A Bubble in College Dorms?

Though many commentators have expressed skepticism over the
future of traditional higher-ed, at least one group anticipates a bright future: real-estate developers. The Wall Street Journal reports today that some of the largest developers in the United States are gobbling up land to make way for palatial student dorms. Why? As it turns out, student housing is basically recession-proof: analysts observed that in contrast to landlords for apartments and single-family homes, dorm landlords actually raised rent following the crash of the housing market. They could do so because parents and federally-backed student loans continued to cover the cost of student housing amidst the financial crisis. As developers try to minimize their risk during our sluggish recovery, student dorms represent a solid investment.

The article cites industry analysts who are concerned that some developers are overbuilding and that the supply of dorms will soon outstrip the demand. These companies, however, are unfazed by such predictions. As one developer put it, they are simply “catching up in creating supply to keep up with demand.” Given the seemingly unstoppable growth of the higher-ed industry, he may be right.

While it is true that guaranteed federal loan programs push
too many students into college and thus abet the growth of subpar institutions, there are broader effects as well. Indeed, this piece suggests that the ballooning of higher-ed is leading to unsustainable growth in certain sectors of the real-estate market. We might even say that the higher-ed bubble has spawned a smaller higher-ed housing bubble. To that end, when the former bursts – as it undoubtedly will – the latter will quickly follow.

The consequences of not reforming our higher-ed system, therefore, are growing.  The economic pain we will experience when our colleges go under will be compounded by the damage caused by subsequent decline in the real-estate market. Unless gradual change begins soon, the federally-guaranteed funds offered by consumers of higher-ed will ensnare even more sectors of our economy.