We increased rents at a rate of double than we originally intended

That was the chosen headline accompanying a press release promoting a report from international real estate adviser, Savills back in 2014 – which said that purpose built student accommodation (PBSA) produced reliable rental income flows which, although derived from short tenancies, is secured by depth and stability of demand:

Growing demand from internationally-mobile students, combined with low levels of competing supply in many world-leading university cities, is creating new opportunities for investment in premium purpose built accommodation.

It noted risks to the sector, including rising tuition fees globally, technological developments making distance learning more viable and visa restrictions on international student movements. So what was in the weigh up?

Many university cities have sufficient accommodation shortfalls to justify significant levels of investment. Growing international student numbers will secure the market for premium product.

In other words, it’s the mismatch between demand and supply that keeps prices up – and will gobble up any increase in maintenance loan that the government might implement, and more, unless universities target keeping demand below available supply.

The thing to remember is that private investors don’t have a particular interest in increasing supply beyond demand. If you’re happily selling 100 widgets at £1 each where there’s high demand, increasing supply just diminishes the margins you can make. It’s like selling bottles of Prime.

Hence the headline “Lack of supply is key for student landlord Empiric” in this morning’s Times, which brings its investment-portfolio readers the glorious news that such is the shortage of accommodation for students that one of the UK’s biggest student landlords has been able to put its rents up by double what it had hoped this year:

Empiric Student Property had originally hoped that for the current academic year, which began in September, it would be able to increase rents by about 5 per cent. Bosses said that like-for-like rental growth actually came in at 10.5 per cent. It was the fourth time since the spring that Empiric had lifted its guidance on rent increases.

This is profit – pouring into baby boomers’ pension funds – being gouged out of subsidised maintenance loans, student labour in the gig and leisure economy, and loans and wealth from international students increasingly from the Global South.

The piece says that the firm benefited from more late cancellations than usual, and so it could “squeeze more out of” those who filled rooms at the last minute:

The double-digit rent increases did not affect demand for Empiric’s halls of residence, which are 99 per cent full for the current academic year.

Meanwhile in the private off-street housing market, landlords upset that students might be able to cancel a contract on two-months notice are upset at what they regard as unfair competition:

Graham Hayward, the chief operating officer of Housing Hand said … student landlords have had to deal with legal and regulatory changes. He added that the Renters (Reform) Bill poses more challenges and does not treat landlords of houses in multiple occupation (HMOs) and purpose-built student accommodation (PBSA) equally.

There’s two ways to deal with that, of course.

In the original proposals for England, those running PBSA were to be exempted from changes putting all tenants onto rolling tenancies, the ability to cancel those tenancies on two-months’ notice, and from the need to be subject to the powers of a new national ombudsman:

We recognise… that Purpose-Built Student Accommodation cannot typically be let to non-students, and we will exempt these properties – with tenancies instead governed by the Protection from Eviction Act 1977 – so long as the provider is registered for a government-approved code.

There are 3 government approved codes: Universities UK/Guild HE Code of Practice for the Management of Student Housing, Accreditation Network UK (ANUK)/Unipol Code of Standards for Larger Residential Developments, and the ANUK/Unipol Code of Standards for Larger Developments for Student Accommodation Not Managed and Controlled by Educational Establishments.

There’s nothing wrong with the codes per se in terms of standards setting in specific and defined markets – but the idea that students wouldn’t be able to access the same kinds of redress that everyone else can access is baffling. And when it comes to contracts, on off-street housing, the government says:

We believe retaining fixed terms would unfairly lock students into contracts, meaning they could not leave if a property is poor quality, or their circumstances change. Student tenants should have the same flexibility as others.

But then it says:

PBSA is designed specifically with students in mind and caters for their needs, often with additional facilities or support services that would not be available in a standard home rented to students.

As such it appears to be arguing that students in PBSA don’t need the rights that every other student has because there’s a bunch of extra services on offer. That may well be, but it’s not clear to me that a student trapped in a crappy box room where the repairs never happen or trapped in a contract having failed the year will think “well, that’s OK, there’s a bowling alley on Floor 7 and the residence coordinators are doing a quiz night next week”.

Now that the government has signalled an intention to allow landlords to evict at the end of an academic year, the case for treating PBSA separately has gone. If this kind of student accommodation really is “purpose built”, it should respond to the real problems students have – and allow them to escape a tenancy on two-months’ notice like everyone else, and access the same ombuds that their friends will be able to access in the off-street market.

That ombuds should also have a set of dedicated rules that allow for faster processing of cases given students’ length of tenure, landlords of all stripe should be banned from taking months and months’ rent in advance (along with a subsequent ban on discriminating against international students), and universities should be required to ensure that their demand lags behind supply – so that the ability to switch and choose in this market actually works.

The CMA really does need to do a market review in this space given it is demonstrably a market that isn’t working in the interests of consumers. And given that in the future, every other landlord will only be able to put rent up once a year, all landlords – PBSA and off-street – should have to publish their rents once a year and not be able to hike rent up for a new tenant if someone leaves.