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After the stress of exams, UK school-leavers are now facing the struggle of finding affordable rental property as they prepare to go to university.
Although rental quality has improved over the years, the demand for affordable student housing reflects a wider crisis in the sector. Unite Group, a London-listed university accommodation business, has reported that the need for new student rooms is at its highest level in several years. The charity Unipol has also warned of a chronic student housing shortage in certain cities.
Unfortunately, the high demand for student housing is unlikely to lead to increased supply. Unite’s purpose-built student blocks, which consist of 70,000 beds, were almost fully booked by July. In a normal year, around 10% of these beds would still be available to rent.
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The increase in student numbers is driven by demographics and near-record application rates. Official forecasts predict a 19% increase in the number of UK 18-year-olds by 2030. Overseas students, particularly those pursuing postgraduate degrees, also contribute to the high demand.
The insufficient supply of student housing is partly due to challenges in the wider buy-to-let sector. Landlords are selling properties due to higher interest rates and planned regulatory reforms.
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Developers of purpose-built student accommodation are also building fewer properties. The PBSA sector, which currently provides around 700,000 beds, used to add over 30,000 student beds each year until 2020. Construction slowed down during the pandemic, and financing and supply chain costs have become barriers. It is expected that the number of new student beds will decrease to 12,000-15,000 over the next few years.
According to Cushman & Wakefield, the build costs for student accommodation developers amount to around £95,000 per en suite room. This is a significant increase from £60,000-£65,000 in just a few years. To ensure profitability, developers need to charge rents of £185 or more per room per week, which often exceeds the wider rental prices already at record levels in most locations, except for major cities.
There have already been reports of students starting university in hotels or living 30 miles away from their lecture halls. Some may even be forced to continue living with their parents. Unless there is a significant decrease in the costs for developers, incoming students may find themselves without available dormitory rooms.
The Lex team would like to hear your thoughts on the UK’s student accommodation crisis. Please leave your comments below.
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