Property is the second largest cost in early childhood education and care, after wages. It accounts for around 15 cents of every dollar a provider spends.

It is also the most misunderstood part of the system. That's why we commissioned Dandolo Partners to undertake this work. We wanted to test the theories we'd heard about property. Are REITs are driving up rent? Are developers are making out like bandits? Are mum-and-dad landlords are charging rents no centre can sustain? Where is the one place public money pours out of the system and into someone’s pocket? Until now, there has been remarkably little evidence that begins to answer these questions.

In this deep dive, Dandolo matched approximately 20,600 property transaction records going back to the 1940s against the national register of services, and spoke to 50 developers, landlords, fund managers, providers, regulators and advisers.

This isn’t a policy paper, and it doesn’t make asks of government, beyond a nudge or two. Its job is to help the sector understand itself. It raises at least as many questions as it answers, about oversupply, who carries the risk when occupancy falls and what happens when a generation of SMSF landlords decides to sell. We don’t have good answers to those yet. That’s partly why we’re releasing a lot of the data inside the report. The most useful thing we can do with it is hand it back to the system and see what others find.

• Sale prices of long day care centres have grown at more than twice the rate of residential properties since 2017, driven up by the value of high rental returns and increases in construction costs.

• Historically ECEC has been an attractive investment because of stable and steady financial returns, but that is now shifting. 

• Long day care centres are getting bigger and able to accept more children, but this is driven by return on investment, not children or community needs.

• Most investors are self-managed super funds, ‘mum-and-dad' investors, and high-net-worth private investors and own only one or two centres. 

• 80% of providers rent their properties, and 15% of their costs are on their lease. 

• Providers hold the operating risk, with fixed obligations within their lease that are difficult to exist or change.

• There is nothing in the system to put downward pressure on costs – rents aren’t capped and families can’t easily switch services. 

• Oversupply impacts quality across all services in the local areas and has ripple effects across all services within that provider, as they work to offset losses. This means government must act on market shaping in order to lift ECEC quality.

• The ECEC property market is an entirely separate part of the ECEC ecosystem, and one barely touched by government. There are many opportunities for governments to shape and influence market behaviours to ensure it is working to meet child and family interests. 

The system is fragmented, and no single body oversees how many services open or where. The property market is a separate part of the ECEC system and has had little government involvement. Governments can use regulatory and funding levers, respond to oversupply and undersupply, and collect and share data to support better decisions. The research points to a need for leadership and coordination in the provision of long day care. The Front Project considers that an independent ECEC Commission should lead this work.