Why are we handing maintenance loans to landlords?

In March, Universities Minister Chris Skidmore announced that the government would take rogue landlords in the student housing market to task.

In a speech at Wonkhe’s Secret Life of Students conference, he warned landlords to “face up to their responsibilities to provide safe, suitable and affordable accommodation to students”, and warned landlords who overcharge students for subpar accommodation that “the time is up”.

The announcement follows the coming into force of the Homes (Fitness for Human Habitation) Act 2018, which provides students and other tenants with the power to hold landlords to account for health and safety risks. Student housing charities and NUS had previously campaigned for better student housing, lobbying the government to ensure students were not being exploited by unscrupulous landlords.

The sky is a high limit

However, a larger problem remains. Despite these new, welcome measures, student housing prices remain sky-high. Two-thirds of university halls cost more than the minimum student loan. At the University of Liverpool, accommodation costs a whopping 110% of the average student loan. The National Student Accommodation Survey 2018, by student money site Save the Student, found that 44% of students struggle to pay the rent, and 45% of students say it affects their mental health (a fact which the Universities Minister acknowledged in his speech).

Averaged across the country, the same survey found, a student on the average maintenance loan would be left with just £8 to live on every week. For the poorest students on the maximum student loan for live-out students, data from Unipol’s Accommodation Costs Survey (done in collaboration with the NUS’s Vice-President Welfare, Eva Crossan Jory) reveals that 73% of this loan goes to rent.

It is absolutely incredible that so much of an average student’s maintenance loan is being paid to landlords, whether to those in the private sector or to universities which directly own student accommodation. What is particularly concerning, however, is the growth of private purpose-built student accommodation (PBSA) in the UK.

Private beds

A report by Cushman and Wakefield found that private sector beds account for over half of all purpose-built student accommodation in 2018, including beds on campus but provided by partnerships with private sector providers, compared to 2014 when universities provided two-thirds of all PBSA bed spaces. Meanwhile, the Accommodation Costs Survey, surveying providers accounting for around 64% of bed provision in the UK, saw a steady decline in the number of university-owned spaces from 220,111 in 2012/13 to 193,146 in 2018/19, (a 12.3% decrease) while private providers went from 143,255 spaces in 2012/13 to 189,691 in 2018/19 (a 32% increase). The data shows a trend towards a growth in PBSA spaces delivered by private providers, while PBSA delivered by university providers is shrinking.

The Accommodation Costs Survey highlights that one of the reasons for the growth in PBSAs is that they are “becoming a sector favoured by property investors to achieve high returns”. It is clear that taxpayer money is being shovelled into landlords’ pockets like coal into a steam engine, driving higher prices for rents and reducing the amount students have available to spend. Unless something is done about this, the price of student accommodation will hit students like a freight train.

It’s high time that the government derails the rising cost of accommodation and stops giving maintenance loans to landlords.

A new hidden cost

Student rent strikes, like those at UCL and Sussex, and tenants’ unions like ACORN are a vital part of the solution, but only part of it. Universities find it difficult to give in to the demands of striking students to cut the rent when they are beholden to onerous nomination agreements. Nomination agreements are the hidden cost of student housing; these agreements, which can run into the tens of millions of pounds, are contracts with private PBSA providers which guarantee a set rental income for these providers in return for reserving places for a university’s students. This is where a daring and radical government can step in.

The Accommodation Costs Survey already recommends that the Office for Students requires higher education institutions to have an affordability policy with meaningful commitments, applied to both its own and partnered student accommodation. It is, however, possible for government to go further and order a university regulator to clamp down on the market for private PBSA provision and severely restrict the amount that can be spent by universities on nomination agreements, a policy (which I helped draft) that was adopted by NUS at its annual Conference this year.

A new cap

A cap on nomination agreement expenditure, perhaps as a percentage of a university’s annual expenditure (or even tuition fee income or, if tuition fees are abolished, teaching grants), would kill the demand for private PBSA from universities. Private PBSA providers will no longer be able to benefit from the income guaranteed by a nomination agreement with a large, stable institution like a university and will be forced to lower the cost of nomination agreements. Universities, meanwhile, will be incentivised to directly provide housing for students rather than outsourcing it to private providers, or risk being unable to attract students (especially international students) with guaranteed accommodation.

At the same time, this doesn’t stop private PBSA providers from continuing to build private PBSA spaces. Many non-university-linked PBSAs already exist despite a lack of university guarantees and cater to wealthier students. These non-university-linked PBSAs will continue to provide an alternative for those who can afford it, which usually means a certain set of richer international students (who don’t get student loans) or home students who pay their own way rather than taking loans.

With student loans suddenly being counted heavily against the deficit, the cost of student living rising, and campaigns up and down the country to cut the rent being impeded by the massive cost of nomination agreements, it benefits almost everyone if the government decides to stop giving maintenance loans to landlords.