The Student Rental Market
In the property crowdfunding market, investors have a huge range of property types to choose from. One property type that has always divided opinion is student property. Historically, some people have chosen to steer clear citing the propensity for students to damage fixtures and fittings, and the intense management needed, as not worth the headache. But with the recent staggered removal of income tax relief on mortgage interest, and higher transaction costs from a stamp duty surcharge on buy to let, the government has firmly put the brakes on the market.
Now more people are turning to student property to get the returns that they desire. With that in mind, what are the underlying fundamentals of the student market and what is in store with Brexit on the horizon?
The Current Student Landscape
Increasing student numbers means more demand for accommodation
Demand for student property is on the up due to an increase in student numbers. When you look at full-time undergraduate numbers (the largest group of students who will be renting), you can see very healthy growth. There was a small drop after the introduction of £9,000 tuition fees but numbers have now recovered and there are more full-time undergraduates than before the tuition fee hike
Part-time student numbers have seen the largest contraction but the very nature of these students means they do not demand traditional student accommodation. Therefore any drop in part-time student numbers is not as keenly felt in the student rental marketplace. This is also backed up by research conducted by Countrywide estate agents who found that between 2011 and 2016, the number of homes lived in wholly by students — excluding halls of residence or big blocks of student accommodation — has risen by 11,000.
Restricted supply of accommodation due to geographical demands
A significant proportion of undergraduate students move away from home to study. This huge migration of students would put pressure on housing stock anywhere, but when you consider that students tend to congregate in very specific areas you can see why competition is fierce. Inelasticity of supply has led to houses and flats in those areas commanding a premium. With student housing, landlords can typically achieve a yield that is 2 or 3 per cent higher than when renting a similar-sized home to a family in the same city but in a non-student area. Some of these suburbs have no space for new development so supply will remain limited and only a seismic shift in students attitudes to a given area will stop the yearly influx that keeps demands high.
Overseas students and changes in demand
The creation of new wealth in Asia today has fuelled the international student market in the UK. Britain boasts some of the world’s best universities, with six ranked in the top 25 globally. More Asian students have been seeking an English-language education and this doesn’t show many signs of slowing down. The growth in the number of overseas students coming from China has been growing rapidly as they seek degrees from these highly regarded establishments. The only significant drop has been in EU students. This drop happened after the introduction of higher tuition fees and was not due to Brexit, which we will discuss later.