, hitting a record low of 1.5 babies born per woman in 2023, the latest year for which statistics are available. There were 286,998 births in that year, according to the Australian Bureau of Statistics.

GoodStart Early learning, revived as a not-for-profit operation by a syndicate of charities in 2008 from the ashes of another failed commercial venture, Eddie Groves’ ABC chain, broke even last year by only the slimmest of margins after four years of heavy losses.

The group, which cares for more than 70,000 children in nearly 650 centres in Australia, said it had to cut costs to edge back into the black with a $12 million surplus on revenue of more than $1.6 billion.

“After weathering the impacts of COVID on family attendances and the workforce shortage, which severely impacted our sector, we took a multi-pronged approach to ensure financial viability,” a spokesperson said.

Dr Caroline Croser-Barlow, chief executive of education advocate the Front Project, said that for-profit providers like Genius or ABC Learning were essentially “taking bets” on which of a large number of centres would work.

“Some of the bets come off, but some of the bets don’t come off, and that’s what’s happened with Genius,” she said.

She said operators might try to improve centres, but if that did not work, they would look to offload them to another company.

She said it might not be good for the system to have operators thinking only about maximising profits.

Minister for Early Childhood Education Anne Aly.Credit: Alex Ellinghausen

Federal Minister for Early Childhood Education Anne Aly said this week the government would begin withholding operating licences from providers that failed quality and safety standards, but Croser-Barlow called for government intervention to shore up financial stability of the sector too.

“The Commonwealth ... could just say we’re not willing to provide childcare subsidy to services where we think there’s an area of oversupply, and there are way too many places in this area,” she said.

“There are choices that the Commonwealth would make about a subsidy lever that it’s not making now.”

The childcare regulator, the Australian Children’s Education and Care Quality Authority, declined to comment for this article.

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