The average cost of child care increased 23 percent from 2021 to 2025. As parents struggle to afford child care among other rising costs, they also can’t easily find it. Nearly half of children younger than 6 live in a licensed child care desert, where demand is much greater than supply.

This unmet need for child care isn’t just a problem for families—it ripples through their communities and local economy. It affects parents’ ability to work or go to school, local employers’ ability to retain workers and maintain productivity, providers’ ability to pay their bills, and children’s ability to gain early learning skills to grow into healthy adults and workers.

Though this child care shortage is well known and widespread, the factors driving it are complex and vary widely by community.

Families often lack access to the care they want and need (PDF), whether it’s in a center, in a family child care home, or by family, friends, and neighbors. To ensure every family can access child care that meets their needs, states and localities could start by identifying their community’s unique challenges. Our research shows that to pinpoint what’s limiting child care, state and local policymakers need two key answers.

What challenges make it difficult for current child care providers to stay in business?

The evidence is clear: Communities can’t boost the number of child care slots by simply opening new programs because providers are struggling to operate in the current market.

Here are three common challenges providers in your community might be facing: 

1. Staffing shortages. Low pay and poor job quality—such as limited employee benefits and lack of training and advancement opportunities—lead many child care workers to leave the industry. Yet child care businesses must remain affordable for families, making it hard to raise wages. 

   High turnover and trouble hiring staff make it difficult for providers to operate at their desired capacity (PDF). In a 2026 nationwide survey (PDF) of 2,700 providers, about half reported they were underenrolled because of staffing shortages. Providers may physically have enough space for more kids, but they don’t have enough staff to care for them. 

2. Increased costs to run their business. Many providers are contending with increased operational costs. In a 2026 nationwide survey (PDF), about 2 out of 3 providers reported facing higher liability and property insurance costs, and nearly half reported higher rent or lease costs. More than 9 in 10 reported increased prices for food and supplies.

3. Revenue reductions and instability. Providers were already operating on thin margins, and they now face lower enrollment and lower revenue. About 60 percent of providers in a nationwide survey reported losing revenue because parents can no longer afford child care.

   Providers’ financial instability is compounded by states’ challenges sustaining their child care subsidy programs. About half of providers reported reductions in public subsidies (PDF). A 2025 study found that 17 states have program waiting lists or are not accepting new families, up from 13 states in 2024.

   States are also struggling to pay providers subsidy rates that meet federally recommended levels—only 12 managed to do so in 2025. These challenges could intensify as many states face a looming fiscal crisis because of cuts to Medicaid and other key safety net programs.

Today, many providers face impossible trade-offs: paying staff more so they can operate at full capacity, covering rising costs of everyday essentials, and keeping prices affordable for parents. This balance is even more difficult for specialized care—such as care for infants, toddlers, or children with disabilities, or care during nontraditional hours—because care needs are more costly, it’s harder to find staff, or families can have different demand patterns. States and localities interested in expanding the supply of these kinds of services need to understand, and address, their specific constraints and challenges.

What barriers prevent new child care providers from opening? 

New providers can face all the challenges described above with the added obstacle of getting their businesses off the ground. Helping new providers open will require unique supports.

Here are three of the most common barriers we've found:

1. State and local regulations aren’t aligned. Regulations are a key tool to ensure child care providers maintain safe and healthy environments that support children’s development. However, aspiring child care providers can face permitting and regulatory requirements from multiple agencies at the state and local levels, including local planning and zoning boards, health departments, fire departments, and child care licensing agencies. These requirements sometimes conflict, can be costly, and can delay opening. Aligning these requirements while ensuring children’s health, safety, and developmental needs are protected is one step policymakers can take to support new providers.
2.  Lack of start-up funding. Before they can open, providers must invest in getting their classrooms up to code; pay required fees; purchase equipment, furniture, and toys; and market their new business. Start-up costs are expensive, and financial supports are hard to come by. Compared with other businesses (PDF), child care programs are less likely to be focused on growth and to make significant profits to pay back traditional loans.
3. Lack of training needed to start and sustain a business. New providers need business and financial management skills to maximize enrollment, navigate changes in revenue, and minimize costly mistakes.

State and local insights and investments are key to ensuring every family has access to child care

The challenges facing both existing and aspiring child care providers are interrelated and complex—but not insurmountable.

Some states and localities have worked closely with providers and families to develop targeted, innovative solutions to support and sustain child care supply, such as creating start-up funds and offering business training (PDF). New Mexico now provides no-cost universal child care, and New York City is working to deliver free child care to all 2-year-olds. Urban research has explored other strategies, such as helping more home-based providers—including family, friends, and neighbors—access public funding, improving how states pay providers through the subsidy program, and using stable funding sources to support the early childhood workforce.

For example, Washington, DC’s early childhood educator compensation program provides funding to child care providers to pay their educators according to a minimum salary schedule. Urban’s research partnership with DC found the tax-funded initiative has helped child care programs recruit and retain qualified educators, stabilized program finances, and boosted the supply of quality care in DC.

In Georgia, the Department of Early Care and Learning partnered with Urban to better understand the child care needs of families who worked nontraditional hours, such as nights or weekends. Urban’s research helped inform a pilot project, in which the department gave grants to help providers offer more care during nontraditional hours. A video from one community in southern Georgia shows how the grants have supported its local entertainment and tourism industry by helping parents stay employed.

When states and localities understand the problems facing their communities, they can invest in more strategic, thoughtful solutions.