Less than a year short of the Mornington facility's 50th anniversary, it would close on December 11, manager Betty McKie said.
Alternative care was being organised by Southern District Health Board for the home's nine residents. Ings had space for 29 residents, and its closure was because of low occupancy.
Care facilities needed hospital-level care because the elderly were kept out of residential care as long as possible, and when eligible for care they were more frail or sick, she said.
The "extremely sad" closure was "a sign of the times".
She declined to discuss redundancy issues relating to the home, which is run by a charitable trust.
New Zealand Aged Care Association Otago Southland board member Malcolm Hendry agreed that as eligibility became tougher, larger facilities were the more viable option.
The ageing population demographic would be felt from 2014, meaning increased demand for rest-homes if they could survive the next couple of years.
Multiple-level care facilities were preferred by people wishing to move from the retirement village, to rest-home, or to hospital-level care, he said.
However there would always be demand for small, family-style rest-homes, he said.
A rule change was needed so small rest-homes could charge more than large facilities, which would keep them viable, Mr Hendry said yesterday.
Southern DHB funding and finance general manager Robert Mackway-Jones said the DHB was advised this week of the impending closure.
"Significant capacity" in the sector meant it was not hard to find places for the residents.
Asked whether keeping elderly at home was hurting the rest-home sector, Mr Mackway-Jones said all of the country's DHBs were trying to keep people at home, with appropriate support.
"That said, there is a place for rest-home facilities, and those that offer a continuum of care in differing levels.
"We expect future growth in dementia care and in hospital-level care with the ageing population profile."
