Private investment can help solve the student housing crisis – but government must step up

21 May 2024


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By Rob Waterhouse, Transactions Director

The UK is in the midst of a housing crisis. Our population is set to reach an all-time high of over 73 million by 2036, up almost 10% on 2021 levels, while the rate of housebuilding is a long behind where it should be. In recent years, construction has consistently fallen at least 170,000 units short of the 420,000 new residences that England alone needs annually between now and 2036. This is a huge problem for the UK’s residential sector, which has significantly fewer homes per capita than France, Germany, Italy, Spain or Denmark. But the situation is even worse for students, with a current shortfall of more than 350,000 purpose built student beds across the country, a gap which could grow even wider if drastic action is not taken.

This chronic undersupply of purpose-built student accommodation (PBSA) is driven by a swell of school leavers, coupled with heightened university participation rates and a surge in international students. This has led to an unprecedented demand for student housing, which is further constrained by greater location sensitivity than the wider market.

As a result, students are being forced to live up to an hour from their universities, with Manchester University students housed in Liverpool, and students at the University of the West of England in Bristol housed in Newport, Wales. Unfortunately, these incidents are far from isolated, and this supply demand imbalance has resulted in rising rents, raising concerns over affordability.    

The situation is unlikely to change quickly. As international student numbers continue to grow, and domestic UK university applications set to increase from around 522,000 now to 683,000 by the end of the decade, the race for housing will get more competitive. In turn, this will drive up prices, impacting the social mobility of students priced-out of living away from home and accessing the best courses, or making higher education unaffordable for them full stop.

Despite these pressures, we must continue to support homegrown students, while also not deterring international students who contribute £41.9 billion to the UK economy every year and play a huge role in funding our higher education system.

Our research shows that cities like Sheffield and Liverpool, where PBSA supply grew from accommodating 40% of the student population to mid-50s% over six years, experienced average rental growth of 2% per annum, compared to the typical 5-6% in areas with limited supply growth.

As a result, it’s clear that the only solution is to build more PBSA, and quickly.

The driving factors

Several factors are at play. In particular, well intentioned policy decisions designed to protect students have exacerbated the situation, making it more difficult to bring new PBSA supply online. These include scarcity of land, a requirement to provide ‘affordable’ accommodation (which more often than not only inflates the price of open market beds), taxation (such as the abolition of multiple dwelling relief leasing and an increase in stamp duty land tax), and increased construction costs, which have all created huge hurdles to development and disincentivised construction. This shortfall in PBSA delivery drives students into the traditional private rented sector, placing more pressure on the number of homes available for families and other renters.

Finding a solution

In addition to the broader issues facing development, building new PBSA comes with its own set of challenges. At the heart of it, the industry cannot increase PBSA supply on its own, and the solution needs be driven by government and policy makers.

As it stands, the approach to new development is prescriptive from a planning perspective and varies between regions. Allocating land specifically for student housing and zoning sites for PBSA close to universities can play a key role, with planning the most effective tool at the government’s disposal.  

Traditionally, universities have housed students but are now struggling to meet demand, having to carefully manage funds that should be allocated to education. This is where the private sector can work with universities to find and finance a solution, bringing their development and operating expertise to a joint venture, with the university able to retain an element of oversight.

Bringing this experience and encouraging innovation is also critical. For example, relaxing space requirements to stimulate innovation can have a far-reaching effect, recognising that students are willing to trade square footage for well designed, functional and fairly priced accommodation. We’ve seen this in a number of GSA’s markets globally, with significant learnings from our innovatively designed properties in Tokyo, one of the world’s most space constrained cities.  

The way forward

The higher education sector makes a significant contribution to the UK economy and housing our students in purpose built, affordable accommodation is a linchpin of its long-term stability. Incentivising the PBSA sector will drive increased investment, resulting in greater supply and choice of product at a range of price points, and the following are absolute priorities:

  1. Allocating development sites specifically for PBSA that is well located for universities and with access to transport links.
  2. Allowing more change of use applications to deliver more student beds – such as office conversions – as the way we use buildings is changing and we must recognise this structural shift.
  3. Encouraging high density development to maximise supply, but in return for high design standards and architecture.
  4. Encouraging innovation in building layout or configuration, rather than planning policy dictating how space should be used.
  5. Pro-actively encouraging public-private partnership through tax incentives, such as abolishing stamp duty, to facilitate projects that have long-term benefit.
  6. Removing the barriers that discourage development and make delivery more challenging. This will increase supply, and provide greater product choice, which over time will create a wider variety of price points.

If we can achieve all of this, the outlook will be better for students, universities, and cities, and we can preserve the cultural and economic benefits of the UK’s world-leading higher education sector.