COMMENT: The recently published Independent Panel Report to the Review of Post-18 Education and Funding looked at all elements of costs and funding for post-18 study.
One element of the report, established by the Department for Education and led by investment banker Philip Augar, was student accommodation.
The report noted that the Office for Students – in effect the Competition and Markets Authority for higher education – had a legitimate stake in monitoring the provision of student accommodation in terms of costs, rents, profitability and value for money.
What might this mean for an industry that has developed more than 300,000 bedrooms over the past two decades, and an asset class where secondary sales of portfolios topped £4bn in 2017 and an estimated £5.25bn in 2018?
Greater scrutiny
In the case of developers of purpose-built student accommodation, the report identifies that universities retain the responsibility for overall student welfare and delivering value for money, and that this extends to university accommodation, whether or not they are the direct provider.
In some cases, this might see universities choosing to nominate less accommodation with PBSA operators as they seek to focus on the cost and welfare provision of their own campus stock, or being far more prescriptive about the level of services provided for the overall cost.
The report also calls for government to provide a clearer picture of private sector involvement in accommodation for students, by commissioning a comprehensive financial analysis of private developers and operators of purpose-built student accommodation to understand the profits that private business and investors are making from student rents.
Developers and operators may come under greater scrutiny on decisions relating to rental strategies over time, as well as the proportional composition of price points in search of a benchmark for affordability.
For those developing and operating student accommodation on the basis of long-term public-private partnerships, this focus will not only be on cost, but also the quality of service provision and the wider social value to students and local communities of outsourcing accommodation provision.
During March 2019, this intention was underlined when the minister for universities announced that the government would look at ways in which universities can ensure they are embedding social values in their procurement of accommodation. In future, this emphasis on providing social benefit might well find its way from institutional procurement to planning requirements.
For landlords letting houses to students, the focus on quality and affordability long predates the review by Augar.
Local authorities have been applying article four directives in many university towns and cities as a way to manage and reduce the impact of student HMOs on the wider letting market. The introduction of the Homes Act 2019 means that tenants now rightly have clear expectations about the basic quality of accommodation set out in law.
Meeting demand
Given recent changes, I believe that the pressure for landlords to have their properties accredited by relevant schemes is likely to increase significantly, as universities seek to satisfy the regulator.
For investors, it is possible there will be greater scrutiny of approaches to investment, sources of capital and margins of profitability.
It remains the case that in the majority of university cities there is still a structural undersupply of accommodation relative to the growth in demand from non-home domiciled, full-time students.
The UK higher education sector is a key global destination for students and many institutions have inspiring strategic plans for the future. Given these dynamics, I believe student accommodation still presents a low-risk profile relative to investment in other property classes.
There still remains much uncertainty about how, and indeed if, the recommendations laid out in the Post-18 Review, will find their way into policy given the changing political dynamics.
While it is possible that the recommendations may be cherry-picked or shelved entirely, we could be facing a pivotal moment for student accommodation.
For those of us with a direct interest in the sector, it is more important than ever to focus on projects with strong rental demand from students, providing social value, linked to universities with strong strategic plans for the future.
Read more: BFP: Student accommodation providers must support student wellbeing
Jon Wakeford is group director of strategy at UPP
