Policy reforms and their impact
The Australian higher education sector has seen substantial growth in recent decades, with over 200 providers and 1.6 million students in the sector, including a large cohort of international students. Despite this growth, Australia lags behind other countries like the UK in providing university-embedded student accommodation.
The Albanese Government's Universities Accord aims to increase accessibility to higher education for all Australians. The Accord recommends the establishment of the Australian Tertiary Education Commission to guide policy and planning, including for student accommodation. However, the government has yet to provide a blueprint for funding these ambitious plans, leading to concerns about the financial sustainability of universities.
One of the key policy changes is the introduction of international student enrolment limits, in accordance with the proposed new regulatory powers contained in the Education Services for Overseas Students Amendment (Quality and Integrity) Bill 2024, which is before the Senate as at September 2024. The current Bill and related announcements have flagged that universities may need to establish that it is developing or securing new student accommodation supply if it wishes to increase its enrolment limits.
This policy aims to ensure that universities play an active role in providing adequate housing for their students, thereby reducing the impact on the private rental market. As at September 2024, the specifics of how this policy will be implemented remain unclear.
Options for increasing student accommodation supply
Universities have several options to prepare for the proposed limits and, if feasible, to increase the supply of student accommodation in response to these policy changes:
- Developing Purpose-Built Student Accommodation (PBSA): Universities can develop or procure PBSA facilities on or near campuses, or other university land. This might include exploring opportunities for commercialising existing un-used or under-utilised land and assets, or modernising or redeveloping aged facilities, for this purpose.
- Partnering with the private sector: Universities can enter into partnerships with private sector entities to develop and manage student accommodation. Two examples of common structuring models for such partnerships include:
- Operator-Led Model: The university leases land to a private operator, who funds and constructs the PBSA. The operator manages the facility and collects rent from students, while the university may reserve rooms for specific student cohorts.
- PBSA Concessional Model: The university receives an upfront payment from a private sector partner in exchange for the right to develop and manage the PBSA. The university can retain control over student-facing services and may receive a share of the rental revenue.
- Reviewing and formalising existing arrangements: Universities should review their existing accommodation assets and partnerships to ensure they can report on all available student housing. They may also consider formalising any informal arrangements with PBSA providers to secure additional accommodation for their students and to prepare for any possible reporting requirements and thresholds.
- Leveraging tax and financial incentives: When procuring and transacting with private sector partners, universities should seek to understand the key commercial drivers for those entities, including to assist the university to work with private sector partners to structure PBSA projects in a tax-efficient manner. This may include using managed investment trusts (MITs), which are entitled to certain tax concessions, thereby attracting foreign investment and maximising returns for investors.
- Exploring mixed-use developments: Universities can consider developing mixed-use projects that combine student accommodation with retail, recreational, hospitality or other commercial spaces or facilities. This approach can generate additional revenue and create vibrant, integrated communities that benefit both students and the broader public.
Key considerations for university lawyers
The recent policy changes present both challenges and opportunities for Australian universities. As your internal clients navigate these policy changes and explore the options available to increase student accommodation supply, threshold considerations for university lawyers include:
- Compliance with governing legislative framework: Ensure that any new projects or changes to existing projects comply with the university's governing legislation (where applicable). This includes applying income and assets for the university's core purposes.
- Tax efficiency: Structure PBSA projects in a tax-efficient manner to maximise returns for investors. This includes ensuring that trusts used in these projects are not classified as trading trusts and, where possible, qualify as managed investment trusts (MITs) and maintain entitlements to various tax concessions relating to investor returns.
- Reviewing existing agreements: Review existing PBSA agreements to understand the implications of recent policy changes, such as the international student enrolment caps. This includes assessing ‘change in law’ provisions and ‘first right of refusal’ clauses in contracts with existing providers.
We have extensive experience acting for universities, student accommodation providers and financiers across a range of procurement and project delivery models used in the sector. Please contact us to discuss the arrangements that will best suit the needs of your university.
