Student Accommodation in Australia: Insights & Solutions

Introduction

Australia has emerged as the third-largest and preferred destination for international students for higher education, alongside the UK and the USA. With a skyrocketing number of visas being issued, the student accommodation market in Australia now faces the brink of a housing crisis owing to the limited supply of beds available across the country. Investors and developers iterate that they need more assistance in strategizing and zoning for the properties.

In this blog, we will highlight the challenges in student accommodation in Australia and talk about the solutions that might help tackle the issues. Continue reading to get a detailed insight about the same.

Navigating Challenges in Student Accommodation in Australia

Despite the increasing number of international student enrolments in Australia, the country has been facing a shortage of beds for students. This challenge has surfaced due to the following reasons:

1. Shortage of Student Beds: Property operators providing accommodation for international students are impacted by supply constraints, which increase the demand and rental prices. As per the CBRE report, there will be a demand for about 5,56,000 homes to meet the student housing demand till 2028. Moreover, the current supply pipeline has a deficit of over 366,00 homes. Strict zoning laws and a lack of suitable land make it difficult to build new ones, which deepens the housing crisis. Due to the shortage, students are often forced into bidding wars for available units, driving up rents.
2. Construction Constraints: In addition, labor shortages and difficulties in obtaining materials for construction projects cause project delays, further limiting supply and exacerbating the housing problem. The burden on the student housing market could be reduced by addressing these constraints by streamlining the rules and providing incentives for construction.
3. High Tenant Acquisition & Maintenance Cost: Operators face increasing administrative costs due to their constant need to oversee new leases and tenant change procedures. As properties age, more money must be spent on maintenance, thereby making the investment less effective. It costs a lot to get new student tenants, from support programs and marketing fees to listing properties. Due to the intense competition in the student housing market, landlords and property management groups have to invest heavily in facilities and marketing campaigns, which increases the overall cost of acquisition.
4. Limited Private Rental Regulations: In order to address the housing shortage, several private rental options like homestays and other property types remain unorganized and unregulated. Limited private rental regulations can lead to skyrocketing rents, poor living conditions, and tenant insecurity. As a result of these several causes coming together, there is an urgent need for affordable international student accommodation in Australia.
5. Rental Prices: There has been an increase in the rental prices of student homes in Australia. CBRE data shows that the average rent for student housing studios soared at a CAGR of 5.5% from $406/week to $530/week in the 2018 to 2023 span. The data has been released keeping in mind the student accommodation market across Melbourne, Sydney, and Brisbane.

Exploring International Student Housing Solutions in Australia

The total number of international students in Australia summed up to 725,582 in the January to August 2023 period. According to amber, the total number of international students in the country is projected to be around 940,000 by 2035. Consequently, the student housing market will continue to show significant growth provided the concerned authorities mitigate the aforementioned challenges. Property operators might need to adapt to increased demand for affordable options. Below are some solutions that might tackle the ongoing challenges:

1. Public Private Partnerships

A public-private partnership or PPP is a business venture wherein the public sector and single or more private organizations work hand in hand through a partnership. With this initiative, property management groups or developers will have an agreement with universities. The developers will build accommodations for students in the universities and keep them functional for as many years as they want to redeem their investment.

Following this, they can transfer the ownership of the properties to the university after the expiration date of the agreement. For example, the University of California, Riverside has addressed the student housing shortage by implementing the P3 approach. Property operators in Australia can implement this beneficial approach to meet the rising demand for student beds.

2. Government Initiatives

In order to increase the student housing supply in the country, the Australian government has targeted to start the construction of over a million new housing in 2024 in a period of five years. Furthermore, the government is providing rewards for investments and long-term rentals in social and inexpensive housing in the country.

For example, the Student Accommodation Council, Australia was established in May 2022 to provide student tenants with lucrative housing options and reduce the severe student housing crisis in the country.

The interim National Housing Supply and Affordability Council, established on 1st January 2023 is intended to help the Australian Government to mitigate the housing crisis and affordability of housing in the country. As per a report by the CBRE, around 8,000 PBSA rooms will be developed across the country between 2023 and 2026 to address the student housing shortage in Australia.

Is Investing in Student Accommodation in Australia a Wise Decision?

The increase in bed demand in Australia stems from international students, who make up a significant 76% of the student housing market size in 2023. Within this group, Indian students, comprising 17%, emerge as the second-largest contributor after China, making up 22% of the international student population.

In 2023, there was a noteworthy 28% surge in India's international student enrollment, contrasting with a minor 4% decline in China. The graph below illustrates the escalating Indian student population in Australia. The following graph illustrates the growing number of international students in Australia:

Student Housing: A Booming Investment Market in Australia

A report from CBRE, titled “Accommodating the growth in students” states that venturing into the student accommodation market in Australia is a profitable investment option. The country is expecting around 8,000 new PBSAs between 2023 and 2026. The international student enrolments continue to diversify, with individuals from India, Nepal, and Columbia.

More than 60% of the student accommodations in Australia are PBSAs. Despite the addition of the 8,000 rooms, CBRE anticipates that the increment will not completely meet the housing crisis.

Based on this report and several other surveys, many student housing investors are interested in putting their money in this asset class. The potential of PBSA as a beneficial investment alternative is evident by its high rental income percentage.

Conclusion

In conclusion, the burgeoning demand for international student accommodation in Australia presents a lucrative opportunity for those looking forward to venturing into the market. The shortage of on-campus accommodations and the unmet demand for affordable options reveal a gap that investors can strategically fill. As the country's student population continues to grow, bridging this housing gap could position investments in accommodation for college students as a wise and potentially rewarding decision. This blog sheds light on several pointers that prove investing in student accommodation in Australia to be a fruitful opportunity.

Those looking forward to gaining more insights into the market and generating maximum returns can list with amber - a leading student housing solutions provider. Connect with our student housing experts and get a projection for your revenue growth!