Accommodation Pricing Is a Capital Decision

Accommodation pricing is often treated as a market question. In practice, it is a capital decision that shapes an organisation’s capital position for years.

The July increase in the maximum RAD threshold will move the baseline once again. For some providers, it creates comfort. For others, it creates pressure. In both cases, it often leads to the wrong conversation.

Pricing discussions often begin with a comparison: what are other providers charging? Attention then turns to suburb pricing and competitor movements. These are useful reference points, but they should not determine the outcome.

On a 120-bed home, relatively small movements in room price can translate into eight-figure changes in RAD capacity. When the discussion focuses only on competitor pricing, it explains what others are doing but not what capital position the facility actually needs.

In practice, two situations appear regularly when providers review accommodation pricing.

Providers Sitting Below the Threshold

Example: Moving to the Threshold

Consider a 120-bed home currently charging $550,000, with the threshold moving to $750,000. A $200,000 increase per bed represents about $24 million in potential RAD capacity if fully realised.

From a regulatory perspective, the step is straightforward. No IHACPA approval is required to move to the threshold; the decision sits entirely with the board and executive team.

In most cases, the challenge is internal rather than regulatory. The board and executive team need to understand the financial rationale and consider community expectations, while admissions teams require clarity before discussing price changes with residents and families.

When the answer to why the price is increasing is simply that “the market has moved,” hesitation often follows. When the decision is linked to capital requirements and asset renewal, the conversation usually becomes much easier.

In our experience supporting providers in this situation, the focus usually turns to linking capital requirements, sustainability settings, and strategic direction to the proposed pricing.

Most organisations already hold the modelling needed to answer these questions. The challenge is connecting that analysis clearly to accommodation pricing and the organisation’s capital requirements.

Providers Already Charging Above the Threshold

Example: Reapplying for a Higher RAD

In a recent case, a 120-bed provider charging approximately $850,000 was considering allowing their approval to lapse and reverting to the indexed threshold price. Reverting would have reduced their RAD position by more than $11 million.

Instead, we undertook a structured accommodation optimisation review with the provider. The higher RAD application we developed at $950,000 was approved. The result strengthened the facility’s RAD position by about $12 million compared with its previous pricing, and by more than $23 million compared with reverting to the threshold.

Preparing a higher RAD application requires evidence, internal alignment, and regulatory assessment. It takes time and carries uncertainty, but the capital impact of the decision is usually substantial.

Providers facing this situation are effectively weighing administrative effort against a material financial outcome. On a single facility, differences of this scale can affect funding flexibility, investment capacity, and financial resilience for several years.

Pricing Judgement and the Next Threshold Adjustment

Many pricing applications still rely heavily on property comparisons and suburb pricing. While these comparisons describe the market, they rarely provide sufficient evidence to support the proposed price.

IHACPA must assess applications against legislated considerations and evidence aligned with the characteristics and sustainability profile of the service. When applications rely mainly on market comparisons, approvals often land at the lower end of the possible pricing range.

The strongest applications demonstrate the value of the accommodation offering and link pricing decisions to capital requirements and long-term sustainability.

The annual indexation will reset the threshold again in July 2026. Regardless of whether pricing sits below or above the threshold, it is important to remember that this is a legislative mechanism — it does not determine the value the market places on residential accommodation.

Without a clear methodology, providers risk:

• applying for a price that will not be approved
• applying for a price that sits below market
• defaulting to the threshold as the pricing benchmark

Developing a clear methodology allows boards to set accommodation pricing with confidence and ensure it supports both resident expectations and long-term sustainability.