Policies Overshadow PBSA Sector’s Moment in the Sun

Australia’s purpose-built student accommodation sector is in a bind. Investor demand is strong, but friction around policy and tenancy settings is mounting, according to speakers at The Urban Developer PBSA Summit in Melbourne last week. Cushman &amp; Wakefield’s latest APAC Living Investors Survey polled institutions managing $33 billion in assets and found 64 per cent are actively targeting Australian PBSA, ahead of build-to-rent and co-living as the nation’s top pick for institutional capital. Strong demand, limited supply Cushman &amp; Wakefield director of living sectors capital markets Paul Savitz said occupancy across core eastern seaboard assets ran between 85 and 100 per cent in semester one this year. Australia has between 9 and 10 students for every existing purpose-built bed. Just 7500 new beds are due across the capital cities between 2024 and 2026. And only about 70 per cent of the pipeline is likely to be completed, thanks to financing and feasibility issues. International education is Australia’s fourth-largest export, contributing more than $50 billion a year to the economy. Urbis partner Clinton Ostwald said universities chasing higher international enrolments must now show they can house those students, describing accommodation as “the currency of growth”. Yet foreign investor surcharges and sudden rule changes continue to unsettle confidence, he said. ▲ Urbis partner Clinton Ostwald (left) and Cushman and Wakefield director living sectors capital markets Paul Savitz. Tax and tenancy pressure The Living Company chief executive officer student living and build-to-rent Anouk Darling said capital is not the constraint. Investors looking to fund new supply are instead hitting a wall of tax and regulatory settings. Scape, The Living Company’s student accommodation platform, holds close to $9 billion in funds under management in its student accommodation vertical, Darling said, much of it from large global sovereign wealth funds. About 94 per cent of Australia’s 127,000 operational PBSA beds have been funded and delivered by, or with, private investors. “There’s no capital that’s challenged by demand,” Darling said. “What they’re challenged by currently is the paradigm of immediacy that is the tax environment, the regulatory environment, and the legislative environment that is punitive towards student accommodation.” Changes to the Residential Tenancy Act are costing the sector an estimated $100 million a year, Darling said. “Any other sector that had that impact would be front page news,” she said. Standard tenancy rules don’t fit the sector, she said. Rent caps are tied to a physical premises, but operators manage thousands of rooms that turn over every semester. State policies another layer of complexity Victoria’s absentee owner land tax surcharge is the most punitive in the country, Darling said, pushing some overseas capital to look elsewhere. “Capital is agnostic,” she said. “You can price in risk, but when it impacts returns, they’re going to consider other states.” ▲ Scape chief executive Anouk Darling and Marquette managing director Toby Lewis. Marquette managing director Toby Lewis cited the Brisbane City Council’s rate hikes on PBSA assets, which have tripled over the past three years and risen a further 24 per cent in the most recent round. Lewis said tenancy pricing rules were causing similar problems in Queensland to those Darling described in Victoria. Rent increases are tied to the room itself rather than the tenant, he said. Attaching a price to a room, rather than the tenancy, is impractical for an institutional operator managing 2500 rooms with different uses. “It’s ridiculous,” Lewis said. Messaging problem more that ‘just a financial cost’ Policy friction isn’t limited to tax and tenancy settings, according to Cedar Pacific chief investment officer David Hill, who said Australia’s student visa application fees, which have risen to around $710, among the highest in the world. Hill said the problem wasn’t so much the cost of policy, it was what that policy signalled to students. “Irrespective of each of the policies and the costs that they have, we can always factor costs into our underwriting of our opportunities,” he said. “But the messaging of these policies is a really critical piece. “It’s not doomsday—students will still pay it and still afford it. [But] the messaging is saying we’re not that welcoming of students, and we’re going to make you pay for the opportunity to come down here.” ▲ The Urban Developer founder and chief executive Adam Di Marco with Cedar Pacific chief investment officer David Hill. Hill said the economic case for being more sensitive about policy messaging goes beyond just tuition fees. “I’d love to see … Australia more broadly opening its arms to international students,” he said. “It’s not just education when we’re quantifying the dollar value to the economy. It’s also the flow-on effect, and that flows into tourism as well.” Optimism beyond the friction Combined tuition and accommodation costs sit 33 per cent below the UK and 54 per cent below the US, Savitz said. That gap continues to support international enrolments even as local delivery struggles to keep up. Asked about the sector’s prospects over the next 12 months, Hill remained bullish on Australia compared with competing study destinations. “The US has closed the door on international students, Canada’s put caps in place,” he said. “I think there’s benefits to Australia and New Zealand of having a stable political system, transparent market and offering world-class universities. Students will continue to come.”

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Leon Della Bosca
Wed 26 Aug 26

Policies Overshadow PBSA Sector’s Moment in the Sun

Strong demand, limited supply

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