Continuing Student Housing Crunch in Australia for 2024

According to student accommodation industry experts, the student housing sector will face a shortage in 2024. Despite several efforts to address this issue, such as increased investments and development initiatives, there is still an undersupply of student housing options. Savills, a well-known for renowned real estate services firm, has raised concerns, stating that undersupply of student housing has become the norm. The critical shortage crisis is attributed to factors including a rise in student enrollment and a lack of housing infrastructure to meet the growing demand. As a result, students may continue to struggle with finding convenient and affordable accommodation, which poses concerns for educational institutions and policymakers. According to Savills, the Australian Student Accommodation 2023 shows that the demand for Purpose-Built Student Accommodation (PBSA) is still very high and is expected to rise even more in upcoming years. This demand continues to surpass the available supply as vacancy rates are low and more international students are arriving in Australia.
There is an easing pipeline for PBSA development projected for the next 3 years. The total number of student beds dropped more than 50% compared to the last three years, according to the latest Savills Australian Student Accommodation Report 2023. Let’s take a look at some of the factors contributing to a shortage of student accommodation in Australia.

1. Rental Growth in Australian Cities

According to Savill's report, the student accommodation market has not been immune to rapid rises in weekly rentals. For the 2023 academic year, studio rents in three of the four biggest markets are currently at record levels. Melbourne is 2% above pre-pandemic rates. In addition, there is a growing appreciation of the advantages that PBSA provides to the student accommodation sector due to the lack of other housing options. The report forecasted that the Sydney PBSA market will outperform compared to other major cities in the upcoming 5 years.

This is largely driven by popular universities such as the University of Sydney and the University of New South Wales. Moreover, lifestyle and continued under-supply of student accommodation also contribute. However, Brisbane rents are forecasted to slow down over the next 6 years due to the upcoming new supply from 2026 and the achievement of affordable caps.

According to Savills report, international students arriving in Australia are forecasted to be nearly one million at the end of the 2025 academic year. “The surge in international student inflows follows Australian universities’ recommendation to resume in-person courses this year, and the Chinese government’s also requested students to return to their destination universities”, stated Savills’ Director of Operational Capital Markets Paul Savitz. This reason works as a catalyst for a quick surge in higher education demand in many Australian Universities. Moreover, the low value of the Australian dollar is another factor in the continuous rise of International students in  Australia. In addition, the soft economic conditions are projected to reach 80 US cents by 2025.
Sydney and Melbourne have been the primary focus for PBSA over the past three years. The reason behind this was the proximity to a Group of Eight universities. In 2024 and 2025, 100% of new beds are planned in Sydney and Melbourne. This reflects the fundamentals of real estate and the preferences of investors. 

Paul Savitz stated, “Land values in amenity-rich locations close to universities and public transport have maintained their value, impacting on the feasibility of schemes alongside build cost inflation and planning delays.”

2. Demand and Supply Gap

Australia’s demand for purpose-built student accommodation is growing, and new launches of student beds will create more than 9000 new student accommodation beds by 2028. The growth in the number of beds won’t meet the demand for a surge in international student numbers.

Currently, more than 79,000 PBSA beds are available across Australia’s capital cities. The supply pipeline is muted over the next two years compared with the last 5-year average. In 2024, only 1,892 new beds will delivered, according to the Savills report. The schemes are not progressing due to demand concerns, feasibility and planning delays.
The last few years have seen a lot of consolidation in the PBSA markets, which has reduced the number of opportunities for other housing buyers.  It is now expected market participants to make a significant shift to a development cycle. There are signs that this is happening, but there are also obstacles to overcome.  Let’s have a look at some of the obstacles.

• Firstly, land acquisition for development is highly competitive.
• Multifamily developers, hotels, and residential developers are all seeking the same opportunities. 
• Build cost inflation will continue to affect viability. 
• In 2022, material costs were the main driver of build cost inflation. Moreover, energy prices and labour shortages also contributed to building cost inflation. 

To reduce these risks, investors need to partner with developers who have a proven track record and strong control over their supply chains.

“The decisions, resources and outlook of private investors will therefore drive PBSA growth, and these investors must navigate economic, planning and delivery challenges, respond to shifting student demographics, and also champion environmental sustainability. Their choices, particularly regarding new developments, financing, and adherence to ESG principles, will ripple across the sector,” according to Paul Savitz.

3. Investors Exploring Further Beyond

Savills predicts a more balanced supply of new student accommodation outside the global hub of Sydney and Melbourne.  Investors are looking to unlock more value in locations with strong market fundamentals and demand and supply imbalances but no Group of Eight universities nearby. “Australia's evolving economic landscape needs careful consideration for  investment and development strategies in the short term”, said Paul Savitz. Some investors turning their attention to higher-yield locations in the medium term. 
An investment in a high-growth location is Macquarie Park in Sydney, where 488 student beds are scheduled to be delivered by 2026. Centurion is currently seeking planning approval for an additional 732 student beds to be delivered in the same suburb by 2026.
In Western Australia, Australian Unity has recently partnered with investment manager MaxCap Group to build a $1bn student accommodation portfolio as the seed asset for this project. The partnership includes the acquisition of a site in close proximity to the new Perth CBD Campus, which will provide 732 new student accommodation beds. However, there is a shortage of supply, with Savills predicting that there will be only 7,770 PBSA beds available across Australia's major cities by 2027. Furthermore, investor-grade residential apartment developments as an alternative to student accommodation have fallen to record lows. The  PBSA forecast dropped by 52% from 2020 to 2023.
The Australian student accommodation sector will remain a favourite to investors despite economic uncertainty. “This is due to the sector's consistent returns, as rents can be re-adjusted every six months, meaning they can keep up with inflation and adjust to changing economic conditions, stated Conal Newland, Head of Operational Capital Markets at Savills. These features will keep the sector attractive to investors. They could lead to a further shift in real estate portfolios from commercial assets to residential assets, like PBSA, supporting the sector's continued growth.”

To sum up, the shortage of student accommodation in Australia will continue to be a pressing issue in 2024. Governments, the private sector, and universities will all need to work together to address the issue. Infrastructure development and fostering new solutions will be key to providing students with safe and cost-effective housing.