The B.C. government announced it will put up money for a massive new development at the University of Victoria that includes hundreds of housing units for students.

Premier John Horgan made the announcement at UVic Thursday morning, saying it would free up rental housing in a city with one of the lowest vacancy rates in the province.

"Students have enough stress in their lives without having to worry about finding a place to live they can afford," Horgan said in a statement. "We're moving forward on our commitment to students at UVic and throughout the province to deliver comfortable and affordable housing in the heart of where they study."

The project, estimated to cost $201-million, will expand on-campus housing at UVic by 25 per cent with the addition of two new buildings that will accommodate 782 students.

A new dining hall and multi-purpose space will also be built. The new structures replace three aging buildings and will result in a net gain of 620 student homes.

"For years, we've been calling on the government to make education more accessible by helping students who have few options for affordable housing in a community with low rental availability and a high cost of living," said Ainsley Kerr of the UVic Students' Society. "This announcement will help UVic students succeed by having a stable working environment and the UVSS will continue to work with the university and the Province to find innovative solutions to student housing issues."

Units will be more affordable than market housing, according to the province, and include amenities like study spaces, an Indigenous student lounge, communal social spaces, laundry facilities and secure indoor bike storage.

They will be constructed to the Passive House standard, which the province called the world's leading standard for energy-efficient construction – estimated to use 75 per cent less energy for heating and cooling.

It comes amid a rental housing crunch in the Capital Region. Horgan said building new homes for students will essentially free up housing in surrounding communities for other renters, something lauded by newly elected Saanich Mayor Fred Haynes.

"This is a great project, not only for UVic but also for the community of Saanich," Haynes said. "The university will have new homes for their students and there will be more affordable housing freed up in the local neighbourhoods."

The announcement also prompted a statement from Victoria Mayor Lisa Helps, who said it would also ease the rental crisis in her city.

"I applaud the Province of BC and UVIC for making this investment," said Helps. "New student housing will help take some of the pressure off the general rental market in Victoria. This is another important piece to solving the affordable housing crisis in our city and across the region."

The province is pumping $123-million into the project, which includes $98-million from the BC Student Housing Loan Program and $25-million from the ministry's capital budget, the latter of which will cover half the cost of the new dining hall.

The University of Victoria Foundation is providing up to $45-million for the new buildings.

Construction on the first building is expected to start in 2020, and work on the second building will get going in 2022.