Australian Student Housing: Debunking Myths Related to International Students

The rising demand from domestic and international students has elevated the growth of the Australian student housing market.  Recent policy changes are reshaping the student accommodation market, influencing supply and investment strategies to meet growing housing demand. However, along with the concerns about the lack of accommodation, several myths emerged – particularly about the role of international students – which often led to misunderstandings about their impact on the market.

In this article, get a chance to explore the dynamics of demand-supply metrics, the impact of recent policy changes on student demand and other drivers affecting the market's growth. Understanding these variables is essential for operators to make well-informed decisions to optimize their business's occupancy levels and revenue.

The Myth: International Students and the Housing Crisis

Low vacancy rates and rising rental price patterns started long before the return of overseas students post-COVID-19. With the ever-increasing demand for purpose-built student accommodations (PBSA), the current pipeline and project approval rates have also remained sluggish.

As the demand of student housing increases, a few myths about the role of international students in the rental market have emerged as a result. Amber’s Australia Student Accommodation Annual Report (2024-25) dispels the myths that international students are responsible for Australia’s housing crisis and a few others that have come to light.

Myth 1: The surge in international students has led to a significant increase in rental demand

While the demand for student housing has sharply increased, median rental prices have not risen as dramatically in recent months. This indicates the housing market's ability to cater to the growing student population.

• June 2019 to October 2023: The number of international students in Australia steadily increased from 538,000 to 661,000. Higher education consistently represented the largest share, with vocational education and other categories showing growth as well.
• June 2019 to June 2023: Rents surged by 24%, while the international student population only grew by 4%.
• June 2024 to October 2023: There was an 18% rise in international students, but the median rent increased by just 5%.

The Verdict: This proves that the rise in international student numbers does not affect median rents fluctuating. With the growing demand for student housing, operators can expect steady rental growth in the coming years.

Myth 2: The influx of international students is driving Australian citizens and permanent residents out of the rental market

International students comprise only 4% of renters, while 89.8% are non-students.

• International student share: In 73% of Local Government Areas (LGAs), international students represent less than 1% of renters.
• Minimal pressure on the rental market: Only 2% of LGAs have a concentration of international students above 10%, indicating their limited impact on the broader rental market.

The Verdict: These figures demonstrate that international students have a minimal effect on rental availability and pricing for Australian citizens and permanent residents.

Myth 3: The rise in international student numbers has caused rental surges

The increase in the number of international students does not directly correlate with the surge in rental prices, as observed by findings in Property Council's 2024 Report.

• December 2019 to December 2023: The median weekly rent rose 30%, while student visa arrivals decreased 13%. This indicates a weak correlation between rental hikes and student visa numbers.
• Factors driving rental hikes: Instead, rent increases have been driven by broader market demand, inflation, and other economic factors.

The Verdict: The rise in rental prices isn't driven by the surge of international students but by broader economic factors. International students have contributed to the growth of the PBSA sector, crucial for rapid new developments and projects to meet student demand.

New Policy Shifts: Impact on International Students & Universities

The Australian government released its Migration Strategy on December 11, 2023, intending to improve the quality of education in Australia for international students. A total of 282,302 student visa applications were lodged from July to December 2023, reflecting a 14% increase compared to the 247,103 applications submitted in 2022-23.

Despite the rise in applications, only 195,934 student visas were approved, representing a significant 31% drop from the 283,940 approvals in the same period the previous year. Nonetheless, Australia’s international student enrolment numbers have stayed robust in 2024.

During the second half of the 2023-24 academic year (Q3 and Q4), students and universities began to feel the effects of the recently introduced visa regulations and other policy changes.

1. Increased Visa Fees & Financial Requirements

From July 2024, international student visa fees rose from A$710 to A$1600. Visitor visa holders and students on temporary graduate visas are now prohibited from applying for a student visa while onshore.

Further, international students must show A$29,710 in savings for one year’s living expenses, up from A$24,505. This is the second increase within a year related to the financial requirements for international students.

Impact on Students & Universities:

• These changes may cause a decline in international student applications.
• While financially stable students may avoid excessive work hours while pursuing a course, the higher requirements could deter applicants from lower-income backgrounds.
• Universities might need to intensify international recruitment strategies to offset the potential drop in applications.
• The decrease in revenue generation for universities could result in financial deficits, a trend already being observed in the UK market.

2. Shorter Post-Study Work Rights

Starting July 1, 2024, the eligibility criteria for the Temporary Graduate Visa will change. After graduation, a student's visa will no longer be valid. However, students can stay longer to seek work related to their qualifications. They can apply for a new visa based on their circumstances and eligibility, as stated by the Australian Department of Education.

Impact on Students & Universities:

• Stricter work-hour limits could lead to higher financial pressures on students, potentially impacting retention rates and enrollments in future semesters.
• By limiting work hours, the policy encourages students to prioritize their studies and move toward permanent residency pathways.
• Primarily, this policy change aims to ensure that students do not remain in a “permanently temporary” status.
• This policy does not have any significant impact on universities in general.

3. Restrictions on International Education Providers

According to the Australian Department of Education, the Albanese Government has introduced reforms to improve the integrity and quality of international education. It will allow the government to pause registration applications for up to 12 months, and require new providers to demonstrate a record of quality domestic education before recruiting international students. Additionally, it will prohibit dormant providers from enrolling new international students

Impact on Students & Universities:

• The reforms aim to strengthen Australia's education sector by prioritizing quality and integrity in the delivery of international education.
• The changes help reduce the risk of fraudulent courses, ensuring international students receive genuine, high-standard education.
• By implementing a managed system, the reforms aim to promote sustainable growth in the international education market over time.
• Universities will face enrollment limits for international students, requiring them to build more PBSAs if they want to exceed those limits while navigating stricter regulations, as stated by the Albanese Government.

4. Capping on International Student Enrolments

The Albanese Government has announced a plan to cap international student enrolments at 270,000 for 2025. Rather than imposing a cap on the proportion of international students at universities, the policy focuses on reducing enrolments primarily at prestigious metropolitan institutions and in the vocational education sector.

Impact on Students & Universities:

• Limited capacity at universities may prevent students from securing spots at their preferred institutions.
• Students may face increased competition for available university places due to the cap on enrolments.
• Universities may need to reconsider funding allocations and operational strategies to cope with reduced financial resources.
• A reduced intake of international students could lead to a significant decline in revenue.

Australian Student Housing: A Geographical Lens

Sydney, Melbourne, and Brisbane collectively command a dominant 79% share of the total 400,000 available beds in the Australian student housing market, as reported in Beyond Beds Report 2023.

Top States for International Students

‍As of May 2024, New South Wales (NSW) leads with 311,111 international student enrolments, a 30% increase since 2015, as reported in amber’s Australian Student Housing Report 2024-25. This growth is driven by top-ranked universities like the University of Sydney and UNSW, as well as a rich cultural environment. Victoria and Queensland also attract large numbers of international students.

• While some students live at home, those opting for student accommodation often prefer being close to their universities. CBRE's analysis reveals a shortage of 25,000-30,000 PBSA beds in Central/Inner-West Sydney for University of Sydney and UTS students.
• Similarly, Melbourne's CBD/Inner-North region has a demand of 15,000-20,000 beds for the University of Melbourne and RMIT students. CBRE projects 19,000 new beds across Australia between 2024-27, an 18% boost in supply.

Top Student Cities in Australia

Over the past three years, development has focused on inner-city Sydney and Melbourne, near Group of Eight universities. While Sydney is growing at a robust CAGR of 6.1%, Adelaide and Perth lead with the highest prime yield range of 6.00-6.50%, according to latest insights from amber’s Australia’s new report.

• Melbourne leads with 36% of the national student accommodation stock, driven by its significant university student population, especially international students.
• Meanwhile, Sydney leads in development activity, expected to supply nearly 50% of the new beds nationwide by 2026, followed by Perth, Adelaide, Brisbane, and Canberra according to CBRE estimates.
• Sydney has achieved record-high occupancy rates at 98%, coupled with a 10% surge in rental rates in 2023, as observed in Beyond Beds report.
• Brisbane and Melbourne follow closely with occupancy rates of 96% and 97%, respectively, experiencing rental increases of 6% and 8%.
• In Perth, occupancy stands at 95%, with rental rates up by 5%, while Adelaide records a 94% occupancy rate alongside a 4% rise in rental rates over the same period.

Australian Student Housing Market: Demand-Supply Dynamics

International student demand drives the need for more student accommodation, increasing occupancy, and rental growth—a trend set to continue. The absence of international students cost the national budget A$40 billion between January 2020 and the end of 2022. With rental vacancy rates below 1%, students struggle to find housing. This shortage hinders universities' efforts to grow international enrollments, especially as they rely on this income due to reduced federal funding.

1. Student Housing Bed Supply: Nearly 100,000 PBSA (Purpose-Built Student Accommodation) beds are currently available in the country. Almost all new beds scheduled for delivery in 2024 and 2025 are in Sydney and Melbourne. However, from 2026 onwards, a more balanced distribution is expected across other cities. Read amber’s Australia Student Accommodation Annual Report (2024-25) to unveil notable student housing projects currently in pipeline!

2. PBSA Rental Growth: PBSA rents have witnessed a surge of 30% since 2023 owing to heightened student demand across key Australian student cities, including Sydney, Melbourne, Brisbane, and Adelaide. This growth emphasizes the significance of the PBSAs in the Australian student housing market, driving future development pipelines and making the sector more organized.

3. Top Student Housing Managers/Owners: Australia’s top 20 student housing firms manage 67,228 beds across 132 properties. According to a CBRE report, an additional 19,000 beds are planned till 2027. By 2027, Melbourne is projected to contribute approximately 30% of new PBSA supply, with Sydney at 25% and Brisbane at 20%.

The table below represents the top student housing managers in Australia along with their operational properties and beds in the pipeline. To unlock the detailed portfolio breakdown of top operators, download amber’s latest Australia Student Accommodation Annual Report (2024-25).

4. Distribution and Future Growth of Student Beds: Melbourne currently holds 37% of Australia's student accommodation, reflecting its large student population, particularly among international students. By 2027, Melbourne is expected to represent about 30% of new supply, with Sydney at 25% and Brisbane at 20%.

Recently announced developments include:

• ‍Sydney: Iglu/UNSW's 1,066 beds, Wee Hur's 411 beds in Redfern, Iglu Mascot II with 305 beds, and The Switch at Macquarie Park with 500 beds.‍
• Brisbane: Journal Student Living and Brookfield's 935 beds at Margaret St.‍
• Gold Coast: CLV/Griffith University’s 460 beds and Bond University's 646 beds.‍
• Melbourne: Journal Student Living and Brookfield's 465 beds in Carlton, Scape’s 300 beds in Carlton, Scape and Lendlease’s 1,100 beds at Queen Victoria Markets, and Brookfield’s 1,040 beds at Franklin Street.

What’s Next For Australian Student Housing?

The dynamics of demand and supply in the Australian student housing market signify various factors of market growth and challenges. Student housing in Australia is expected to remain robust, primarily owing to the steady demand for international students enrolling in higher education.

Despite the urgent need for purpose-built student accommodation (PBSA), current developments are concentrated in major cities like Sydney and Melbourne, where the demand is most acute. However, as the market matures, operators need to consider strategies to diversify their offerings and expand into other cities, especially as new projects emerge.

Download amber’s comprehensive “Australia Student Accommodation Annual Report (2024-25)” below and explore the latest Australian student housing market trends!