Investing in Student Accommodation: How Landlords Can Benefit From the Shortage
Attention landlords! Are you looking for a new investment opportunity that is not only lucrative but also in high demand? Look no further than student accommodation. With the shortage of student accommodation around the UK, university boards have turned to private developers for purpose-built student accommodation (PBSA). This presents a golden opportunity for landlords to get involved and benefit from the growing demand for student housing. In this blog post, we'll explore the reasons behind the shortage of student accommodation, why PBSA has become a popular choice for universities, and how landlords can tap into this market by investing in student accommodation. We'll also discuss the likely prices and yields for this type of property, as well as how they are managed. So, read on to learn more about this exciting investment opportunity and how you can be a part of it!
The Student Accommodation Shortage: Why it's a Growing Problem
Student accommodation, once a given for university students, has now become a growing problem in the UK. The demand for student housing far outweighs the available supply, creating a shortage that has left many students without a place to live. This shortage has led to various issues and has prompted university boards to seek help from private developers for purpose-built student accommodation (PBSA).
One of the main factors contributing to the student accommodation shortage is the increasing number of students pursuing higher education. As more young people aspire to attend university, the demand for housing near campuses has skyrocketed. However, the supply of purpose-built student accommodation has struggled to keep up with this demand.
Large financial investors have recognised the potential in this market and have started purchasing purpose-built student housing in large quantities. This has driven up prices, making it increasingly difficult for students to afford these accommodations. The average student housing prices in the UK now exceed the government-offered student loans, further exacerbating the affordability crisis.
A survey conducted in 2022 in Scotland revealed that 12% of students had experienced homelessness during their studies due to the lack of available housing options. This alarming statistic highlights the urgent need for more student accommodation.
As purpose-built student accommodation has become a hot asset class in the property market, there have been some negative effects. Rental prices for student housing have been rising rapidly, putting a strain on students' finances. Additionally, some purpose-built student accommodation developments have focused on luxury amenities that students may not necessarily need, further driving up costs.
The student housing crisis is not isolated; it is interconnected with the broader housing crisis in the UK. The government has struggled to keep up with the demand and supply of student accommodation, lagging over 25 years behind the current needs.
To mitigate the burden on students, the private sector has started marketing their accommodations earlier and letting more of their stock to returning students. However, these efforts alone are not enough to solve the crisis.
Another contributing factor to the shortage is the decline of off-street shared student houses. Article 4 Directions, which restrict the conversion of family homes into shared houses, more commonly known as House in Multiple Occupation (HMO), have impacted the availability of this type of accommodation.
University Boards & Local Councils Turn to Private Developers for PBSA
The demand for purpose-built student accommodation (PBSA) has led university boards to turn to private developers to address the shortage of student housing in the UK. With student numbers at an all-time high, the need for quality accommodation near campuses has become paramount. Private developers have recognised the lucrative potential of this market and have responded by building purpose-built student accommodation to meet the growing demand.
Rental growth prospects for PBSA are strong, and this trend is expected to continue in the coming years. The UK's growing student population, as well as an increase in international student numbers, ensure that the demand for PBSA will remain robust in 2023/2024.
Another factor driving the need for purpose-built accommodation is the decline in the supply of Houses in Multiple Occupations (HMOs) for students. Restrictions on converting family homes into shared houses have limited the availability of this type of accommodation, further boosting the demand for purpose-built student housing.
However, the development of the new PBSA has faced challenges due to rising build costs and the planning system acting as a barrier to delivery. As a result, there is an opportunity to reposition legacy PBSA and convert offices into student accommodation to address the shortfall.
With the growth in demand expected to outpace supply, the PBSA market will become increasingly competitive. This will lead to strong rental growth and sustained net income growth for investors. Occupancy rates for the current and upcoming academic years are at record levels, further highlighting the positive prospects for PBSA investment in 2023 and beyond.
Overall, the need for student accommodation and the high total returns offered by PBSA will continue to drive investment in this sector. It presents a golden opportunity for landlords to tap into the growing demand for student housing and benefit from the thriving student accommodation market.
Is PBSA a good investment?
This type of investment boasts modern designs and top-notch maintenance, ensuring that you won't have to deal with the headache of unexpected void periods. And here's the best part - students and their parents find PBSA irresistible, making it a win-win for both you and your tenants.
Investing in Student Accommodation as a Landlord: Benefits and Risks
Student property has long been a popular area for property investors, but are there still opportunities in today's market? “If you know where to look, yes.”
One of the main reasons landlords choose this market is the student loan system, which is good for landlords. Students can borrow money cheaply to afford better quality accommodation, which means landlords can charge higher rents.
Furthermore, students are becoming increasingly demanding when it comes to the quality of their accommodation and the facilities on offer. They want modern, well-equipped properties with amenities such as gyms and communal spaces. This demand provides an opportunity for landlords to invest in properties that meet these requirements.
However, it's worth noting that private investors working with HMOs face competition from developers and operators of purpose-built student accommodation (PBSA). These purpose-built properties often come with the latest amenities and are located in prime areas near universities.
Despite the competition, investing in student property has several benefits. Firstly, properties in student areas are often more affordable compared to other locations, making them a good entry point for investors. Secondly, the demand for student accommodation is guaranteed year after year, providing a consistent rental income. Additionally, student properties typically offer higher yields compared to other types of tenants. Finally, with rental markets continuing to grow, there are good prospects for price appreciation in the future.
However, there are risks associated with investing in student accommodation. The main one is the higher levels of wear and tear that come with student tenants. It's important to have a management plan in place to address maintenance and repairs. Additionally, the location of PBSA is crucial. Properties near large universities will secure long-term demand and minimise the risk of vacancies.
Understanding the Market: Likely Prices and Yields
When it comes to the market for student accommodation, landlords need to understand the likely prices and yields they can expect. With many universities in the UK lacking purpose-built student accommodation (PBSA), the demand for student housing is high. Traditionally, Houses in Multiple Occupation (HMO) have been the main driving force for investors since the 1970s. For example, a 5-bed house converted into an HMO can accommodate 5 tenants, providing a steady rental income.
However, in recent years, private developers have started to step in to fill the demand for PBSA. This is a separate strategy from HMOs, but both fall under the commercial umbrella. PBSA offers a range of amenities such as gyms, study areas, and laundry rooms, catering to the needs of modern students.
To be approved by local councils, PBSA must be in demand and located on or near the university campus. This often eliminates competition from local rentals and ensures a consistent stream of student tenants. With the right location and demand, student property investments can offer rental profits of 8%+ per year, compared to the UK average of 4%.
It's important to note that student property investments refer to properties bought exclusively to rent to student tenants. This is different from HMOs or student halls, which often come in the form of self-contained studio apartments. By understanding the market and the potential yields, landlords can make informed decisions when investing in student accommodation.
If you are seeking more answers to the below:
What amenities are typically offered in purpose-built student accommodation?
How important is location when investing in student accommodation?
Are there any potential risks or challenges when managing student accommodation?
What are the rental profits that can be expected from investing in student accommodation?
Can student property investments provide long-term capital appreciation?
What are the key differences between student halls, HMOs, and purpose-built student accommodation?
How can landlords ensure high occupancy rates in their student properties?
We have a dedicated page for student property investing here
