New report charts evolution of LDC supply in ECEC, highlights displacement of not for profit services over time

A new report released by economics research and advisory firm, Mandala and The Front Project provides some notable new insights into how the composition of the long day care (LDC) sector has evolved over time from a geographical and governance perspective. 

The Paving the Path report examines in some detail the roots of rising demand for LDC in Australia and how the supply response by the market has been dominated by for profit operators which in turn has seen not for profits (NFPs) shrink despite their superior quality and affordability characteristics. 

In particular the report makes the following key points:

• Demand for LDC – Demand for LDC over time has been driven by three key drivers; a 27 percent increase in female workforce participation since 1980, a 528,000 jump in children under six years of age and 14 per cent increases per annum in federal government expenditure improving affordability. 

• Supply of LDC – Since 2013, there has been a 69 per cent increase in the number of LDC places, (from 401,000 to 675,000) and a 43 per cent increase in the number of LDC licensed services. Australia now has around 31 LDC places per 100 children, a 64 per cent increase from 19 LDC places per 100 children in 2013.

• Location of supply response – Most Australian Local Government Areas (LGAs) have seen an increase in the available supply of LDC places, even in LGAs that have experienced declining child populations, and growth in supply has also been balanced across LGAs of different socioeconomic status (SES). 

• Concentration of supply response – While growth in LDC services has been broad-based, there is noticeable divergence in the current level of accessibility based on SES status and level of remoteness. Over 100 LGAs across Australia still have no access to LDC services and the availability of LDC services also varies significantly across Australian states and territories.

• Composition of LDC providers – Large providers now operate a third of all LDC services, up from one quarter in 2013, and small and medium providers 27 per cent, up from 24 per cent. Notably, the share of centres operated by standalone providers has declined from 52 per cent to 41 per cent.

• Governance types of new centres and sector at large – Since 2013, 78 per cent of all new LDC centres have been opened by for-profit operators which in turn has driven up the overall share of for profits centres to 70 per cent as at 2024, up from 60 per cent in 2013. In contrast, the share operated by not-for-profit providers has declined from 32 per cent in 2013 to 23 per cent.

• Large Australian cities dominated by for profit – For-profit childcare providers dominate Australia’s largest cities. Their market share has grown significantly over the last decade, mainly at the expense of not-for-profit services. In Melbourne for profit LDCs currently make up 73 per cent of centres (compared to 56 per cent in 2013), whilst not for profits make up 21 per cent (compared to 35 per cent before.) 

• Not for profits gradually squeezed out of medium sized cities – Not-for-profit providers still maintain a relatively stronger presence in cities like Adelaide, Canberra, Darwin and Hobart however, for-profit services have gained significant market share in these smaller capitals since 2013, mirroring the national trend.

The current composition of the Australian ECEC sector, and how it has evolved over time, is a function of incentives that are now well embedded into a system that is market based. Supply will inevitably respond to demand signals, and given for profit operators are better equipped from a financial perspective to deliver new centres their share as a percentage will inevitably rise. 

As a conclusion the authors of the report highlight that despite for profit centres increasingly dominating the ECEC landscape their not for profit peers are outperforming on key metrics such as overall service quality, the extent of above award wage agreements and an increased likelihood of charging below the Child Care Subsidy (CCS) fee cap.

In light of this the final message that report authors wished to share with policy makers is that “As access and inclusion improve, policy must focus on ensuring a balanced LDC market to provide quality and affordable care to everyone.”

To access the report please click here.