Australian Construction Productivity

Is the industry’s productivity as bad as claimed?

 

The Australian Bureau of Statistics publishes productivity measures for the whole economy, the Market Sector, and for the 16 industries that make up the Market Sector. Productivity is the ratio of output and inputs and is affected by innovation, research and development, education and training, the quality and age of the capital stock (of machinery, plant and equipment, buildings and structures), the rate of technological change and adoption of new technologies.  The effects of all these factors takes time, so productivity is a long-run measure that changes gradually. 

 

The post compares Construction productivity to the performance of the Market Sector. The data used is from the annual ABS Productivity Statistics release, which has data from 1994-95 to 2023-24 (the most recent release was February 2025). The ABS productivity indexes are based on 100 in 2022-23, however for this analysis they have been first rebased to 100 in 1994-95 to compare the long-run growth of Construction and Market Sector productivity, and then rebased at 100 in 2015-16 for comparing productivity in the short-run. 

 

Comparisons are made for labour productivity and multi-factor productivity (MFP) using both the hours worked and quality adjusted labour input measures. The quality adjusted labour input indexes take into account characteristics of the workforce like years of education, levels of training, industry of employment, age and sex. These quality adjusted measures reflect changes in the composition and skills of the workforce, and typically have a lower rate of growth than the hours worked measure. Capital productivity is also shown. 

 

As well as comparing the different measures of productivity for Construction and the Market Sector, there is data for the individual industries that shows Construction is in no way the worst performing industry, although it is far from the level of growth seen in the best performing industries.

 

 

Productivity Since 1995

 

The long-run performance of Construction includes a sharp rise during the mining boom between 2012 and 2015, followed by a gradual decline over the next few years as these major resource projects completed [1]. At the end of the mining boom productivity had fallen to around the level it was before the boom. This pattern was due to the large increase in Construction output during the mining boom because output included plant and equipment like the offshore drilling platforms and gas liquefaction plants, none of which involved much construction work and most of which was imported. Productivity increased because this statistical quirk increased output much more than employment and hours worked [1]. 

 

Labour Productivity

 

Starting with labour productivity over the long run since 1994-95, the difference between growth in the Market Sector and the lower productivity growth of the Construction industry is apparent in Figure 1. However, despite claims made that there has been no growth in Construction labour productivity, there has been an increase. Construction labour productivity has increased by 17% on an hours worked basis and 24% on the quality adjusted labour input basis which, although less than the Market Sector’s 64% and 41% respectively, is not nothing. 

 

Figure 1. Market Sector industries labour productivity

 

Source: ABS 5260. Gross value added per hour worked. Quali is the quality adjusted labour input measure. 

 

As Table 1 shows, since 1995 the three leading industries for hours worked labour productivity growth have been Agriculture, forestry and fishing 210%, Information media and telecommunications 228%, and Financial and insurance services 123%. The two industries with lower growth than Construction were Mining 6%, Electricity, gas, water 2%, and Administrative and support services had negative growth of -13%. 

 

For quality adjusted labour productivity, Construction had better growth than Rental, hiring and real estate services 4%, and there were three industries with negative growth: Mining -2%, Electricity, gas, water and waste -9%, and Administrative and support services -23%.

 

Table 1. Market Sector industries labour productivity change

 

Multi-factor Productivity 

 

The ratio of output to input of combined labour and capital is multi-factor productivity (MFP). For MFP the story is not as good as for labour productivity, because there has been only 1% growth in Construction hours worked MFP and a 3% fall in the quality adjusted measure.  Market Sector growth on the hours worked basis was 23% and on the quality adjusted labour input basis was 13%. After MFP rose and fell during the mining boom, instead of returning to the preboom level there was collapse in Construction MFP after 2015-16.

 

Figure 2. Market Sector industries multi-factor productivity

 

Source: ABS 5260. Gross value added per hour worked. Quali is the quality adjusted labour input measure. 

 

The 1% increase in Construction hours worked MFP is very small, but not the decline often claimed for the industry. Table 2 shows four industries had a fall in hours worked MFP since 1995:  Mining -28%, Electricity, gas, water -30%, Rental, hiring and real estate services -32%, and Administrative and support services -16%. The three high growth industries were: Agriculture, forestry and fishing 182%, Information media and telecommunications 64%, and Financial and insurance services 63%. 

 

Construction, however, was one of five industries with negative quality adjusted labour input MFP growth, although at -3% it had a much smaller decline than the other industries of Mining -31%, Electricity, gas, water and waste -33%, Rental, hiring and real estate services -36%, and Administrative and support services -25%. This raises the question of why Construction is singled out as the problem industry. 

 

Table 2. Market Sector industries multi-factor productivity change

 

Capital Productivity

 

Capital productivity has been falling for both the Market Sector and Construction since the early 2000s.  This is a complex measure, because estimating the stock of capital requires an estimate of annual capital investment and a depreciation rate to account for declining efficiency of the existing stock due to use and age. Although Construction capital productivity peaked in the mid 2000s and declined during the mining boom, the post-boom fall in MFP was due to the sharp decline in capital productivity, because since then labour productivity was more or less flat but capital productivity was falling. As Figure 3 shows the Market Sector also had declining capital productivity, but after 2015-16 the decline in Construction capital productivity was much worse. 

 

Figure 3. Market Sector industries capital productivity 

 

Source: ABS 5260. 

 

What these long run graphs show is that there was a downward shift in Construction productivity around 2015, when both MFP and capital productivity went into significant decline. Up until then Construction productivity had been similar to Market Sector productivity for MFP, but after 2015 the Market Sector and Construction industry measures diverged. The next section looks at productivity over the short run since that divergence.

 

Productivity Since 2015-16

 

Labour Productivity

 

Labour productivity in the short run since 2015-16 has a distinctive and interesting pattern. The hours worked measure has fallen 4% from 100 to 96 but the quality adjusted labour input measure has increased by 6% from 100 to 106, and was in fact higher then both Market Sector measures in 2023-24. The increase in the Quali index occurred in the 2019-20 year with a big jump from 95 to 104, and there has been a gradual increase in the years since. 

 

Figure 4. Market Sector industries labour productivity 

 

Source: ABS 5260. Gross value added per hour worked. Quali is the quality adjusted labour input measure. 

 

The increase in the Construction quality adjusted labour input measure index will be the result of changes in the composition of employment, with the combined share of Professionals and managers increasing from 15% to 18% between 2019 and 2020, and peaking at 19% in 2022. Figure 5 shows the share of Professionals increased from 4% to 6% in 2020, and for Managers the share rose rom 10% to 12% in 2020 and was 13% from 2021 to 2023. In 2024 Technicians and trades workers were 50% of Construction employment, and Machinery operators another 6%, and their combined shares in total Construction employment have decreased by 3% since 2016. The share of Clerical and administrative workers has also declined, by 0.6%. Therefore, since 2016 the overall makeup of Construction workforce has become more skilled and qualified, raising the quality adjusted labour input measures [2]. 

 

Figure 5. Share of total Construction employment

 

Source: ABS 6291

 

Between 2016 and 2024 there were large differences in the productivity performance of the 16 Market Sector industries. As Table 3 shows, on the labour productivity hours worked basis there were two industries with high growth: Agriculture, forestry and fishing 44%, and Information media and telecommunications 40%. Four industries had growth between 10 and 20%, and five had growth less than 10%. Construction -4% was one of five industries with negative growth, the others were Mining -15%, Manufacturing -4%, Electricity, gas, water and waste -15%, and Financial and insurance services -4%.

 

On a quality adjusted basis Construction was the only industry to improve on the hours worked measure, all other industries had slightly lower quality adjusted labour input growth than hours worked. The other four industries with negative hours worked labour productivity again had negative quality adjusted labour input labour productivity growth. There were only six industries with better quality adjusted labour productivity growth than Construction’s 6%: Agriculture, forestry and fishing 41%, Wholesale trade 7%, Accommodation and food services 8%, Information media and telecommunications 33%, Professional, technical and scientific services 14% and Administrative and support services 12%.

 

Table 3. Market Sector industries labour productivity change

 

Multi-factor Productivity 

 

The MFP indexes for Construction do not show the same pattern as labour productivity. Both the hours worked and the quality adjusted indexes have fallen since 2016 and have closely followed each other down, ending at 92 and 91 respectively in 2024. However, the Market Sector has not performed particularly well, with the quality index only increasing to 101 and the hours worked index increasing to 104. 

 

Figure 6. Multi-factor productivity

 

Source: ABS 5260. Gross value added per hour worked. Quali is the quality adjusted labour input measure. 

 

MFP growth since 2016 is similar to labour productivity with a couple of exceptions. Table 4 shows on the hours worked measure only Agriculture, forestry and fishing 44% had high growth, and there were three industries above 10%. Five industries had negative growth: Construction -8%, Mining -3%, Manufacturing -1%, Electricity, gas, water and waste -15%, and Arts and recreation services -1%. Again, the growth in the quality adjusted labour input measure was lower than for hours worked, with Construction -9% one of eight industries with declining productivity, including Mining -3%, Manufacturing -3%, Electricity, gas, water and waste -16%. Transport, postal and warehousing -3%, Rental, hiring and real estate services -1%, and Arts and recreation services -3%. 

 

Table 4. Market Sector industries multi-factor productivity change

 

Capital Productivity

 

The performance of capital productivity has been particularly poor for construction, falling from 100 to 85 between 2016 and 2024, while the market sector index barely increased and ended at 103.

 

Figure 7. Capital productivity

 

Source: ABS 5260. 

 

Misunderstanding Productivity

 

There are two common misunderstandings about Construction productivity. One is that increasing offsite manufacturing and use of modern methods of construction like prefabrication and modular buildings will increase measured Construction productivity. It will not, because that work will be included by the ABS in the Manufacturing industry subdivisions of Prefabricated steel and timber buildings, Concrete products, and Structural steel. In fact, one reason for the lack of growth in measured Construction productivity has been the gradual but continual shift to more prefabrication and offsite manufacture. 

 

A second misconception is that improving Construction productivity will somehow decrease the cost and increase the number of dwellings being built. This mistakes new construction for the market for housing, where in the short-run price is determined by the interplay of demand and an inelastic supply of new dwellings due to limited industry capacity to build and lengthy approval times. Increasing onsite productivity might decrease the time to complete a build but will have a marginal effect on the total cost of delivery, and the number of dwellings built is determined by project feasibility (i.e. the profitability of development) at any one time. Improving Construction productivity might help, but on its own cannot and will not solve the housing crisis. 

 

Conclusion

 

That the Construction industry has had no or negative productivity growth for the last few decades has been repeated so many times by so many commentators it has become an accepted fact about the industry. There are, however, four different measures of productivity, and commentators can focus on those that support their claims, and productivity growth rates vary considerably over different time periods, allowing selective choosing of comparisons. 

 

The four productivity measures are labour productivity on an hours worked basis or quality adjusted labour input basis, and multi-factor productivity (MFP includes the capital stock) also on an hours worked basis or quality adjusted labour input basis. The ABS productivity statistics for the Market sector go back to 1994-95, and this analysis has been for two periods, the long-run from1994-95 to 2023-24 (the latest data) and the short-run period of 2015-16 to 2023-24, chosen because 2015-16 was the end of the rapid rise and fall in Construction productivity during the mining boom. 

 

When the productivity of Construction is compared to the Market sector, despite claims that there has been no growth in Construction labour productivity, there has been an increase. Since 1994-95 Construction labour productivity has increased by 17% on an hours worked basis and 24% on the quality adjusted labour input basis which, although less than the Market Sector’s 64% and 41% respectively, is not nothing. Construction is in no way the worst performing industry, although it is far from the level of growth seen in the best performing industries.

 

In Australia there is a wide difference between a group of high productivity growth industries and a group of low or negative productivity growth industries. On the hours worked measure for labour productivity, since 1994-95 there were three high growth industries, and ehree industries with lower growth than Construction. For quality adjusted labour productivity, Construction had better growth than Rental, hiring and real estate services’ 4%, and there were three industries with negative growth. 

 

For MFP the story is not as good, because since 1994-95 there was only 1% growth in Construction hours worked MFP. That 1% increase in Construction hours worked MFP is very small, but not a decline. Market Sector growth on the hours worked basis was 23%, and on the quality adjusted measure Market Sector growth was 13%. On the hours worked basis there were three high growth industries, and four industries had a decline. Construction was one of five industries with negative quality adjusted labour MFP growth, although at -3% it had a much smaller decline than Mining -31%, Electricity, gas, water and waste -33%, Rental, hiring and real estate services -36%, and Administrative and support services -25%. This raises the question of why Construction is singled out as the problem industry. 

 

Construction capital productivity peaked in the mid 2000s and falling MFP was due to this decline in capital productivity. The Market Sector also had declining capital productivity, but there was a downward shift in Construction productivity around 2015, when both MFP and capital productivity went into significant decline and the Market Sector and Construction industry measures diverged.

 

There is a notable difference between the quality adjusted labour input measures and the hours worked measures for Construction labour productivity since 2015-16, because the hours worked measure has fallen 4% but the quality adjusted labour input measure has increased by 6%. The increase in the Construction quality adjusted labour input measure index will mainly be the result of changes in the composition of employment, with the combined share of Professionals and Managers increasing from 15% to 19% in 2022. The Construction workforce has become more skilled and qualified, raising the quality adjusted labour input measures.

 

Between 2016 and 2024 on the labour productivity hours worked basis there were two high growth industries, four industries had growth between 10 and 20%, and five with growth less than 10%. Construction -4% was one of five industries with negative growth, the others were Mining -15%, Manufacturing -4%, Electricity, gas, water and waste -15%, and Financial and insurance services -4%. On a quality adjusted basis Construction was the only industry to improve on the hours worked measure, and there were only six industries with better quality adjusted labour productivity growth than Construction’s 6%.

 

For MFP growth since 2016 on the hours worked measure only Agriculture, forestry and fishing had high growth, and there were three industries above 10%. Five industries had negative growth: Construction -8%, Mining -3%, Manufacturing -1%, and Electricity, gas, water and waste -15%. Again, the growth in the quality adjusted labour input measure was lower than for hours worked, with Construction -9% one of eight industries with declining productivity, including Mining -3%, Manufacturing -3%, and Electricity, gas, water and waste -16%.

 

Clearly, Construction is far from the worst performing industry, which raises the question of why it is so often singled out for low productivity growth. There were only six industries with better quality adjusted labour productivity growth than Construction. And are industries that have had declining productivity like Mining or Electricity, gas, water and waste not important? Should their productivity performance not be scrutinised? 

 

Maybe Construction could do better, but there have only been a few high growth industries in Australia over recent decades. Construction is one of a group of low growth industries, and compared to those industries its performance has been much better in both the long and the short-run. Instead of complaining about low productivity growth, attention should be focused on addressing the issues that have negatively affected Construction productivity, such as the number of micro and small firms, lack of standardisation of structural elements, the low level of investment in software and capital stock, state based occupational licensing and building codes, procurement methods, financing and project management, and education and training systems [3].

 

 

[1] See The long cycle in Australian construction productivity

 

[2] See The changing composition of construction employment

 

[3] See Housing productivity report a missed opportunity

Student Accommodation and the Australian Rental Market

  What is the effect of the number of overseas students?

 

There were over 1.6 million students enrolled in Australian universities in 2023, of which a quarter were international and three quarters domestic students. Although the majority local students live in their family home and some international students are with families under homestay arrangements, there are many others who rent a room in a share house or live in student accommodation, which can be either on or off-campus. There have been competing claims about the effect of international students on the rental market, with some arguing it is not significant while others maintain they are crowding out other renters and driving rents up. 

 

There is limited data on the effect of the number of university students on rental markets in Australia. How significant are international students in the demand for rental property? This post looks at the available data from different sources in an attempt to answer that question. It discusses the exclusion of student accommodation from ABS housing statistics and the number of dwellings, and the factors that have been affecting the market for rental accommodation over the last few years.

 

Students, Migration and Rents

 

The Australian Bureau of Statistics tracks Overseas Arrivals and Departures by visa group which includes temporary student visas. This is high level data, and as shown in Figure 1 the numbers have grown significantly over the last few years. In the two years 2022 and 2023, 945,000 overseas students arrived in Australia, followed by 708,110 in 2024. According to the Department of Education 2023, about half of these international students are at a university and half are in the VET system. 

 

One of the obvious problems associated with the number of international students is the Commonwealth Government’s lack of control over their number, because it is the universities that process and accept applications and therefore determine how many will commence each year. As Commonwealth funding for domestic students and research has declined, Australian universities have come to rely on the income from international students.

 

Figure 1. Overseas student arrivals and departures

 

Source: ABS 3401

 

Of the over 739,000 overseas students who arrived between 2021 and 2023, there were 409,248 of them enrolled at university in 2023. According to the Department of Education in 2023 for Australian universities:

·      Total student enrolment was 1,600,563;

·      Domestic enrolments were 1,076,027 (86,000 less than 2021 and the lowest level since 2017);

·      Overseas students were 409,249.

 

Figure 2. University student numbers 2014-2023

 

Source: Department of Education 2023

 

 

Rents in Australia began rising in 2022, as shown in Figure 2, and the core issue is the effect of these international students on the rental market in Australia. That, however, is not obvious and there is a lot of noise in the data. Firstly, it is the difference between arrivals and departures that affect demand for housing, and that is nowhere near the size of the total for arrivals. Since 2019 the net difference has been just under 110,000 students, although the difference for the 2022 and 2023 years when rents were increasing rapidly was 168,200. Correlation, however, is not causation.

 

Second, inflation peaked at over 7% in December 2022. As Figure 3 shows, the rise in rents started after CPI began to increase. Then, due to the effect of lease terms, rents took a year longer to adjust before the rent index levelled out. Overall, since 2020 the total increase in the rent index was similar to the increase in the CPI. 

 

Figure 3. Australia Consumer Price Index

 

Source: ABS 6401

 

Third, two other factors affected the rental market. These were a decrease in household size and a decline in residential building. A 2023 RBA Bulletin article found the ‘decline in average household size since the start of 2020 – around 1 per cent – is estimated to have contributed to around 120,000 additional households being formed and, as a result, additional demand in the rental market.’ As a result, since 2020 vacancy rates have been low and the article also found ‘Growth in the stock of total dwellings has slowed in recent years, reflecting a slowdown in apartment construction after strong growth in the mid-2010s. This is important for rental supply, as about half of the total stock of apartments are rented out.’

 

Figure 4. Vacancy rates

 

 

Source: Proptrack

 

Finally, there has been a rapid increase in the total resident population from immigrants. There was a net gain of 2,948,500 permanent migrants between January 2022 and December 2024, almost 2.8 million people greater than the 177,240 net number of temporary students over that period. Because of their number, these permanent visa holders will have had a much larger effect on the rental market than students because they typically rent before purchasing a home. 

 

Figure 5. Population and dwelling totals

 

Source: ABS 3101 and 6432. 

 

ABS Housing Statistics

 

One of the anomalies in Australian housing statistics is that student accommodation is not included. The ABS classifies student accommodation as non-residential building, and a recent ABS release on student accommodation approvals has highlighted the problem. In March the ABS released an estimate of student accommodation approvals in Australia between 2021-22 and 2023-24, when a total of 9,759 student accommodation rooms were approved for construction. Approvals were 1,684 rooms in 2021-22, then 2,897 in 2022-23, and 5,178 in 2023-24. This was the first time the ABS has collected this data. 

 

This was the first time these estimates have been published, and the ABS explained ‘Purpose-Built Student Accommodation (PBSA) is student accommodation built for the purpose of providing sleeping quarters for students. These types of buildings are captured within the ABS’ Building Approvals publication as non-residential building jobs because they are not classified as a residential building job using the Functional Classification of Buildings (FCB).’ In the FCB, student accommodation is in two non-residential classifications:

·      FCB 411 Education buildings: This is typically used when the student accommodation is owned by the university.

·      FCB 462 Hotels, motels, boarding houses or lodges: This is typically used for student accommodation owned and managed independent of the university (such as a residential college).

 

The ABS notes ‘there is no associated count of dwellings for PBSA captured within the Building Approvals publication. Likewise, PBSA does not have a unique and distinct category for which building value estimates are published; instead, the value of a PBSA job contributes to the higher level aggregate non-residential series along with other non-residential building jobs. This makes understanding the size or potential growth of PBSA not readily available from the Building Approvals publication.’

 

There are over 11 million dwellings in Australia, so the PBSA percentage could be around one percent of the total, depending on the actual number of rooms. However, if only a third of dwellings are available for rent, then the PBSE share would be more significant at three percent.

 

Purpose Built Student Accommodation

 

There are several reports on the student accommodation market from real estate agencies. Their numbers differ on both the total and distribution of beds {note the ABS had approvals for rooms). There are up to 130,000 beds in PBSA, but how many are filled by international students is unknown. 

 

A CBRE report in July 2024 estimated a total of about 102,000 beds and 41,000 rooms in PBSA , and claimed ‘ student accommodation in Australia is ~6% or one bed per 15 higher education students.’ They had the figure for beds below. 

 

Figure 6. Location of PSBA beds

 

 

 

 

A report in November 2024 from the Property Council and Urbis found ‘there are currently 132,700 student accommodation beds in Australia, over half (53 per cent) of which are owned or managed by the private PBSA sector. This is a 90 per cent growth on the number of beds a decade ago.’ Across the states Victoria had 43,982 beds, New South Wales 34,069 beds, Queensland 23,353, the ACT 10,226 and South Australia 9,133. There were 29,500 beds in the supply pipeline, with around 7,400 beds in the construction stage, with 14,900 beds approved for development and nearly 7,200 beds waiting development approval.

 

Another report from Savills in June 2024 divided the ‘operational beds’ into those run by managers (61,785) and those run by operators (80,553). The total was 142,338 with 32,482 in the pipeline to 2027. However, Scape was included in both groups, so the numbers should be adjusted for the double counting of their 18,900 beds and 3,600 in the pipeline. That gives 123,438 current and 28,882 in the pipeline, with 43% of operational beds managed. No definition of ‘managers’ and ‘operators’ was given. Savills’ estimates are higher than CBRE’s but comparable to those from Urbis and the Property Council. 

 

University Owned Accommodation

 

The number of rooms and beds managed by universities is a data black spot. These are university residences (self-catered rooms) and residential colleges (rooms with meals and laundry provided). There are over 60 residential University Colleges and Halls that are members of University Colleges Australia (UCA). 

 

Large city universities like Sydney and Melbourne might have between five and ten residences. ANU has 18, and Charles Stuart University has 23 residences across six campuses. There are 16 universities with 40,000 or more students enrolled, and 17 with 20,000 to 40,000 enrolled. A conservative estimate of the total number of beds would be 50,000, but there probably is more. 

 

Longitudinal Surveys of Australian Youth

 

Most international students are in the same age group as domestic students, and many students from both groups will therefore be looking for rental accommodation. There is some data on domestic students in the Longitudinal Surveys of Australian Youth (LSAY), which track young people as they move from school into study and work. Participants enter the study at 15 years old and are contacted once a year until they are 25. Survey participants are a 'cohort', the first was 1995 followed by 1998, 2003, 2006 and 2009. The current cohort ran from 2015 with 14,530 participants to 2025 with 2,996 participants, when they were 23 years old. The education and living arrangements data below is weighted based on the survey sample.

 

The peak years for university for this cohort were in 2019 at 43% and in 2020 with 46%. In the years on either side of 2018 and 2021 the proportion and number of the cohort studying a bachelors degree was 35%. The survey does not have more specific data on students who are renting, however the proportion and number of the cohort renting in 2018 was 7.2%, in 2019 was 12%, in 2020 was 16%, and in 2021 was 25% The data for renting in 2022 was 29.8% and 2023 was 31.4%, and in those years was close to the percentage in de facto relationships. 

 

The survey data indicates the great majority of domestic university students live with their family while studying, which suggests many of those renting will be studying at a university not in their home city. Some unknown proportion of them will be in a university college. An estimate based on the LSAY percentages would be 35 to 40,0000 domestic students renting accommodation each year, but that may not be very accurate because the number of survey respondents drops away after school and the sample becomes smaller and less representative. 

 

Other Research

 

A survey by Mandala for the Student Accommodation Council in 2024 found international students make up 7% of the rental market in Victoria, 6% in NSW and WA, and 5% or less in the other states. The report also found a quarter of international students live outside the rental market and 14% are in private student-only accommodation. The report argued against capping international student numbers because that would ‘only reduce this by 0.6% and have little impact on rental availability.’ The Student Accommodation Council is part of the Property Council and represents the private providers of PBSA, so the survey has to be seen in that context.

 

A 2025 journal paper by Michael Mu and Hannah Soong on international students and the rental market investigated ‘the statistical relationship between international student numbers and rental costs for local residents, while accounting for vacancy rate and rental inflation.’ The paper concluded ‘international students were not the culprits of the rental crisis in Australia … the effect of purpose-built student accommodation on the housing market remains unknown until pertinent data are made available for further research. Government discourses also scapegoat international students for the rental crisis, throwing them under a bus for political reasons.’  This research uses statistics and models so the result is not conclusive, because models reflect assumptions and parameters. However, this research found a weak relationship between international student numbers and rents. 

 

Conclusion

 

Both rents and international student numbers began rising in 2022, however the effect of those students on the Australian rental market is not obvious. Claims that international students are crowding out other renters use the total number of overseas students, whose numbers have grown significantly over the last few years. In 2022 and 2023 a total of 945,000 overseas students arrived in Australia, followed by another 708,110 in 2024. About half of international students are at university and half in the VET system. However, combining student accommodation, homestays and living with friends and family, between a third and a half of international students will probably not be in the wider rental market. This is the first bit of unknown data.

 

The ABS classification of residential buildings excludes short-term commercial accommodation, communal accommodation, and housing for students. Student accommodation is classified as a Non-Private Dwelling and defined as non-residential because it is not long-term accommodation. Educational buildings include student accommodation co-located on the grounds of the establishment. Not including student accommodation in housing statistics is the second bit of unknown data. In March the ABS released an estimate of approvals for 2021-22 and 2023-24, when a total of 9,759 student accommodation rooms were approved for construction,the first time the ABS has collected this data. There are reports on the student accommodation market from real estate agencies, but their numbers differ on both the total and distribution of beds.

 

The most recent data for 2023 had over 1.6 million students enrolled in Australian universities, of which 409,249 were international and three quarters domestic students. The great majority of local students live in the family home, some international students have homestay arrangements, while others rent a room in a share house or live in student accommodation, which can be either on or off-campus. There are perhaps 130,000 beds in purpose built student accommodation with around half in university residences, but how many are filled by domestic students and how many by international students is the third bit of unknown data. 

 

What crowding out claims overlook is that the difference between student arrivals and departures affects demand for rental accommodation from year to year. For the 2022 and 2023 years, when rents were increasing rapidly, the difference was 168,200. The majority of international students are in Melbourne and Sydney, so they will have local effects on the rental market in suburbs around universities in those cities, which will have affected domestic students looking for rental accommodation.  

 

However, there were other factors affecting the rental market at the time, such as a decrease in household size and the decline in residential building. The decrease in average household size since 2020 added around 120,000 households to demand in the rental market. Falling apartment construction affected supply, as about half of the total stock of apartments are rented. 

 

Also, there was a net gain of 2,948,500 permanent migrants between January 2022 and December 2024, almost 2.8 million people greater than the 177,240 net number of temporary students over that period. Because of their number, these permanent visa holders will have had a much larger effect on the rental market than students because they typically rent before purchasing a home. 

 

Importantly, rents followed inflation, which peaked at over 7% in the December quarter 2022. The rise in rents started after the CPI began to increase in 2020, but since then the total increase in the ABS rent index is similar to the increase in the CPI. As the Reserve Bank raised interest rates to counter this surge in inflation, the cost of investor loans for rental properties increased, and the combination of high inflation and interest rates with a large number of new permanent migrants will have had much greater impact on rents and the rental market than the number of international students.

 

There are over 11 million dwellings in Australia, so the PBSA percentage could be around one percent of the total, but if only a third of dwellings are available for rent the PBSA share would be more significant at up to three percent. Excluding these rooms from housing statistics is a problem, particularly when there are claims international students are crowding out domestic renters. 

 

While the concentration of international students in Sydney and Melbourne affects local rental markets, these temporary migrants are not the main cause of the low vacancy rate or the increase in rents in Australia. The fundamental problem is the slow pace of new residential building resulting in a shortage in supply of rental accommodation at a time when demand has increased from a fall in household size and the total population has increased with a large number of permanent migrants.