Booming Australian childcare sector faces a challenge from low national birthrate

Childcare has become big business in Australia, but are we heading for an oversupply as the national birthrate falls?

ANALYSIS

Childcare centres, or early learning education centres (ECLC) to be precise, have in the last decade become the property play that draws heavily on how aged care providers became billion-dollar businesses while paying homage to the Ronald McDonald model.

Business schools in the United States and here in Australia often invoke the McDonald’s quote attributed to the company’s first CEO and president, Harry J Sonneborn, “we are not technically in the food business. We are in the real estate business.”

Instead of flipping burgers, childcare centres are in fact flipping toddlers into preschoolers with a large part of the tab being picked up by the taxpayer.

The federal funding formula (83.6 per cent of fees are paid by government) has enabled the growth of for-profit child care centres to become real estate trusts where revenue comes from the taxpayer and the tenant, the child care provider effectively acts like a franchisee.

Similar to the aged care sector, child care operators are a mix of community and for-profit operators that are either controlled by private companies or listed on the ASX.

Childcare is now big business in Australia.

For a private or listed business, it is somewhat easier to raise capital and acquire premises with greater financial muscle than their community-run counterparts but the need for a return-on-investment weighs more heavily on the CEOs paid to run such services.

Childcare centres ‘popping up all over the place’ is not your eyes deceiving you.

The Australian Childcare Alliance (ACA) notes that there are 7300 providers nationally and has been warning of oversupply in the sector for the last five years.

That same challenge is also being exacerbated by another problem facing all participants with the number of new clients (i.e. babies) being born at a 15-year low.

In 2020, the number of babies born in Australia fell below 300,000 to 294,000, its lowest level since 2007.

Real estate businesses are famous for upsizing when there is often no need to do so.

This is one combo that may need a rethink.

Dan Petrie is a data journalist with News Corporation Australia and also goes by the name of Data Dan. Email: [e-mail]

Originally published as Booming Australian childcare sector faces a challenge from low national birthrate