Universities and colleges have brought our communities higher education, higher skills, higher-paying jobs.
And now, higher rent costs.
Western University economist Mike Moffatt, who spends a lot of time studying population and labour migration in Ontario, says the massive inflow of international students to postsecondary programs is a major driver of soaring residential rents in many of the province’s communities.
In a Twitter thread Friday, Dr. Moffatt argues that foreign students – which have become a critical source of tuition revenue to many cash-strapped schools – are contributing in a big way to population growth and rental demand, and their impact on prices is apparent in the rental statistics.
To be clear, Dr. Moffatt has no problem with the students. He blames the universities and colleges. They have embraced a cash cow, without spending the necessary money to put a roof over its head.
“We have seen enrolment go up substantially since about 2015 … but colleges and universities have barely built any student residences in the last 10 to 15 years,” Dr. Moffatt said in an interview Friday.
“The students are the biggest victims,” he said. “They’re having to move to college and university towns with chronic housing shortages.”
While this is a serious real-world problem, it’s also a case study in the concept that economists call “negative externality.” That’s when someone produces or consumes a good or service, but doesn’t pay for all the costs of producing it. Instead, those costs are imposed on someone else, external to the transaction.
As my old economics professor at Western, John Palmer, used to say, “There’s no such thing as a free lunch.” It might be free to me, but someone, somewhere, is paying my bill.
In this case, there’s no such thing as getting tuition revenue from tens of thousands of international students without having to provide housing for them. The universities and colleges are just making someone else do it.
That amounts to an external cost imposed on the surrounding communities – in the form of tight housing markets and rising prices both to rent and to buy – as off-campus residential properties of all kinds have, by necessity, become part of the supply solution to meet all that imported demand.
Dr. Moffatt points to the economic numbers to make his case.
First, the data show that the inflow of “non-permanent residents” to Canada has grown dramatically over the past several years. Last year, net growth in the non-permanent category (608,000) outpaced permanent immigrants (437,000) as the country’s biggest source of population growth. Student permits make up the bulk of that growth.
Dr. Moffatt noted that many of the biggest rent increases in the country are in communities with large student populations. For example, London, Ont. – where Western is located – has had a 23-per-cent surge in average rents in the past year. The data also show that most of that increase came just before the start of the academic year last fall – the same time that the numbers of incoming non-permanent residents also swelled, reflecting student arrivals.
“Heck of a coincidence, right?” Dr. Moffatt tweeted.
“Colleges and universities have decided to plug budgetary holes by bringing in international students, but the financial costs of doing so is largely borne by the housing market, and not borne by the colleges and universities themselves,” he said in the interview.
He gets why the schools have aggressively pursued international students. Many of them have faced severe budget pressures in recent years. In Ontario, provincial government funding had been stalled for years – failing to keep up with inflation – even before the Ford government slashed and then froze tuition fees for domestic students. Postsecondary institutions haven’t had many other choices but to turn to international students to meet their revenue needs.
Still, Dr. Moffatt said, that’s no excuse to shirk the need to house that revenue source.
“Yes, obviously, colleges and universities have had cost pressures, have had issues around funding,” Dr. Moffatt said. “But that doesn’t absolve them from being socially responsible for the communities in which they operate.”
Clearly, there’s a need for schools to step up and start building more student residence space. But beyond housing supply, there is also a question of government placing some better controls on the demand side – the flow of students into the country.
Dr. Moffatt noted that unlike the Canadian immigration program, which has specific annual targets, the federal government places no cap on the number of student visas it issues on behalf of postsecondary programs each year. The pressure on communities and housing markets suggests that this has to change.
“Perhaps that’s something we need to consider. We want more international students, but can we grow that at a predictable pace to allow for the building of homes?” he said. “Right now, communities might not know how many students are coming in until about six weeks before school starts.”
“It’s just the Wild West. And it’s not working at the community level.”