The United Kingdom Student housing market is the second largest in the world. This market has expanded rapidly since the turn of the Millennium to the point where investment into UK student housing exceeded that into the US for the first time in 2013. It even maintained momentum during the recession, as cash-strapped universities partnered with private providers to upgrade their ageing stock.
Commercial purpose-built student accommodation (PBSA) has expanded by 63% to be the fastest growing sector. Major players such as UNITE, DIGS and University Partnerships Programme (UPP) have carved niches which offer quality off and on-campus products – together they control 42% of the total private supply – but these are not traded in REIT form as they might be in the US. Furthermore, these developers focus more on the bulk of the market demand and not the more affluent and selective inbound International student body.
The growth of the UK sector has been driven by the consolidation of portfolios, funded by cross border investment, which accounted for 72% of investment activity by volume in 2013. The majority of this capital (54%) originated from the US, with Asia and EMEA equally sharing the rest.
Despite the large uplift in investment, since 2005 there has only been a 13% increase in student housing supply, resulting in a critical under-supply in all core markets as student population has increased at in excess of 70% during the same period. UCAS shows that 580,000 applied to study at Higher Education level in 2014, compared with only 340,000 in 2005 (Higher Education Funding Council for England).
Universities in the UK guarantee accommodation for first year students. The inability of UK institutions to accommodate eligible UK-domiciled students in the 2005-2010 period resulted in, on average, 130,000 students not receiving an offer.
Additional pressure is applied by applications from overseas students – the UK is the second most popular country behind the US, with 11% of the world’s foreign students.
Despite the country’s small size, it is also home to 49 of the Times Top 400 universities (12%), including some of the highest ranking – Oxford and Cambridge rank third and fifth, respectively.
The UK has more than 60 ‘student cities’, defined as having more than 10,000 university students that make up over 5% of the local population. London has the largest, with over 300,000 students, followed by Leeds and Birmingham with around 65,000 each.
Manchester and Liverpool have the highest proportion of students in commercial purpose-built student accommodation (PBSA), while cities like Oxford, Brighton, Huddersfield and York have next to no students in PBSA accommodation. London has the highest number of students that are unable to access either PBSA or university accommodation.
An imbalance between supply and demand
The attraction of the student accommodation sector has been fuelled by structural under-supply in the key markets, which in turn is a result of record numbers entering higher education.
In the UK, the Organisation for Economic Cooperation and Development (OECD) reports that almost half of young people have been involved in tertiary education. The UK now has the fifth highest levels of higher education participation among developed nations, having ranked only 16th in 2000). It means that only South Korea, Japan, Canada and the Republic of Ireland have higher tertiary participation than the UK among OECD nations.
Growing domestic university participation has also coincided with a rapid rise in the number of international students coming to the country’s world-renowned universities to study.
Nationally, the Higher Education Statistics Agency (HESA) shows student numbers have grown 7% across both undergraduates and international post-graduates, with the UK student population now hitting in excess of 2.3 million, or around 3.55% of the UK population.
However, the level of student property has failed to keep pace with the rise in student numbers since 2000. Combined with the housing deficit experienced in the UK over the last few years, students, more than anyone else, are feeling the effects of the chronic under-supply of bespoke housing.
Article 4 Directive
Over half of UK students live in Homes in Multiple Occupancy (or HiMO properties). These are single family residences that are reformed for multiple occupant rentals. As a consequence of the so-called ‘studentification’ of large urban tracks, and the subsequent complaints of ‘ghost towns’ during non-term times, Local Government approved the Article 4 Directive of the Local Planning Act.
The implementation of Article 4 has led to tough new planning rules as well as stiff penalties on landlords for breaching these rules. The Article 4 Directive is used to take away the existing permitted right to turn a single-occupancy property into a HiMO without planning consent and is intended solely as a means of controlling the spread of family home student housing and other HiMO usages. Whilst properties that are currently used for student housing will be exempt, councils are being guided to refuse new applications in order to rebalance the community. The net effect of this will be the further limiting of expansion of student accommodation.
The rule is also aimed at existing landlords; should a current HiMO be rented to a single occupant at any time, the property will immediately be required to apply under the new legislation and run the subsequent risk of rejection.
The Directive is already in effect in nearly 30 UK Councils, with the likes of Oxford, Leeds, Manchester and Leicester amongst those most vigorously applying it.