Two cross-sectional studies three years apart assessed functional capacity in everyone aged 65 years and over in any ward, hospital, home or hostel in a defined geographical area. Comparison of the proportion of patients aged 65-74 years, 75-84 years and 85 years and over within these institutions showed that a higher proportion of the very elderly were in homes for the elderly and a lower proportion in National Health Service (NHS) geriatric hospital beds in the later time period. Greater proportions of all age groups of the elderly were in NHS acute hospital beds. Levels of incapacity in these people had increased between 1976 and 1979. In continuously resident people the proportion remaining unchanged fell and the extent of deterioration increased with greater age: among recent admissions significant increases in incapacity were only seen in patients in NHS geriatric hospitals. At present the demands of the ageing population are such that old people will be admitted where places are available even if the setting is not entirely appropriate to their needs. Restrictive admission policies on the part of residential homes will not reduce levels of incapacity if they continue to admit older residents.