Will a cap on international students make housing more affordable?

The Federal Government is proposing a cap on international students in 2025, with legislation recently put forth to limit enrolments to 270,000. This would comprise 145,000 university students and 95,000 vocational education training (VET) placements. Many people in the tertiary education sector argue that this is an immigration policy designed to curb new arrivals amid a housing crisis.

The Federal Government has been criticised for a record surge in immigration following the pandemic, which has placed additional pressure on the rental market. According to the Australian Bureau of Statistics, 737,000 migrants arrived in Australia in FY23, up from 427,000 in FY22. Among them were 554,000 people on temporary visas, 283,000 of which were international students.

REA economist Anne Flaherty said the post-pandemic surge in overseas students in 2023 and 2024 coincided with building sector constraints that exacerbated the housing undersupply and contributed to rapidly rising rents and record-low vacancy rates over the past two years.

“There is no question that high levels of migration have been a key driver of the rental crisis,” Ms Flaherty said. “Rent growth from surging student numbers can be seen in “student suburbs”. Examples include Clayton, home to Australia’s largest university Monash, which saw unit rents up 20% over the 12 months ending July, and Glebe, near the University of Sydney which saw rents up 17%.”

Ms Flaherty said the new cap in 2025 would have little immediate impact on the market, given the students here now will stay for several more years while they complete their studies.

The Federal Government wants universities to provide more purpose-built student accommodation (PBSA) to free up homes in the strained private rental market. CBRE estimates that only 6 percent of students currently have the opportunity to live on-campus or in PBSA close to their universities.

In a new report on student accommodation, CBRE estimates there are 223,000 overseas students in Sydney and 334,000 in Melbourne. It estimates an unmet demand for 25,000 PBSA beds in the University of Sydney and UTS catchment alone and 15,000 beds in the University of Melbourne and RMIT catchment.

The Student Accommodation Council says there are 7,700 new PBSA beds in the pipeline for 2026 but 84,000 are needed. The council’s executive director, Torie Brown, said governments need to incentivise foreign investors to build more student housing. “Ridiculously high state taxes on international investors who build PBSA continue to be a handbrake on new development,” she said. “International students have been unfairly blamed for the rental crisis … There are more domestic students in rental homes than international – yet no one is suggesting we ban share-houses for local university students.”

Australia’s housing crisis will not be solved by first-home buyer incentives or tax changes alone, with leading property figures warning governments must tackle supply constraints if affordability is to improve.

Speaking at the Kanebridge Quarterly Property Leadership Summit in Sydney last week, expert project marketing specialist Sam Elbanna, property investor and fund manager Paul Miron and property consultant Karla McNeice said that a lack of housing supply remained the central issue facing the market.

Elbanna, Director of CPM Realty with more than 30 years’ experience in project sales, argued that successive governments had focused too heavily on stimulating demand rather than addressing the barriers preventing new housing from being delivered.

“The misconception is that politicians think the way to solve the housing crisis is to drive demand,” he said.

“The reality is that’s not the way. This is a supply-side problem, and it needs to be solved on the supply side.”

Drawing on his experience in project sales, Elbanna said policies designed to help first-home buyers often had unintended consequences, pointing to previous grants that ultimately flowed through to higher property prices.

Instead, he said developers were facing increasing red tape, approval delays and rising costs, which were discouraging new housing supply.

“In the absence of stock, demand exceeds supply,” he said.

Miron, a Co-Founder and Fund Manager of Msquared Capital, said the housing debate had become overly focused on tax policy while overlooking broader structural issues.

He argued that affordability challenges stemmed from a combination of factors, including planning constraints, supply shortages, migration levels and interest rates.

“No-one can be 100 per cent certain on the real reason for property prices is going up,” he said.

“The reason why property prices are higher is a combination of interest rates, lack of supply, migration, vacancy rates and maybe taxes play a role.”

Miron was critical of recent federal housing policy changes, warning they could reduce the number of new homes being built and further constrain supply that was even highlighted in the budget.

He also highlighted the importance of the property sector to the broader economy, noting that residential real estate and related industries employed more than one million Australians.

McNeice, who advises developers on sales strategy and market intelligence, said understanding buyers had become increasingly important as affordability pressures intensified.

While affordability remained a major consideration, she said today’s buyers were focused on value rather than simply price.

“People are looking for value for money,” she said.

She said buyers were increasingly evaluating factors such as transport connections, walkability, nearby amenities and flexible living spaces that could accommodate changing family needs.

“What infrastructure is going on? Can I walk to the shops? Can I meet people at the local cafe?” she said.

The panel also discussed the mounting pressures facing developers, with Elbanna arguing that many projects become financially unviable from the moment a site is purchased.

“The viability of a development happens at the moment the site is bought,” he said.

He said rising construction costs, higher interest rates and overly optimistic feasibility assumptions had left some developers exposed as market conditions changed.

While acknowledging the growing number of smaller and first-time developers entering the market, Elbanna said property development required expertise across finance, construction, marketing and legal disciplines.

“It is actually a business that requires a level of expertise,” he said.

Looking ahead, the panel agreed opportunities remained in the market despite current challenges.

Miron said property should continue to be viewed as a long-term investment and cautioned against trying to time short-term market movements.

McNeice said success would increasingly depend on identifying projects that genuinely met changing buyer expectations.

Elbanna said affordable housing remained achievable, but developers needed to deliver more than just homes.

“We can provide affordable housing in this country,” he said.

“But we’ve got to wrap that affordable housing with the things that people want.”

As Australia’s housing affordability debate intensifies, the panellists agreed on one point: without a meaningful increase in housing supply, demand-side measures alone are unlikely to solve the nation’s property challenges.

Will a cap on international students make housing more affordable?

The Federal Government is proposing a cap of 270,000 students in 2025

Australia’s housing affordability crisis is being fuelled by chronic undersupply, planning delays and rising development costs, as politicians continue to focus on the wrong solutions.