Troubled times ahead but don’t write off universities yet

Universities have faced many a crisis before and will eventually thrive in a post-COVID world.

Australian universities will have a few lean years ahead, but the sheer force of global demographic trends will lead to further growth in the future

The new funding reforms of the university sector are hotly deb­ated — rightly so, as higher education is a vital sector for the Australian economy and deserves to be scrutinised by the wider public.

In 1982 only 8 per cent of women aged 25 to 34 and 13 per cent of their male counterparts had earned a university level degree. Since 1994 more women than men hold university degrees. Today one in two women and one in three men will earn a bachelor’s degree.

The reason for this boom in higher education is simple. A growing share of jobs now requires academic credentials. Between the 2011 and 2016 censuses, almost half of the net new jobs added to the economy required university level education. This can be viewed as the inflation of university education. Back in the 1980s and 90s a degree made you stand out. Not so much today.

Yet more high school graduates than ever want to go to university. Bachelor’s degrees are the new normal. A degree just became another must-have. It remains to be seen if a pricing incentive will be enough to channel students into specific degrees.

A complete overhaul of the higher education financing model is necessary anyway. The sector relies heavily on high international student fees to subsidise local students’ degrees. Booming international enrolments allowed the government to cut back on uni funding. With fewer government dollars, the unis must attract more international students. Circular logic at its best.

Can this funding model survive a few years with lower international student enrolments? How bad will the COVID-19 related decline in enrolments be?

In the short term the outlook for international enrolments is ­indeed bleak. Australia won’t ­accommodate anywhere near the same number of international students in the next few years.

This means universities will miss out on a lot of money and the national economy will be weakened. Does that mean international education in Australia is doomed?

Absolutely not. Demand for high-quality English-speaking education will eventually surpass pre-corona numbers. Global economies will continue to make the transition towards more knowledge-heavy jobs. University education, especially from top-tier English-speaking universities, will continue to function as the entry ticket to the best-paying jobs. Australia is home to several such universities.

We don’t know how long the recovery of the sector will take. Maybe there will be a vaccine by mid-next year and enrolments will be up to pre-corona levels for the spring semester.

Maybe recovery will take longer and be more gradual.

During the global financial crisis international enrolments also suffered. We saw three years of falling enrolment figures, followed by a three-year recovery. Following this logic, international student numbers won’t return to pre-corona levels before 2026.

The next generation of students belongs to Gen Z (born 2000 to 2017). Compared with the large millennial generation (born 1982 to 1999) Gen Z is small in numbers.

A small generation following a big generation in times of lower international enrolments is terrible news for universities.

There simply won’t be as many undergraduate students available. Adjusting official 2030 population forecasts by the Australian Bureau of Statistics for COVID-19, we see that relative to last year fewer people aged 22 to 28 will live in Australia. This age cohort makes up half of all university enrolments.

Regardless of US-China trade wars, pandemics or other calamities, the trend towards more knowledge-intense jobs requiring university education will continue in the long run.

A positive long-term outlook, of course, doesn’t solve any short-term problems for Australian universities. With significantly lower international student enrolments, universities must fill big budget holes. Universities will react by doubling down on traditional postgraduate education (especially master of business administration) and introduce more executive short courses.

Considering the importance of lifelong learning and a relatively small generation (Gen Z) of undergraduates, this is a smart move. As a result, the student profile in Australian universities will shift in favour of older students. More fancy lattes and less cheap beer on campus.

If the total number of univer­sity students in Australia falls, the smallest and least prestigious institutions are most at risk. Students seek out the university with the best reputation, as this will be most attractive to future employers. This means the biggest unis will experience (in relative terms) the least impact while some small institutions will be affected heavily.

The overhaul of the higher education sector also reaches the property sector. Many of the small institutions that might go bust own well-positioned property that long has been eyed by the big universities. The next few years provide plenty of opportunities for the biggest universities to increase their footprint with relatively cheap assets entering the market. The big players will become even bigger and even more important.

International students tend to move into purpose-built student accommodation for their initial housing when arriving in Australia. Students and their parents prefer this housing option as it can be booked comfortably over the internet. Having your 18-year-old baby fly the nest is scary enough, so parents are glad to know that housing is secured before arrival in Australia. Purpose-built student housing and residential colleges are the only housing options that can be booked remotely for international students.

It’s hard to imagine that all student accommodation providers will come out of the lockdown unharmed. At least some providers will have to sell assets. Since most of our universities are centrally ­located in our largest cities, this points to a further temporary weakening of the inner-city suburbs in the near future.

There is no structural problem with the higher education industry. As millions of people in Asia push themselves out of poverty into the global middle class every year, the demand for higher education will continue to grow.

Australian universities will have a few lean years ahead, but the sheer force of global demographic trends will lead to further growth in the future. Betting against the university sector would be a big mistake.

Simon Kuestenmacher is co-founder of The Demographics Group.