The cost of a care home placement in England is more than three times that of sending a child to Eton, the Commons Education Committee has heard.
Government adviser Sir Martin Narey, who is reviewing children's homes for the government, defended the high cost.
The 8,000 children in residential care were the most challenging and needed a great deal of supervision, he said.
Committee member Ian Austin said some private companies were making large profits out of the child care system.
He gave the example of a private equity firm saying it could guarantee "an 18% return" on investment in certain children's homes.
One brochure, he said, promised an annual profit of £214,000 on a four-bedroom home with a 75% occupancy, rising to £625,000 if it were full, despite the outcomes for children in such homes being "not great".
He said: "Why is the average cost of a placement three times the cost of sending a child to Eton? For this sort of cost you could hire a hotel room and two to three members of staff."
Sir Martin replied: "I think you know why. The children who go to Eton are well parented, very confident, have lots of support and don't have lots of behaviour problems.
"We are talking about the most challenging children in England, and they need a great deal of supervision, and they need high staff ratios.
"The average size of a children's home is 4.3 [children]."
With the average age of entry to children's homes being 14, and the average length of stay four months, it was "hardly likely to change their lives", Sir Martin said.
They had often been through several fostering placements and were usually the most damaged children in the care system.
Sir Martin said it cost £3,000 a week to accommodate a child in a care home, compared with the £800 cost of a fostering placement.
"I am sympathetic that local authorities want to try fostering two or three times before a child is sent to a children's home," he said.
"And they would want to try out less expensive children's homes before they try an expensive one with intensive therapeutic services."
But, he added: "If there was more consideration taken in finding the right type of foster carers, with more emphasis on matching the particularly challenging children with the particularly experienced foster carers, and better remunerated foster carers, then we might avoid the need for residential care."
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