The head of Australia's biggest childcare operator, not-for-profit group Goodstart Early Learning, says the lure of higher returns is driving private operators to set up shop in wealthy, inner-city suburbs, rather than burgeoning outer growth areas.
Goodstart chief executive Julia Davison said some operators, faced with rising costs, were choosing to set up in high-income areas where they could charge higher prices for "premium" care.
"There is much more incentive for for-profit operators to set up in those localities where you can charge a high fee and where you're going to get a high occupancy than there is for them to set up in middle or lower economic suburbs," she said.
"If you wanted to make a profit, those are the obvious locations to go to... I wouldn't be rushing to the growth corridors of Melbourne or low-socio-economic corridors."
Her warning was echoed by Professor Deb Brennan at the University of New South Wales Social Policy Research Centre, who said reforms were needed to ensure taxpayer subsidies were not used to cover luxury services such as "baby massage, on-site chefs and yoga for toddlers".
She said childcare operators in inner-city suburbs in Sydney and Melbourne were charging as much as $170 a day for childcare – compared to the national average of about $100 a day.
"We need to make sure that public subsidies get spent on reasonable costs, and not on luxury items," she said.
Private operator Only About Children, run by investment banker turned childcare entrepreneur Brendan McAssey, charges up to $160 a day for its centres with services that include foreign language classes, nutritionists and health checks.
Its operations are mainly clustered in well-heeled suburbs such as Mosman, Neutral Bay and Rose Bay in Sydney, and it also operates a centre in South Melbourne.
The federal government, under its Childcare Rebate, covers 50 per cent of the cost of childcare up to $7500 a year. The rebate is not means tested.
The Productivity Commission, which is currently scrutinising the sector in an inquiry, says the subsidies cost taxpayers $5 billion a year "and growing".
The Australia Institute, in its submission to the inquiry, pointed to an "uneven availability of childcare places" in Australia, noting that competition in the sector – and therefore choice for parents – was likely to be greatest in areas where the returns were higher.
The thinktank called for means testing of the rebate and to redirect funding to centres in areas of "highest need to maximise service affordability".
Goodstart, which took over ABC Learning's centres after the private operator collapsed in 2009, is owned by a coalition of not-for-profit charities including Brotherhood of St Laurence. It currently operates 641 centres around the country and has a national market share of about 10 per cent, IBIS calculates.
About 40 per cent of childcare centres nationwide are run by not-for-profits.
Ms Davison said the need for private operators to keep on top of costs and make a profit meant many were pursuing a "premium" brand of quality care in inner-city areas.
"We may not see the growth that is needed in those other communities to support both children and working families," she said.