A construction site for a student accommodation building near the University of New South Wales in Sydney seen on February 17, 2023. The Australian government has taken measures to reform issues around student visa issuance, but the dire shortage of affordable student housing has yet to be addressed. Photo: Reuters
Opinion
The View
by Nicholas Spiro
The View
by Nicholas Spiro
Australia’s student housing woes won’t be solved by cutting visas
Planning restrictions are constraining supply in all sectors of Australia’s residential property market, driving up prices and rents, but the lack of a clear way forward on student housing threatens to hold back the potential of a sector that is increasingly important to the Australian economy
Every property sector has its strengths and weaknesses. Right now, the office market has the biggest problems, mainly because of the pandemic-induced shift to hybrid working. On the other hand, the “alternative sectors”, which include data centres and laboratory space for life sciences companies, have a lot going for them.
Yet it is the “living” sector – which comprises multifamily or build-to-rent (BTR) properties as well as purpose-built student accommodation (PBSA) – that is the most resilient segment of the commercial real estate market, along with logistics properties.
In the Asia-Pacific region, Australia’s PBSA sector enjoys some of the best fundamentals. A confluence of factors underpins its strong performance, but the one that stands out is the fierce demand for student accommodation from international students.
Australia’s universities are a magnet for foreign students, especially from Asia. The share of international student enrolments in higher education is much higher than in other advanced economies. At some universities, it exceeded 40 per cent in 2022, according to Australia’s Department of Education.
Before the eruption of the Covid-19 pandemic, international education services were the country’s fourth-biggest export. While Chinese students still account for the largest share of foreign students studying in Australia, source markets have diversified significantly in recent years.
This is a boon to the PBSA market, which was just starting to establish itself as an important sector when the pandemic struck. While the number of temporary higher education visa holders plummeted in 2020-21, the dramatic rebound during the past two years has breathed new life into the student housing market while at the same time exacerbating severe supply constraints in the sector.
The suburb of Gordon in Sydney on March 11. Australia is grappling with a housing affordability crisis. Photo: Bloomberg
In a report published earlier this month, JLL noted that while student demand during the next five years will reach an average of 10,500 beds per annum, average annual supply will amount to just 3,500. This acute supply-demand imbalance underpins the strong rental growth and high occupancy rates in the sector, a key factor convincing global investors the likes of Blackstone to deploy capital in Australian student housing.
Yet there is another side to the PBSA story, one the government is more sensitive to as it contends with a rental affordability crisis. Since early 2020, flat rents have risen 30.4 per cent and have consistently outpaced house rents since early 2022, according to data from CoreLogic.
A crucial factor behind the surge has been the sharp rise in net overseas migration, which hit a record high last year, driven in large part by the spike in foreign student arrivals. While overseas students are a major source of revenue for the government, they are also a political liability amid revelations that many overseas students – especially those taking vocational, education and training (VET) courses – came to Australia under false pretences, mainly to find work.
This prompted the government to unveil a new migration strategy last December that includes measures to safeguard the integrity of the student visa system by stepping up scrutiny of high-risk applications, cracking down on visa-hopping and raising English language requirements.
The clampdown has already led to a sharp rise in visa rejection rates. It has also drawn fierce criticism from international education lobby groups, with the International Student Education Agents Association accusing the government of “sacrificing international students as a means to showcase [its] toughness” on migration.
A dispassionate assessment, however, shows a more nuanced picture. First, visa approvals fell sharply for English language and VET courses but were only slightly down for university courses. Indian and Pakistani students applying from abroad bore the brunt of the rejections.
This is proof, if it were needed, that Chinese students – who are often scapegoated by populist politicians for pushing up housing costs – are not the problem.
Second, the government cannot afford to kill the golden goose. The Grattan Institute, an Australian think tank, notes that foreign students granted permanent skilled visas each year end up providing a much bigger source of revenue than the profits from university tuition fees, putting a premium on getting the best students to stay in Australia.
It recommends raising student visa fees sharply – which is unlikely to deter talented students from attending Australia’s top universities – to help raise rent assistance. “The alternative is a cap on student visas, which wouldn’t provide extra revenue to help renters,” said Trent Wiltshire, deputy director, migration and labour markets at the Grattan Institute.
Graduating students from the University of Sydney pose for photos in October 2017. Chinese students are often scapegoated by populist politicians for pushing up housing costs in Australia. Photo: AFP
Third, the PBSA sector’s problems are on the supply side. Demand will remain strong since existing schemes tend to be located close to top-tier universities and occupied by students attending these institutions. The challenges facing the sector stem from inadequate growth in supply caused by the steep rise in construction costs, labour shortages and planning bottlenecks.
The Property Council of Australia has urged federal and state governments to provide clear planning approval pathways for PBSA. It also says the sector should be on an equal tax and regulatory footing with the BTR market, especially since student housing is a more established sector.
At a time when other anglophone countries, in particular Canada, are taking a tougher approach to limiting the inflow of foreign students, Australia has at least shown restraint. Kate Low, head of international capital, Australia and New Zealand, at JLL, said she received three requests for investment opportunities in Australian PBSA last week alone. “Even if there’s a fall in foreign student numbers, demand will far exceed supply,” Low said.
Planning restrictions are constraining supply in all sectors of Australia’s residential property market, driving up prices and rents. Australia’s student visa system needed reform, but it is the planning regime that requires a major overhaul.
