Children’s homes run by investment firms are less likely to open and operate in areas of high need. Instead, they are clustering in areas where operational costs are lowest. This is one of the key findings from a new study from the London School of Economics and Political Science (LSE) and funded by the Nuffield Foundation.

Published in the Lancet Public Health, the study finds that investment firms now own a quarter of children’s homes in England but instead of opening homes in inner-city areas of high need, they are increasingly opening them in rural areas in the north of England, where property prices are lowest. This has left major urban centres such as London, Bristol and Birmingham without the necessary provision.

These gaps in provision have resulted in children being placed in homes far away from their families and friends, severing the vital social connections needed for successful community reintegration and negatively impacting wellbeing and future prospects.

To undertake the study, the researchers sampled 4,356 children’s homes in operation in England between 2014 and 2023. Of these, 1,014 were linked to ownership by an investment company. Other forms of ownership include corporate firms, local authorities, third sector organisations and private individuals/families.

They found the most common type of children’s home ownership for most of the past 10 years has been some form of investment or private equity ownership. In the last decade, the number of for-profit homes have more than doubled, whilst the number of third sector and publicly owned homes has declined or stagnated.

Based on a ratio between children and places, the researchers found that some areas have over three times the expected number of children’s home places, whilst many other areas had fewer than half the number of expected places. The areas with more places than expected are typically more rural, in the north of England, and often neighbouring a city. The areas with fewer than expected places are often city-regions.

Analysis by the researchers revealed sizeable relationships between area characteristics and children’s home ownership types. They found for-profit providers disproportionately operate in lower-need areas, with investment firms particularly concentrated in regions with lower property values.

Commenting on their findings, the researchers state in the paper: “Our study shows that the commercialisation of children’s social care in England has contributed to a sufficiency crisis with profound indirect health consequences.”

They add: “The choice to locate in low-need areas potentially represents a lucrative strategy, with children placed out-of-area being 2.5 times more likely to enter private provision than those within their area.

“These harms are invisible when looking at quality ratings alone, which suggests that current regulatory frameworks are inadequate to ensure and maintain geographic equity in sufficiency. This could mean that the profit motive is fundamentally misaligned with ensuring care availability where it is most needed, or that commercial providers are not sufficiently incentivised to operate in high need areas. Either way, this reveals a system either inherently unsuited to commercial interests, or one that is too poorly resourced to effectively regulate private sector behaviour.”

Paper lead-author Benjamin Goodair a Postdoctoral Fellow in the Centre for Analysis of Social Exclusion (CASE) at LSE commented: “It was previously unclear whether the outsourcing of social care services to the private sector would result in better or worse services, our findings suggest that in relation to the accessibility of care, it has contributed to worse services.”

Co-author François Schoenberger, Postdoctoral researcher at the University of Oxford, added: “Private equity firms raise capital on fixed timelines and are expected to deliver rapid returns, creating incentives to extract cash flow from the companies they acquire. In care homes, these short-term incentives can undermine the long-term investment needed to maintain the quality of care.”

Co-author Anders Bach-Mortensen, Associate professor at Roskilde University, added: “Inadequate care sufficiency is a well-known problem in the sector. Our findings suggest that ownership of care is a key contributing factor, which must be considered in policy attempts to address it.”

ENDS