Opposition Leader Peter Dutton unveiled the campaign pledge in Melbourne on Sunday, promising that if elected, he will bring foreign student arrivals down by 80,000 a year - 30,000 fewer places than under Labor's caps.
The move would result in the number of new international students being cut from a high of 320,000 in 2023 to around 240,000.
"The housing situation in this country is a mess at the moment," Mr Dutton told reporters.
"I want to make sure that we can get young Australians into houses ... that's really our main priority here."
The opposition leader did not say if the coalition had modelling to show its student cap would free up houses or reduce rental pressure.
When confronted with University of Australia modelling that found each international student contributes about $72,000 to the economy a year, Mr Dutton backed the proposed cuts.
He said the international student market was lucrative for universities but Australia was an outlier compared with the domestic and international student mix in universities overseas.
"There has just been a complete racket under way over the last few years where Australians have been locked out of housing," he said.
"Yes, the G8 (Group of Eight universities) have made a lot of money … our problem is that it's been distortionary to the housing market."
Federal Immigration Minister Tony Burke and Education Minister Jason Clare described Mr Dutton's policies as "all over the place".
"The same opposition leader who spent an entire term of government opposing extra housing being built and opposed caps on student numbers now says he wants a cap on students to help with housing," they said in a joint statement on Sunday.
University and business groups also warned the proposed cuts would be akin to "taking a sledgehammer to one of the nation's biggest income generators".
Universities Australia chief executive Luke Sheehy said international students are worth more than $50 billion a year to the economy, support more than 250,000 jobs and make up less than six per cent of the national rental market.
Mr Sheehy also warned the cuts would widen the funding gap left by declining government investment in tertiary education.
"Every dollar from international students is reinvested into the university system," he said.
"Reducing that income stream will mean less support for Australian students, fewer research breakthroughs and fewer opportunities to grow the skills our economy needs.
"The real solution is more homes, not fewer students."
Student Accommodation Council executive director Torie Brown said the focus should be on building purpose-built student housing, not undermining "one of our largest export industries".
Business Council chief executive Bran Black said the caps would send the wrong signal to the market, pointing towards those imposed in Canada.
"Enrolments there are now well below the imposed cap, and so Australia following this model risks impacting our fourth-largest export," he said.
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