The spotlight on student housing in the UK

The student accommodation market could alleviate housing constraints in many areas throughout the UK says report by Savills.

Easing the housing crisis

With much of the national housing debate focused on a shortage of supply and the ongoing inability of housebuilders to deliver larger volumes, it is worth considering how the student accommodation market could help to ease housing constraints in major cities and towns across the country.

Student housing is an established alternative property investment class that behaves more like commercial property (yield driven investment) but can still have exposure to the housing market (direct lets). With the ability to deliver at higher densities, it has all the hallmarks of the type of housing delivery that the Government is trying to encourage through build-to-rent with the exception that it has a proven track record.

The rise of student HMOs

An overlooked element of the housing supply crisis is the role of the rapidly expanding higher education sector; according to HESA the number of full-time students in higher education grew by 540,000 between 1999 and 2012, an increase of 46%. With university halls of residence just about able to cope with the increasing numbers of first year students and private sector student accommodation operators racing to scale up, most students ended up in the private rented sector.

The growth in student numbers combined with the introduction of buy-to-let mortgages in the early 2000s and ever increasing house prices meant the role of student landlord was irresistible for many: be it an entire street or a single house for a son/daughter and their friends.

As house prices rose, equity became more important in accessing the housing market. With students moving across the country in large numbers, investors followed suit and this lead to an increase in the mobility of equity, doing its part in turning the boom into a national event.

This increased mobility of investors’ equity began to prove too much for local market participants as investors out-bid families for larger housing and young professionals for small flats in towns and cities across the country. This drove previous occupiers away in search of more affordable and less competitive housing markets and led to the formation of what some would consider to be student ‘ghettos’. Examples of high density student areas include Clifton/Redland in Bristol, Oldfield Park in Bath, Jesmond in Newcastle and Cowley in Oxford.

This situation has only worsened since the beginning of the credit crunch as the withdrawal of higher loan-to-value mortgages, growing rents and a lack of alternative investments have continued to attract investors into the student private rented market. This has been at the expense of other less equity rich potential buyers while students have also priced-out many in the private rented sector due to a willingness to over-occupy accommodation and deliver higher rental yields.