Student housing rents to keep rising as demand outstrips supply in Australia

November 1, 2023

Source: The Australian Financial Review

Australia’s pipeline of purpose-built student accommodation (PBSA) is on the rise, with new commencements expected to produce more than 9000 beds by 2028. However, a new report from Oxford Economics Australia shows that rents are expected to keep rising, as the increase in beds will fail to meet demand coming from a resurgence of international student numbers.

Advertised rents have already risen 27% nationally from their pre-COVID levels, led by Brisbane. This is due to a combination of factors, including the shortage of supply, the rising cost of construction, and the fact that institutional investors are looking to invest in the sector.

The report says that the rental uplift has room to run, as the gradual supply adjustment will see the market remain very tight near-term. This is especially true given the extended waiting lists for PBSA.

The shortfall in supply is drawing investment back into the asset class, with commencements expected to peak at almost 11,000 beds in 2016. However, investment has fallen away since then, and the number of new bed commencements this year is expected to hit a trough of just over 1900.

This is due to a number of factors, including the higher cost of construction and borrowing costs. This is challenging project feasibility, and some projects are likely to fall over at the early planning stage. 

Despite the challenges, the growth in underlying demand for PBSA is strong. With overseas students forming a significant proportion of Australia’s overseas arrivals, the need for accommodation for the growing cohort remains great.

But while some universities are returning to the sector, most confirmed projects are solely in the hands of operators such as Scape, UniLodge, and Iglu.

The report says that with rental growth having some room to run, there is financial support for the next round of projects. Institutional capital is also looking to invest, providing further support to the more than doubling of investment in the construction of new assets expected by the end of 2030..

Key Highlights:

• In Australia, the asking price­s for student housing rents have increased by 27% nationwide compared to what they were before the COVID-19 pandemic.
• The vacancy rate for student housing in Australia is at an all-time low of 2.8%.

Impact on Students

• The soaring price­s of student accommodation are seriously affecting students. Countless students find themselves wrestling with affordability, unsure­ if they can manage to pay for living either on-campus or in privately rented homes.
• A survey from the National Student Housing Survey revealed that one in five students had to downgrade their living arrangeme­nts due to soaring rental costs.

Conclusion:

The e­scalating prices of student accommodation are becoming a substantial obstacle­, seriously affecting students and their capacity to excel. Governme­nt bodies, universities, and private sectors must unite in tackling this pressing concern.