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With international student numbers surging and visa applications running 32.4% above pre-COVID levels, the urgency to address Australia’s severe undersupply of student accommodation has never been greater.
Despite the Federal Government’s Ministerial Direction 111, which aims to slow international student visa approvals, the pressure to address Australia’s severe shortage of student accommodation remains critical.
The current surge in international student numbers – a significant increase to over 1 million by the end of 2024 has already strained the existing housing infrastructure. While the cap may slow future growth, it does not address the immediate shortage or current backlog of demand that outpaces supply.
Lewis Field, Associate Director at TBH, observes how this rapid expansion, combined with a fatigued construction market and complex regulatory environment, creates unique challenges for the sector.
Australia’s Student Housing Growth Story
The Purpose-Built Student Accommodation (PBSA) sector in Australia is experiencing unprecedented growth, driven by the rapid return of international student’s post-pandemic and the country’s reputation as a premier education destination.
Investors are increasingly drawn to the PBSA sector due to its counter-cyclical benefits, strong returns, and the ability for rents to keep pace with inflation.
The sector’s resilience was demonstrated during the pandemic, and its swift recovery has further bolstered investor confidence. Moreover, the short-term nature of student leases allows for frequent rent adjustments, making PBSA an attractive hedge against economic fluctuations.
With visa applications and student enrolments far exceeding pre-COVID levels, primarily from China and India, this rapid growth has exposed a critical gap between housing demand and available accommodation. This puts pressure on both the PBSA sector and the broader rental market. The sector now faces the complex task of rapidly scaling up accommodation options while maintaining quality and affordability in an increasingly competitive market.
Student Housing Shortages are Impacting Communities
Despite the growing demand, Australia faces a significant undersupply of student accommodation, with only one purpose-built bed available for every sixteen students, compared to one for every two in the UK.
This shortage is exacerbated by challenges in the development pipeline, including high construction and labour costs, planning difficulties, and limited land availability.
While major developers are actively expanding their portfolios, the current rate of development is insufficient to meet projected demand. The Student Accommodation Council estimates that 84,000 new PBSA beds are needed by 2026, but only 7,700 are currently in the pipeline, leading to a range of challenges for students, universities, and local communities.
Many international students are being forced to seek accommodation in the already strained private rental market, competing with residents and potentially driving up rental prices in university areas.
The undersupply not only puts pressure on the broader rental market, but it also potentially threatens Australia’s AUD 25.5 billion education export industry, as the availability of suitable accommodation is a key factor for international students when choosing their study destination.
Developer Challenges in the PBSA Market
While the PBSA sector is experiencing rapid growth, developers face a series of challenges that prevent them from fully meeting the unprecedented demand.
Regulatory issues are among the most problematic. Many councils are still grappling with how to balance the need for high-density student housing with broader urban planning considerations. We are seeing ongoing debates about rezoning to allow for higher density developments, particularly around transport hubs and major arterial roads, and a lack of alignment between federal and state/local government policies.
This is not just about building taller structures; it is about reimagining urban spaces to accommodate the growing student population while maintaining liveable communities.
The approval process itself is a significant bottleneck. Developers face lengthy delays, with Development Application (DA) approvals often taking 9 to 12 months or more. This sluggish pace is at odds with the urgent need for more student housing and the government’s ambitious targets for new home construction.
Market dynamics can be complicated too. The construction industry has been operating at full tilt for years, leading to noticeable fatigue in the market.
This has resulted in a mismatch between the demand for new developments and the industry’s capacity to deliver them. Finding qualified personnel for all aspects of these projects is increasingly challenging, impacting both quality and timelines.
Contractors are in high demand for every development in Australia, leading to fierce competition between the student accommodation sector and other projects for scarce resources, particularly labour and materials.
This can result in increased costs, tighter margins, delayed schedules, and the need for more rigorous quality control measures. This situation might also make maintaining consistent quality and meeting project timelines more challenging. As a result, developers must carefully balance their resource allocation, potentially exploring innovative construction methods or alternative sourcing strategies.
Student accommodation projects are also part of the broader housing market, which is currently facing severe shortages. While student-specific housing helps alleviate some pressure on the general rental market, it also competes for resources, land (particularly in prime locations near universities), and regulatory attention.
Lastly, the student accommodation sector is dominated by a handful of large-scale developers, each trying to expand their portfolios rapidly. With developers transitioning from managing a smaller portfolio to overseeing numerous multi-million-dollar projects across the country, new layers of risk are introduced, that many developers haven’t previously encountered. Success in this environment requires not just scaling up existing processes, but implementing new systems for portfolio-level oversight, resource allocation, and risk assessment.
Scaling with Confidence
Offering a comprehensive package of professional services, TBH serves as a development partner to our clients, bringing complementary expertise that enhances in-house core competencies to ensure projects succeed.
TBH’s approach to supporting PBSA developers is a multidisciplinary one. By combining a thorough understanding of construction with effective planning and scheduling strategies, developers can significantly improve the feasibility and accuracy of proposed timelines across their growing portfolio.
Portfolio Management
By providing insights at both the project and portfolio levels, TBH can help manage resources, review tender programs, and identify projects in distress.
When developers engage with multiple contractors across their growing portfolio, a clear understanding of the different tiers of contractors and effective communication strategies can help ensure the feasibility and accuracy of proposed timelines. By carefully evaluating tender programs, identifying potential risks and unrealistic expectations before contracts are signed, developers can make informed decisions and avoid future complications.
Construction Expertise
The Australian construction industry has been operating at full capacity for a long time, and finding qualified people for developments is increasingly difficult. This naturally impacts project quality and timelines.
TBH is able to offer valuable input on buildability and program reviews, supporting developers in their interactions with contractors. Once a contractor is selected, the team can transition to contract program reviews – analysing agreed-upon schedules, ensuring they align with the developer’s overall portfolio strategy, critical paths, resource allocations, and milestone commitments to verify that the contractor’s plan is realistic and achievable.
Commercial Advice
As projects inevitably encounter challenges, TBH can provide essential guidance on disputes and claims, helping to navigate the complexities that arise in construction.
With experience across various sectors, TBH professionals can be utilised to offer strategic guidance on complex contractual issues, the merit of claims, and strategies for dispute resolution. This service is increasingly valuable as developers work with a mix of Tier 1, 2, and 3 contractors, each presenting unique risk profiles.
TBH: A Strategic Partner in PBSA Development
Since 1965, TBH has been managing projects for a wide range of industries. This positions the team uniquely to help developers comply with the PBSA regulatory landscape, manage risks associated with different tiers of builders, and provide the expertise needed to successfully scale their operations.
As the PBSA sector continues to grow, TBH is ready to offer tailored services, drawing on our decades of cross-sector experience to help developers overcome the challenges they are likely to face in this dynamic market.
Contact Lewis Field using the form below for more information.