About 83,500 extra places will be needed over the next 10 years alone, but service providers say they are under significant cost pressures.
Demand for aged care places will explode over the next decade and require a tripling of the workforce by 2050, the aged care royal commission has been told.
At the same time, funding uncertainty has caused some residential care providers to put development plans on hold.
Recent data shows that 83,500 extra places will be needed over the next 10 years.
That growth compares to an increase of just 33,000 places over the past 10 years.
"That is a significant uplift in activity and building requirement," Leading Age Services Australia chief executive Sean Rooney told the inquiry on Tuesday.
However, Mr Rooney said a survey of its service provider members in 2018 revealed significant cost pressures.
"We found evidence to suggest that instability and insecurity with regard to funding certainty was causing providers to put on hold plans with regard to refurbishment or construction in some cases," he said.
Increasing demand across the sector was also raised by Aged and Community Services Australia chief executive Patricia Sparrow despite the current scope to provide some additional services.
"It is true that we have to triple the workforce in aged care by 2050, based on the current anticipated growth in the number of people who are going to require services," she said.
"So, I think, there is capacity to provide additional packages of care now.
"But we do need to concentrate on increasing the number of people who do want to work in aged care."
Dementia training falling short
The commission also heard on Tuesday of the need for aged care workers to have more training to better care for people with dementia.
Dementia Australia chief executive Maree McCabe said 50 per cent of those in residential care had a diagnosis of dementia and even more remain undiagnosed.
But she said of the 240,000 aged care workers across the country, 70 per cent are personal carers whose training didn't provide any education around dementia, either mandatory or optional.
"One of the key things about education is about developing empathy," Ms McCabe said on Tuesday.
"It's about the ability to stand in the world of somebody living with dementia and experiencing it through their eyes."
Ms McCabe said Dementia Australia runs its own immersive experience which simulates what it's like for people to have dementia.
"Our theory was that if we can simulate that it will change people's attitude, it would change their behaviour and it would then change the practice and care that was implemented," she said.