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The Future Of Childcare Centres In NZ

THE FUTURE OF CHILDCARE CENTRES IN NZ

Busy modern professional parents rely on childcare services to care for, educate and enrich the lives of their children. Quality childcare allows parents to concentrate on supporting their families through their chosen caree rs.

In NZ, 95 per cent of children under five receive some form of early childhood education (ECE) subsidy, typically for 20 or 30 hours a week.

Growth of childcare centres in New Zealand According to a study published by IBIS World, increasing maternal work participation rates are also expected to increase demand for quality childcare services in New Zealand.

According to Statistics New Zealand, as of 2014 survey (ref. Mothers in NZ Work force), 69.6 per cent of partnered mothers and 57.8 per cent of solo mothers worked full-time outside the home.

With numbers like this, it’s easy to see that the demand for quality ECE definitely exists. The ECE industry is booming, particularly in regions like Auckland.

The rapid growth in the city’s population along with sky rocketing house prices have left many Early Childcare Education (ECE) providers in stalemate. Pregnant women are booking spots six months in advance of having their child in order to secure enrolment.

As of January 2016, there were 1,500 children on the waiting list for Auckland Kindergarten, says Tania Harvey, CEO of Auckland Kindergarten Association. Some areas are about 98% full in the Central Auckland area.

This increase in business for early childhood centres has created an attractive seller’s market.

Sellers of childcare centres are achieving premium prices for their businesses. Developers and investors are also seeking to benefit from the surge in demand of childcare centres.

This demand is created by prospective childcare business buyers who see ECE sector as secure and stable because of the continued growth rate of enrolment, high values of the commercial properties and government grants and subsidies.

Current government grants and subsidies Public funding for ECE is considered to be reliable and secure, as the New Zealand government allocated almost $1.63 billion towards funding ECE programs in 2016, up from $860 million in 2008. (ref:2016 budget highlights govt.nz).

In addition, the Government contributed an extra $396.9 million in the 2016 budget in order to fund care for an extra 14,000 children by 2019-2020.

Its goal is to have 98 per cent of children in New Zealand attend an ECE programme for education and enrichment before they start formal schooling.

While this incredible growth puts immense pressure on ECE care providers, it presents a smart opportunity for savvy investors in commercial properties. It also means our kids are getting a “best start” in life.

This funding increase may sound a lot, but with increases in children numbers, it may have slipped back to maintain a good perchild rate.

The average childcare has lost over $90,000 in annual revenue as a consequence of government “funding cuts by stealth,” says CEO of Early Childhood Council, Peter Reynolds.
One of the largest cost of running a centre is staff salaries and wages.

Government subsidies have not addressed increases in wages, inflation or increase in GST. All these costs have reduced profitability and viability of some centres.

Many parents using centres in Christchurch and Dunedin were struggling to pay fees even though at $5.50 per hour they were among the cheapest in the country and had not risen since 2011.

An-Nur childcare centres manager Dr Maysoon Salama said the finding did not surprise her.

Costs of NZ childcare compared to the rest of the world Compared to the rest of the world, New Zealand’s ECE programmes are one of the costliest.

In 2016, according to a report released by the Organisation for Economic Cooperation and Development (OECD), of which Australia, New Zealand, the UK, the US and other European countries are a part, it was found that New Zealand twoparent households spend almost a third of their income, on average, on childcare services (OECD average 13% of income).

This figure is nearly three times as high as the parents in France and Germany spend and is nearly double that of Australia.

This is mainly due to more funding from their governments for these programmes. According to the study, the UK has the most expensive childcare costs.

However, it should be noted that the study focused on families with two children receiving full-time childcare, and government funding in NZ focuses on parttime care.

So, while childcare costs may be expensive in NZ compared to the rest of the world, to maintain and deliver high quality of childcare it needs continuing
support and funding from government, possibly inflation adjusted.

Overall, the economic picture of early childhood education in NZ is very favourable, and it’s an industry that is expected to continue and grow, creating a favourable environment for smart commercial investors.

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