scorecardAmerica's biggest private-equity firms are screwing over college students
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America's biggest private-equity firms are screwing over college students

James Rodriguez   

America's biggest private-equity firms are screwing over college students
LifeThelife12 min read
Business is booming for investors in college housing, who poured $22.9 billion into the industry last year. But for students, the picture is more fraught.    Tyler Le/Insider

Waterloo, a 30-story tower just a few blocks west of the University of Texas at Austin, has everything the modern college student needs: Its top floor features an infinity-edge pool, a pair of saunas, and a yoga studio, while the lobby includes an in-house coffee bar and ample nooks and tables for socializing or studying. To enjoy all this, a student just has to find five other friends willing to pony up a total of $8,100 a month for a six-bed, six-bathroom apartment, or come up with as much as $1,900 if they want their own studio.

The building isn't the only development turning college life into a luxury experience. In the decade-plus since the global financial crisis, the student-housing market has transformed from a patchwork of on-campus dorms, small apartments, and shared houses into a huge industry that's coveted by some of Wall Street's biggest investors. Last year, the private-equity behemoth Blackstone paid $12.8 billion to acquire American Campus Communities, the largest developer and manager of student housing in the US. The megadeal added nearly 112,000 beds to Blackstone's portfolio and helped drive a huge year for student-housing acquisitions — investors spent $22.9 billion in the space, more than double the sum in 2021, according to the commercial-real-estate firm CBRE.

The eye-popping numbers are part of a longer-term shift toward private college housing. Faced with pressure to grow their enrollments, and reluctant to take on debt for housing upgrades, more colleges and universities in the past decade have been striking deals known as public-private partnerships, in which they outsource the management of their residences to a third party. And a greater number of universities are simply banking on off-campus developers to absorb the spillover from overstuffed dorms.

For schools — and investors eager to cash in on steady profits from student housing — this is a win-win. But for students, the picture is more fraught. A study by the National Multifamily Housing Council found that rent for student housing jumped 25% between 2013 and 2020 when adjusting for inflation, which outpaced tuition hikes. Moody's Analytics recently warned of an "affordability crisis" for college students, noting that since 2019, rents for student housing in a sample of notable college towns had grown faster than those of regular apartments. The start of the 2022 academic year brought "never-before-seen rent growth" for student housing, RealPage Market Analytics, a real-estate-software company, said.

Schools could step up to provide more housing themselves, but that's much easier said than done. Funding cutbacks, higher interest rates, and local zoning laws make it difficult for in-demand colleges to get new housing off the ground. All this means heftier rent bills for students who are already navigating rising tuition costs and a growing mountain of student loans.

Evan Scope Crafts, a fifth-year Ph.D. student at UT Austin who's seen the monthly rent for his off-campus studio apartment rise from roughly $900 to $1,300 during his time at the school, framed the issue bluntly: "University students are being thrown to the wolves."

Student housing goes private

The gold rush in student housing is a relatively new phenomenon. Back in the 1980s and '90s, most college students either lived in bland, cinder-block-walled dorms or in conventional apartments farther from campus. It wasn't until the years surrounding the Great Recession that student housing experienced its "renaissance," Carl Whitaker, the director of research and analysis at RealPage, told me.

During those tumultuous years, more people pursued degrees in hopes of catching a break in a tough job market. And all those students needed somewhere to live. What was once a niche endeavor now looked like a surefire bet. Companies such as American Campus Communities and Campus Apartments had also begun offering a model for privately owned student housing: fresh, gleaming properties conveniently near campus, with amenities including pools, gyms, and study lounges designed to lure students. The promise of recession-proof profits in a relatively untapped market spurred a construction boom — RealPage estimated that roughly 80% of privately owned student housing had been built in the past 20 years.

A barista pours coffee at Waterloo
The in-house coffee bar on the ground floor of Waterloo, a new student-housing development near the University of Texas at Austin      Kristian Alveo, Provided by LV Collective

In addition to their own projects, private companies began signing more deals to manage and modernize on-campus housing for cash-strapped schools. Under this kind of arrangement, a school might lease campus land to a private developer, who would then build housing and profit off the rent payments. Or the school could choose to retain ownership of an existing dorm building but delegate the renovation and management to a company that would collect the rents. These arrangements allowed colleges to revamp their buildings without shouldering more debt.

"Student housing over the 2010s decade proved that there's a lot of resilience and stability in the industry," Whitaker told me.

The amenities arms race

The sudden popularity of private student housing also triggered a race among developers to add amenities that could be highlighted in advertising materials. Across the country, but particularly near in-demand schools in the South, companies sought to one-up each other with lavish perks. Since parents are often the ones footing the bill, Whitaker told me, many are willing to pay more to ensure their children have access to the comforts and prime locations that these buildings offer. Today, the results look more like tastefully appointed resorts than what older generations may recognize as "student housing." Near UT Austin, a cluster of newly built high-rises in an area known as West Campus embodies this trend better than perhaps anywhere else in the nation. A few blocks from Waterloo, a 19-story tower called Villas on Rio advertises "vacation-style amenities" such as a full spa and a sky lounge with sweeping views of the city. Another building, The Mark Austin, includes a tanning bed, a two-story gym, and a bowling alley.

The rooftop pool at Waterloo, a 30-story tower in Austin
The rooftop pool at Waterloo offers striking views of the Austin skyline.      Kristian Alveo, Provided by LV Collective

David Willson, a senior at UT, started his college career living in an on-campus dorm before moving to Villas on Rio for a year. To keep the cost manageable, Willson told me, he split a two-bedroom unit among four people and generally cooked meals at home. Even with his frugality, he came to realize that the prices in West Campus were "impossible to rationalize" for a college student.

"If you're coming from an on-campus dorm, then, obviously, they're a bit of an enhancement to your experience," Willson said of the off-campus amenities. "It's like, 'Oh, wow, this is such a fun, cool upgrade.' But the novelty wears off really quickly."

On the one hand, top-tier universities need more housing to match the pressure to grow their enrollments and rein in costs for students. But critics of these upscale developments say they reinforce the divide between wealthy and poor students.

"There are increasingly two UTs," Scope Crafts, the Ph.D. student, told me — one for students whose families can afford to shell out the money for housing in areas like West Campus, and another for those who are forced to live in cheaper housing far away from the classrooms. "The experience couldn't be more dramatically different between these two classes of students."

Gina Cowart, a spokesperson for American Campus Communities, which owns more than a dozen apartment buildings in West Campus, told me in an email that "ultimately, affordability challenges result from not enough supply." When asked about the cost pressures on college students, Cowart said the company offers "a variety of unit-types and price points so that students of varying financial backgrounds have access to academically-oriented communities."

The overwhelming need for cheaper housing has prompted cities, including Austin, to get creative. As a result of changes to the zoning code in 2019, developers in some parts of West Campus can now build as high as 30 stories — an increase of 125 feet — in exchange for dedicating 20% of the units to affordable housing. The first tower to reach that new limit was Waterloo, which opened last year. Half of the affordable units, all of which are studios, rent for $1,095 a month; the other half go for $818. They're indistinguishable from the other apartments, and students who rely on financial aid can apply for one of the units and get access to all the building's amenities, while paying significantly less than the going rate for a similar unit in downtown Austin.

Waterloo is the work of LV Collective, an Austin development firm that has been instrumental in reshaping West Campus. On a recent Friday morning, I met the company's CEO, David Kanne, in the building's sun-drenched lobby, which was decked out in floral wallpapers and Instagram-friendly pastels. It felt a little like a hotel from the HBO hit show "The White Lotus" — that is, if the series' guests needed to squeeze in late-night study sessions after lounging at the pool.

Tables on the ground floor of Waterloo are lined on both sides by arched nooks for additional study spaces
The ground floor of Waterloo also features ample seating for studying or socializing.      Kristian Alveo, provided by LV Collective
Kanne, who was a vocal advocate for the 2019 zoning changes, told me he believed greater housing density near campus was key to making rents more affordable for students. Basically, he argues that cities should relax height restrictions and other zoning rules and allow developers to squeeze more units into a single parcel of land, as long as they agree to add some income-restricted apartments into the mix. Kanne pointed out that because of all the new construction in West Campus, rents in the area have risen at a slower rate than in Austin as a whole. He said his company was working with local governments in other cities where it's building projects, including Gainesville, Florida, and Ann Arbor, Michigan, to apply the lessons from West Campus.

"In today's world, where construction prices have escalated and costs are going up across the board, you have to find ways to be more thoughtful, more intentional, with the spaces you have," Kanne told me.

City governments can push for only so much from the private sector, however. In some parts of Austin, including West Campus, a developer can still get a density bonus by paying a fee rather than actually delivering affordable units. And even the affordable units that do get built may not be enough to make a significant dent in overall prices. Waterloo is devoting 20% of its units to affordable housing, but because they're all studios, that translates to only 49 beds out of a total of 796 in the building — or roughly 6%.

Students get the short end of the stick

Investors in student housing have enjoyed boom times over the past decade. But for many students, the barriers to securing affordable housing have continued to mount. Even those seeking cheaper prices farther away from campus haven't seen much relief: Between 2013 and 2020, rents at conventional apartments within 3 miles of college campuses grew 30%, according to a report from the National Multifamily Housing Council, which blamed the surge on a "severe undersupply of housing of all types and at all price points."

"Much of the rent increases in purpose-built student housing result from students competing with other residents for a limited housing supply in markets where housing prices are already increasing," the report said.

Moody's Analytics similarly looked at 11 metros in which college students accounted for more than 19% of the total population and found that rents at student-housing properties grew about 3% faster, on average, than at regular apartments over the past four years. Of the seven metros in which student-housing rent growth exceeded that of regular apartments, State College, Pennsylvania, saw the widest gap, at 15 percentage points.

Tight housing supply, combined with resilient demand, has resulted in "quite an increase" in rents for many students, Lu Chen, a senior economist at Moody's Analytics, told me. And prices are still climbing: For fall 2023, year-over-year rent growth for privately owned student housing reached 8.6% when averaged across the leasing season, RealPage found. While student housing is often cheaper than market-rate rentals on an absolute basis, "neither option is a particular safe haven as housing affordability issues persist across the country," the authors of the Moody's report wrote.

Total college enrollment has been on the decline across the country over the past decade, which could put pressure on student-housing rents to fall at some schools. But the picture is mixed: In-demand, selective universities are continuing to expand their student bodies, which has squeezed the availability of school-owned beds. While total US enrollment dropped 6.5% between fall 2017 and fall 2021, enrollment at Power Five schools — those that belong to the five largest athletics conferences — rose 5.2% in the same time span, according to RealPage. Highly selective, non-Power Five schools are also reporting increases. Facing a shortage of on-campus housing, Middlebury College said it would pay some students $10,000 to take the fall semester off. The University of Tennessee, Knoxville, last year was forced to lease out rooms at a hotel 6 miles off campus, and nearly 450 students at Arizona State University started last fall's semester in hotels because of the overflow from campus. Both state schools reported record enrollments last fall.

To ease this burden, more schools are relying on partnerships with private developers instead of taking on debt to build fully owned housing. Public-private partnerships can be effective in producing housing but "may pose challenges for the construction of affordable student housing because the private entity's focus is on profits over serving students," a report from the Urban Institute said. The profit-driven goals of the private sector, while not inherently bad, differ from the accessibility-focused priorities of public institutions, Donald Cohen, the founder and executive director of In the Public Interest and a coauthor of "The Privatization of Everything," told me.

"They're just different interests," Cohen told me. "There will be times when those interests may be in line, or they may be kind of in line, or they may conflict."

This is just the beginning

There may be some short-term relief coming for students, however. Whitaker told me he expected rent growth to come down for fall 2024, to between 2.5% and 3%, as the broader apartment market cooled down. Compared with this year, when year-over-year rent increases for student housing surpassed 8%, that's a pretty significant drop. Still, that growth rate would be a little higher than pre-pandemic norms.

Longer term, there's no swell of student-housing construction on the horizon that could push rents down much further. While a historic number of apartment units are underway across the country, "student housing isn't adding as much new supply as the conventional marketplace," Whitaker told me. A lot of the high-value sites near campuses have already been built on, and construction financing is harder to come by.

Of course, supply and demand can differ starkly from campus to campus. Investors have shown particular interest in building and acquiring properties near Power Five schools and other top research institutions in the South and Southeast, where enrollments are growing and demographic trends bode well for occupancy and rent growth, Graham Sowden, the chief investment officer of the real-estate firm RREAF Holdings, said in an email. That means institutions such as UT Austin, which last year welcomed its largest-ever student body, can't afford to sit idle.

Dan Allen, the university's executive director for real-estate finance and asset management, told me the school recognized the value of living near campus: Students who live closer to classes tend to have higher GPAs and graduation rates, as well as a better overall college experience. With that in mind, UT Austin has acquired two off-campus apartment properties in the past few years and is redeveloping one of its dorms through a public-private partnership, which is set to add roughly 400 beds. Nearly 1,400 beds for graduate students are planned east of campus, across a highway. Beyond that, a working group has identified other sites on campus where the school could add another 3,500 beds over the next five to eight years, Allen said.

"Affordability of housing was an advantage for Austin years ago. It's a problem now," Allen told me. "We see the problem. We see the impact. And we're now fully focused on, 'What are the tools at our disposal to help solve for affordability, to bring our students closer to campus?'"

The broader trends squeezing students' wallets and pushing colleges toward privatization aren't going away. Student housing is no longer just a niche sector — the past few years have proved that investors are willing to bet big on the dorms of the future. The success of the industry has done little to ease the burdens for students, however. Unless schools find a way to come up with more housing at reasonable prices, students will be left searching for a lifeline.

"Ultimately, the university has a responsibility to provide housing for its students, point blank," Scope Crafts told me. "And it didn't really feel like that obligation was being met."

James Rodriguez is a senior reporter on Insider's Discourse team.