55BloombergBusinessweek August 19, 2019
I
n 2015,SabrinaMartinezgotintothe
UniversityofTexasatAustin,theUT
system’sflagshipcampusanditsmost
selective.Shewasthrilled.Herparents,
notsomuch.“Theywerejustlike‘Nope.
Youcan’taffordit.Youshouldn’tgo.
Loansareridiculous.’” Theyencouraged
hertogotothecheaperUniversityof
TexasatElPaso,towhichshecouldcom-
mutewhilelivingathome.“ButI clicked
‘accept’onmyadmissionanyway,”she
says,figuringthatattendingUTAustin’s
laudedjournalismschoolwouldleadto
moreinternshipopportunitiesand,ulti-
mately,a jobaftershegraduated.
Martinez’sparentsaredivorced.Her
motherworksasa teacherandreceives
child supportfrom her father, who
worksintheoilfieldsofWestTexas.Her
familyalwayshadmoneyfornecessities,
Martinezsays,butwithhertwoyounger
siblingstotakecareof,thereusually
wasn’tmuchleftoverforluxuries.That
meantpayingforcollegefellsquarelyon
hershoulders.
Evenwithstudentaid,a $5,000-a-
yearscholarship,andsomeincomefrom
a part-timejoboncampus,Martinezhas
hadtotakeonfarmoredebtthanshe
expected.She’shardlyalone:Average
studentdebthasclimbedfromabout
$11,000in 1990 toaround$35,000in
2018.Thecostoftuitionatpubliccolleges
roughlytripledinthattime,to$10,270,
butthat’sfarfromtheonly expense
forcingstudentstotakeon loans.In
a 2015analysis,theU.S. Department
ofHousing andUrbanDevelopment
foundthat“housingcosts[are]likelya
significantportion”ofindividualstudent
debt.AtUTAustin,themedianannual
rentintheneighborhoodsclosestto
campusexceeds the annual in-state
tuition—about$11,000forthecoming
academicyear—evenwithoutincluding
othercostssuchasutilitiesandgroceries.
Martinezchosetoliveina dormher
freshmanyearata totalcostofmore
than$10,000,whichincludeda meal
plan.Asatmanypublicuniversities,
UTAustin’s enrollment vastly exceeds
its housing capacity, so most students
opt to live off campus after their first
year. The closest student neighbor-
hood is West University—West Campus
to locals—which wouldhave beena
10-minuteorsowalk frommost of
Martinez’sclasses.In2017,theyearshe
wasapartmenthunting,mediangross
rent,whichincludesthecostofutilities,
inWestCampuswasabout$1,200per
month,accordingtoU.S.CensusBureau
data,farmorethanshecouldafford.
Instead,shemovedtoEastRiverside,
whichis fartherfromcampusbutwhere
themediangrossrentwasa compara-
tivelyreasonable$862permonth.
UTAustinsaysit doesn’tkeepexact
numbers on students living inEast
Riverside,butit’spopularenoughthat
thecityrunsa directbusroutebetween
theneighborhoodandtheuniversity.
Thebusoperator,CapitalMetro,esti-
matesthatmorethan2,400UTstudents
liveintheneighborhood.Ona goodday,
Martinez’scommutetocampusis about
25 minutes,butduringrushhourit can
takeanhourormore.“Around 5 p.m.
is when people usually get out of class,
and that’s a heavy time for traffic,” she
explains one morning as the bus crawls
along a clogged I-35. “You can never find
a seat, so people usually fight to be first
on the bus. It’s pretty rough.”
Median gross rents in West Campus
in 2017 were 37% higher than in 2009,
a sharp increase compared with East
Riverside, where the rents were roughly
flat for the period. From 2000 to 2017,
Austin’s population climbed about 45%,
according to the Census Bureau and the
city, as demand for housing contributed
to a 72% surge in average rents. West
Campus median gross rents outpaced
the city as a whole, rising more than 87%
in the same period.
Population growth is almost cer-
tainly part of that increase. But the
dramatic rise in rents also coincides
with national developers starting to
eye the areas around public univer-
sities as a growth market. Real estate
companies bulldoze aging buildings to
put up the kinds of amenity-rich, lux-
ury apartments that might appeal to
upper-middle-class parents looking
for a safe, comfortable place for their
student to live but which students
from lower-income families such as
Martinez’s couldn’t possibly afford.What counts as “luxury” is subjec-
tive, but these kinds of developments
offer a standard of living largely unseen
by students in previous decades. “The
rise of luxury student housing can have
perverse, unintended consequences,”
says Thomas Laidley, a doctoral candi-
date in New York University’s sociology
department who’s researched urban
stratification and inequality. These
pricey apartments force less wealthy
students farther away from campus,
and longer commutes can hurt students’
grades and chances to graduate, accord-
ing to research cited by HUD.
The result is to divide student pop-
ulations along lines defined by family
wealth.Thosewhofallonthewrong
sidefeelthedifference.“Iwouldprob-
ably go to more events on campus or
join more groups, because I wouldn’t
havetorushhomeortakeanhourlong
busridehome,”saysMartinez,who
estimates she’ll graduate with $75,000
in student debt. “If there’s an event at 7,
and I get off at 5, I’m not going to want
to wait two hours. I feel cut off from the
UT experience.”T
he phenomenon isn’t limited to
Austin. The areas around the
University of Michigan in Ann
Arbor, the University of Minnesota, Twin
Cities, and Colorado State University
at Fort Collins have all seen luxury
options proliferate and affordable ones
disappear.Oftenthecompaniesbehind
themhavebeenstructuredasrealestate
investment trusts, or REITs—properties
or mortgages that are bundled and sold
in shares to investors, reducing the
developer’s corporate tax burden.
The pioneer of building luxury
student housing at scale is Bill Bayless,
co-founder and chief executive officer
of American Campus Communities.
ACC is headquartered in Austin, about
a 40-minute drive from West Campus,
where it owns more than a dozen
properties.WhenBaylessstartedhis
companyin1993,hismodelseemed
risky.Bythen-conventional wisdom,
college students were fickle and
irresponsible and guaranteed to leave
in four years, give or take, forcing