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Privatized University Housing: An American P3 Success Story

By Chris Hamel and Michael Baird | March 7, 2016

 

While Washington policy experts ponder how best to advance Public-Private Partnerships (P3) as a solution to the underfunding of U.S. infrastructure needs, they should look no further than to colleges and universities for a true American success story.

 

In recent years, privatized university housing has emerged as an important alternative by which higher education institutions use P3 financing to build new student housing capacity. Since 2010, over 64,000 new beds on more than 100 different campuses across the country have been financed, built and are being maintained by the private sector.

 

By way of background, P3 is a financing technique that has emerged in Western economies as a way for the private sector to provide public infrastructure. It can take various forms, but in its broadest application involves a private sector sponsor contracting for a fee with a governmental entity to finance, construct, operate, and maintain a given piece of public infrastructure such as a toll road or a bridge that remains under governmental ownership. Proponents point to various private sector efficiencies as one of the technique’s advantages.

 

The Obama Administration and many in the think tank world are active promoters of P3, and this approach is often positioned as an alternative to the U.S. municipal bond market that historically has provided about 75% of our country’s infrastructure financing. This market is unique to the U.S. and it remains a primary reason that the P3 model has not caught on here with the same speed as it has in other countries. To date, P3 has only provided about 1% of infrastructure financing in the last 25 years.

 

So why has P3 in the privatized, on-campus university housing sector been so successful? There are unique characteristics of this sector that allow for P3 and the municipal market to work well together and provide a better overall solution than if a transaction was executed purely through one financing technique or the other. Said another way, convergence of the two markets (municipal and P3) delivers a better result.

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