I’ve just had an email though about new “happiness-driven” student accommodation in Hoxton, London.
It’s an “exciting newly completed” scheme that “raises the bar” in terms of “best in class” student experience and welfare. There’s an “inclusive design and events programme” which seeks to “combat loneliness and encourage connection” in London, a “digital detox” space that is “integral to overall wellness”, an “in-house Project Guide” to “curate social events and update students on local activities”, and “on-going student forums”. There’s even a “vinyl bothy” equipped with a record player and locally sourced vinyl records, a “fully equipped gym and workout area” and a “communal roof terrace” with recordings taken “directly from Epping Forest” designed to help students relax and “get back to nature”.
The rent? £1,339 pcm.
Where students live matters. Four of every five students live away from home, and the type of student accommodation they live in affects their grades and their mental health. Fundamentally, it affects their finances too – in 2018 rent accounted for 73% of the maximum English loan, and hardly anyone gets that anyway.
We’ve argued before that student accommodation is having a dramatic impact on towns and cities, and complaints about studentification can easily drown out the more positive impacts that universities might have in the “civic” agenda. Problems are myriad, and solutions in short supply. Why are we – both as a sector and as a nation – seemingly incapable of developing a coherent strategy for student living?
A lovely old couple
When most people think of private student accommodation, they tend to think mostly of two types. First there’s the Houses in Multiple Occupation (HMO) landlord, a market which saw a rapid rise during the expansion of student numbers in the 90s. This “investification” model saw a dramatic rise in one-off investors accessing buy-to-let mortgages to purchase shared houses as income properties, to meet increased student housing demand.
Many in the leadership of universities, politics and journalism think they know this market – they rented their “digs” from Mr and Mrs Generic when they were students. Nice old people, who are trying to up their pension income or fund their social care. They might need a nudge now and again on that Carbon Monoxide detector, but they’re good folks.
Politicians in particular think they know this market because so many of them are HMO landlords themselves. According to Guardian research and the Register of Member’s Financial Interests, 196 MPs are currently declaring rental income. 39% of Tories are landlord MPs, 26% of SNP MPs and even 22% of Labour MPs. Nice people, see. They “get it”.
But what they don’t get is the overall shape of the market. This is no longer the couple watching Homes Under the Hammer, toddling off to an auction and “flipping” a property – it’s big business. Interest rates are at historic lows. Rents are at historic highs. Investors own groups of properties and squeeze every penny they can. Bedrooms get split into two, and lounges and dining areas get converted into sleeping space, leaving tenants with only a shared kitchen:
“Dan Burton says he “got bored” studying at the LSE and stumbled into property after subletting spare rooms to student friends in 2009. Three years later, he claims to be making a £35,000 monthly profit, with 200 sublet rooms generating an annual rent of £1.8m. He is at the forefront of the “rent-to-rent” craze which enables investors to cash in without having to put up any capital to buy a house or flat.
He takes over the rental of a three-bedroom house that is already let out, then converts the “spare” dining and lounge areas into bedrooms. He does the same with one-bed flats, subletting them as two rooms with a shared kitchen. “You can jack the rent up that way,” he reveals on PropertyInvestorAcademy.com, where he talks of the “wallet impact” of the scheme. He describes it as “arbitrage”, where “I rent a property with a view to renting it out at a higher rent”. In many cases, rent-to-renters can squeeze another £500 per month from a property, he claims.
To protect tenants, mandatory licensing of large HMOs was introduced in 2018 – it applies to any property occupied by five or more persons and local authorities can impose extra policies for other sized properties to be licensed. Meanwhile the IFS says that council spending on local services has fallen by more than a fifth since 2010 given austerity policies. Guess how effective most SUs think local licensing is as a result.
The big firms
The second type of “student digs” that people think of is Purpose Built Student Accommodation (PBSA), and more often than not they think about the big players – University Partnerships Programme (UPP), Unite Students and their ilk. These fairly traditional property companies really got going in the 2000s as universities looked to swap aging on campus properties for capital cash, and local authorities looked to shift studentification into specific areas to protect established neighbourhoods from parking pressures, noisy parties and physical deterioration.
The annual rent ratchets in the long term university partnerships, and continued expansion in the off-campus market raise major long term flags on these short term answers, but well funded corporate social responsibility work and pretty sophisticated student welfare and safety strategies tend to leave us thinking that these companies might have pricier rents, but are broadly benign. Rich international students and safety-conscious parents put students in here, it frees up space for other students and local residents, and frees up capital for labs and lecture theatres. Everyone’s a winner.
The problem is that neither of these models – which we think we know – are where the action is really at now. Take Bolton’s blaze-stricken Cube. Private Eye 1510 points out that whilst it is managed by a firm called “Urban Student Life”, its freehold belongs to a company called “Idealsite”, whose directors include Irish meat barons John and Peter Queally. In 2013 their “Dawn Fresh Foods” was found to have supplied English schools with cottage pies containing horse DNA via its UK arm, Oak Farm Foods, showing “scant regard for the public good”
But as Private Eye notes, the student “pods” within the building were sold to individual investors:
“The Land Registry lists 226 separate units sold on 250-year leases between 2014 and 2016, including to corporate owners registered in the Isle of Man, the British Virgin Islands, South Africa, the Seychelles and the US state of Delaware, as well as the UK. Several gave their address care of the solicitor arranging the purchase.
Ownership structures like this are one of the reasons that progress has been so slow in tackling combustible cladding on privately owned high-rise blocks. The Ministry of Housing, Communities and Local Government boasts of “£600m to fund fully the remediation of unsafe ACM cladding”, but the rules for applying to the fund say applications must be signed by all the leaseholders in a building. Unsurprisingly, as of September, 54 privately owned student residential towers in England remain clad in ACM.
Bowling alleys and a concierge
This is the model that’s now rife across the country. Newspapers are fascinated by it. Developers build (or convert) student rental housing and sell individual units as investment properties, while assuming responsibility for appointing a glossy firm to carry out property management. “Pods” are marketed as “luxury” to students and their parents, but the real luxury is for developers – it’s much more profitable than building first and then selling, and unlike the generic “condo” market, units are designed to be rented from the outset – purchasers are buying access to an expected income stream rather than a home:
“The opportunity in this sector is ‘modern student apartment buildings near campuses that include amenities … as well as parent-friendly touches such as ubiquitous security cameras’ … offering ‘premium amenities including fitness and weight training rooms, a theatre, a games room, a lounge, a study room, CCTV coverage, underground parking, and onsite staff’… today’s generation is ‘sophisticated’, demanding ‘advanced technology, private baths, and resort-style facilities and services’. .. students get ‘condo-quality units … and a host of programming from yoga classes to animal-petting events’.
In part, luxury branding and security are meant to assuage parents’ concerns while targeting their wealth… strategy assumes that ‘parents generally pay their kids’ rents’… One broker was frank about the business model: ‘Mom and Dad get shaken down to pay more rent because the kid wants a better place closer to the school, right?’. Regardless of who pays, this ‘luxury’ housing is a freshened-up version of lowcost, small, shared multi-family housing, and its rebranding allows financialized landlords to define a market and charge far more than students would otherwise be paying.
It all looks lovely on the animated fly-throughs, but this dominance of studios could well be a problem. The cinema room won’t help when the student is isolated in a studio that holds ten, particularly if the fire door is locked.
What’s most interesting about this new market is what’s driving it. In their paper on PBSA in Canada, Nick Revington and Martine August argue that it’s not so much student numbers or student demand driving this market, but investor demand for new types of financial assets. The “over-accumulation of capital” needs new avenues for profitable investment, and finance “lubricates” the switching of that capital into property. Investors – detached emotionally and spatially from their portfolio of pods – are interested not in education, or place, or the student experience – but profits.
Developers hunt for an alternative source of financing to the banks, and retail investors hunt for high returns on their savings. Demand from parents for “safety”, “luxury” and campus proximity facilitates that demand, and permitted development routes (which allow for allow for swift conversion of offices into student accommodation of the cheapest type – 20m2 studios rather than the 37m2 flats you’d have to build if it was “proper” housing) smoothes it. Even if a council has thought about this in their local plan, the regs mean they can’t stop it. We might all be for the re-use of redundant offices – but not if the conversions make them worse.
All of this is why rents don’t go down when supply shifts up – even in places like Cardiff and Plymouth which look like they’ve hit oversupply. Financiers have literally “made” the market.
Google “student accommodation” and “investment”, and it’s all there to see. “Invest in the UK’s No.1 Asset Class”, says Theme Student. “Fully-managed with 7.5% assured yield for 5 years”. Or take a look at RWInvest. “Students in the UK… favour the luxury aspect of living in private studio apartments that are close to their university campus and come complete with amenities like high-speed internet… PBSA is now the most superior option for anyone looking to invest in student buy to let”. “The new style of private halls”, says Sterling Woodrow, “can almost be considered recession-proof… people are not going to stop going to university during a recession… if there are fewer jobs available and therefore more competition, school-leavers are more likely to go down the path of considering a course of study”. Unlike the OBR (and, apparently, the Labour Party), they’ve read the growth estimates, too. “The fact is that as the UK population increases more children are born and therefore there will be an increasing number of students as the population continues to rise”.
It’s not all good news. Earlier this year a £100m scheme run on this basis at 19 UK sites, including Stoke, Huddersfield, Bradford and Leicester, collapsed. The FT reported that over 1,000 investors bought rooms on 250-year leases for £50,000 to £75,000, many of them after seeing adverts on Facebook, and were offered guaranteed returns of 8-12 per cent for 10 years. Investors received rent from a company that in turn sub-letted the rooms out to students. But as of February, only half of the rooms were filled, and the intermediary company is currently in administration. Over in Huddersfield, West Yorkshire Fire Service issued a prohibition notice to Kingfisher Court and dozens of students were evicted. The company behind it – owned by Stuart Day, former chairman of Bury Football Club – had called in administrators.
The bubble will burst eventually, and it’s students that will pay – whilst in the meantime, their lifetime commitment to repay the maintenance loan funding it gets converted into balance sheets assets for others.
Mind the gap
As the sector gears up for what its Finance Directors hope will be expansion, we need a proper strategy here – that protects and drives the interests of students and education – but the lack of knowledge and understanding in this area is astounding. We are told that when the Competition and Markets Authority ran its inquiry into the Unite Group / Liberty Living merger, officials were wide-eyed at “discovering” a market they didn’t even know existed.
Phillip Augar’s Post-18 review of education and funding carries remarkable detail and modelling on where half the student debt goes – demanding that universities squeeze more out of less in exchange for the taxpayer subsidy. Meanwhile its meagre passages on the other half of student debt – with all the risks and impacts it carries – merely call for more research. Where’s the VFM strategy on student housing, Phil?
In Government, the Department for Education has long regarded student housing as a Ministry of Housing, Communities & Local Government problem. MHCLG on the other hand has tended to regard it as a tiny subset of a bigger housing crisis – and to some extent, in conjunction with the local authorities it works with, a solution to wider issues of space pressures in cities. Chris Skidmore’s belated round table on the issue – which actually got some MHCLG officials in the room – came too late for the election, and of course the Conservative manifesto is silent. And naturally, neither the Treasury nor the Financial Conduct Authority were anywhere to be seen.
To be fair, Skidmore did use our “Secret Life of Students” event back in March to appropriate for students the coming into force of the MHCLG Homes (Fitness for Human Habitation) Act 2018. In theory it ensures that homes are safe, healthy and free from things that could cause serious harm – but just like student “consumer” rights more generally, its provisions are hugely difficult for a tenant to enforce. In our folklore model of student advocacy, universities fund SUs to get their issues resolved – but a maxed out SU advice centre helping a student to write a narky letter to a local HMO landlord won’t cut it in the new world. Surely universities should be funding tenant’s unions – which would benefit both their own students and the local residents they claim to have civic responsibilities to?
Labour’s extensive housing offering is also silent on student accommodation. Rent controls and tenant’s unions would help students – but something much more fundamental is required for this new kind of PBSA. The justifications for Labour’s proposed nationalisation programme – shifting the balance of interests away from investment finance on key public services – would all apply to student accommodation. We might ask why it is more interested in putting students’ broadband connections into public ownership rather than the places where thousands of students live.
Gold, silver, bronze
As demand ticks back up in the student “market”, we desperately need a proper plan for where they’re all going to live. We need to think about how much they’ll pay, and how safe it will be. We’ve been sleepwalking into a crisis, and capital has been working as it does while we’ve been asleep. But this stuff matters. Even if we set aside the impact on communities, or the safety issues, or the value for money questions – student accommodation beyond the first year has long passed from being a “leveller” to a segregator. We need to think about all of this – and take responsibility for it – in the context of the student experience.
Right now, well off students are hived away in gated, low risk high profit blocks with careers services and extra counsellors. In fact in plenty we’ve seen, the rent rises as you go up the building – students pay more simply for being at a higher altitude. The high life indeed. Those from families on middle incomes struggle away in dangerous HMO properties and “investment opportunity” blocks that offer the illusion of luxury to them and their parents, but offer nothing of the sort.
Meanwhile, if they can find a course locally, poorer students commute in and end up with worse outcomes than everyone else. Any discussion of social mobility, access and participation or even student wellbeing that is silent on this deep social segregation is reckless, distorted and laughably incomplete.
But we also need to both know and think about what it is that we cause in our communities – or at least facilitate. We are now, as a sector, too big (and the state too small) to just hope that others will take responsibility for things, and too intertwined with the rest of society to have a lobbying effort focussed on universities exclusively. We’ve started to get this when it comes to student mental health and the NHS, or student harassment and the Police. We really do need to do the same on student housing – before it all gets much, much worse.