Student housing – COVID-19 gives an opportunity for developers and financiers to rethink its use

It’s been astounding to see Victoria’s achievements against the second wave of COVID-19 and the continued success of each Australian state to try and quash this virus.

As Christmas approaches, we are all relieved to enjoy the return of our freedom and be allowed to travel beyond the front gate, however, more broadly, our travel options remain hugely restricted.

As our internal borders open the big question and most fundamental for our economy is when will the international borders open to allow the wider world to visit our land girt by sea?

Of course, the virus has impacted a huge swathe of industries and sectors since it reached our shores in Q1 2020, but the implications on international students, property developers and financiers are big.

The need for Migration

Plenty of articles have been written in recent months regarding the impacts of the border closures on our Net Overseas Migration (NOM) levels.

During 2020 Australia Net Overseas Migration (NOM) has had the greatest decline since the 1990s and this trend is expected to continue into 2021 and beyond. By way of example, student visas granted in 2019 exceeded 405,000 compared to only 40,000 during the 8 months to 31 August 2020.

This trend will no doubt continue as we wait for a vaccine and/or an alternative solution to allow safe and widespread global travel to re-emerge. The prospect of overseas travellers and international students arriving anytime soon remains a distant hope.

Impact on property developers, the property market & financiers

A media release by the National Housing Finance and Investment Corporation (NHFIC) in late September 2020 forecast demand for Australian Housing will fall between 129,000 to 232,000 dwellings over the next three years.

This will have a huge impact on property developers and financiers of student housing who are facing uncertain times.

These stakeholders will primarily be reliant upon the response and leadership of both the Australian Government and the Australian University sectors to address both the short-term and long-term impacts of COVID-19 and what steps they can make to woo international students back to Australia.

This in turn will lead to many universities looking to offload their own property portfolios to boost their capital coffers.

Add to the equation, the ongoing political disquiet between Australia and China and this only adds to the risk that a post COVID-19 bounce back to normality is unlikely. (Noting that Chinese students account for over 100,000 of our International Students each year that equates to over 20 percent of all Australia’s International Student population).

And what about students?  They may well be thinking;

  • Do I really need to attend a campus?
  • Do I want to socialise in student bars, share desks, lecture halls and vending machines?

Wouldn’t an online approach help me avoid a large student debt, particularly in such uncertain times?

Looking at how quickly the finance world (and folk generally) have embraced IT and the transition to working from home I’m sure the student population are extremely comfortable in embracing technology as part of their ongoing development.

Government

An important consideration for the government is that education related travel services, including student expenditure on tuition fees and living expenses, contributed over $40 billion to the Australian economy in 2019 placing it as Australia’s fourth largest export behind the energy and resources sectors.

As such, the government will need to act smartly to encourage International Students to return to Australia and our government will certainly not be alone in identifying the benefits International Students bring to the economy.

Close collaboration is needed with our universities to sell the merits of our education system and the potential future employment prospects for those who come.  The final step is promoting the longer-term opportunity of establishing a future in Australia in a “dream home”.

Developers – an opportunity or a risk?

Given all the uncertainties, developers need to tweak their building models and planning submissions as demand for student housing will no doubt take time to recover, especially given the requirement for the current housing supply to be soaked up.

A novel opportunity for developers could be to convert and/or renovate current student housing sites into social and public housing, particularly given the Department of Health and Human Services (DHHS) current initiatives in these sectors.  For example, the Victorian Government has recently established a $1 billion social housing growth fund to provide an ongoing mechanism for the government to partner with the community, private, not for profit and local government sectors to deliver housing assistance to Victorians.

Also, demand for apartments and student housing in a post COVID-19 world may also diminish given the demands for more outside space. There may also be issues for apartments given the newfound issues relating to health & safety and social distancing (i.e. capacity of lift numbers) and the general cleaning of buildings, particularly in the common areas of apartments.

Financiers – watch out or embrace?

Well what we know for sure is that every expert, specialist and commentator is making their “best guess” regarding what the future holds as the outlook remains so uncertain.

Only when the government’s stimulus packages end in Q1 2021 will financiers get a clearer understanding of how the economy is expected to hold up and a better understanding of how a recovery will play out.

Q1 2021 should provide more understanding regarding how the Northern Hemisphere is handling the latest COVID-19 wave and whether the vaccine and its uptake has been successful.

So, given the above a “watch out” cautious approach seems like sound advice for financiers whether they be Big 4 bank or an alternative capital provider as the path to recovery becomes clearer.

So, until early 2021 we somewhat sit in the dark.

Student housing developments will remain in limbo as the sector stagnates until international travel returns.

Developers will need to be agile and look at new housing trends and consider housing reconfigurations.

Opportunities to support the government’s social and public housing needs must be pursued and our government and universities must work in alliance to ensure they promote the benefits and rewards that Higher Education from an Aussie University can provide.

Overall, the steps towards a COVID-19 normal environment are still evolving and ever changing but Australia is well placed to prevail.

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