I can see your scenario happening. Around me, the housing market crashed just after some large condo and apartment building projects got underway. The developers dropped prices/rents, which caused the owners of smaller, older apartment buildings to drop rents by as much as 50%.
Developing in non-urban areas would be really subject to local zoning.
In any event, remove housing from the university cost - e.g. a student living at home - and you're still looking at a low of $10K per year. ($1K/class * 5 classes/semester * 2 semesters) That's not accounting for probably another $300 in miscellaneous fees. Factor in books and it could easily add another $500/semester.
You can probably find some scenarios in which the cost is lower, but $10K is really "bargain basement" nowadays in the US.
Here in Pullman, Washington, student housing is cheap and readily available just because there's so much room to expand. There's always a wheat field you can turn into an apartment complex somewhere.