The foreign-students boom is a fine thing for the Australian education industry and the overall economy. It should drive substantial investment in education – some of the urgentlyrequired and missing-in-action non-mining investment. The overall service sector is already beating iron ore as our biggest gross foreign-exchange earner, as it must to help the nation rebalance away from dependence on resources development. Such strong growth also means further urgent need for investment in student housing. The RBA submission observes that, as well as overall population growth, its composition influences housing demand. "Much of the fluctuation in population growth rates over the past decade has been driven by fluctuations in net arrivals of people on student visas," the submission states. "Recent rule changes have made it easier for students to remain in Australia after graduation, including becoming permanent residents.

"While any net immigration will boost demand for housing, the nature of that demand will depend on the life stage and circumstances of the newly arrived residents. The high fraction of students and former students in the flow of new migrants to Australia implies that the households they form will be younger than average, have lower incomes (at least initially) and be less able to purchase property (without familial assistance) than the average household already resident in Australia. "This might result in lower home ownership rates than if migration had been lower or less concentrated in student visa entry. Student migrants will also be more likely to demand housing that is close to universities, city centres and other amenities rather than detached houses on the fringe of cities." So a rise in foreign student numbers should mean a rise in demand for rental accommodation in what already are housing hotspots. And, as Exhibit B shows, the two cities feeling the housing heat most are the prime foreign student destinations: "It is also noteworthy that NSW and Victoria receive a disproportionate share of net student arrivals – more than two-thirds of the total – with projected contributions to total annual population growth of around half a percentage point, compared with 0.3 percentage points or less in other states."

By way of comparison, NSW's total population growth last year was 1.4 per cent and Victoria's 1.8 per cent. The 2008-9 student visa peak was cooled by government policy amid allegations that the system was being rorted, and with the backdrop of the GFC softening our labour market. The reworked visa system is supposed to be tighter but still attractive to foreign students in what is a highly competitive international market for their custom. The private education sector as well as public universities are actively hunting the fees. It's likely the pressure such a sharp surge in foreign student number is likely to bring on housing close to universities will result in another burst of "Look! A foreigner!" distraction. Prepare yourself for Murdoch tabloid headlines suggesting rich Asians are forcing "our kids" out of school as well housing.

Planning for and investment in relevant housing now – or preferably yesterday – could avoid that when selling education and its related lifestyle and cultural benefits is something we're good at. Instead, it looks like the sharp rise in demand for investor-supplied rental accommodation will intersect with the authorities' attempt to hose down investor activity. And while pointing out the important role investors can play – as opposed to being the source of all housing evil – Exhibit C shows that, overall, they haven't taken market share from owner-occupiers. Owner occupation has been fairly static for some decades now at about 70 per cent of the housing market. With all incentives provided by the interaction of negative gearing and concessional capital gains tax, investors have picked up the space vacated by government housing.

The split between owner-occupiers with a mortgage and those debt free has changed in recent years. Living with a mortgage is now our most common form of housing. Michael Pascoe is a BusinessDay contributing editor.