All new student accommodation will be required to be built with university partners and include a 35% affordable commitment under new regulations being brought forward in the Draft London plan.
Any student schemes not built in partnership will be classed as co-living, which previously has not had any recognition as a use class.
What the plan says:
■ “To demonstrate there is a local need for a new PBSA (purpose built student accommodation) development and ensure the accommodation will be supporting London’s higher education institutions, the student accommodation must either be operated directly by a higher education institution or the development must have an undertaking in place from initial occupation, to provide housing for students at one or more specified higher education institutions, for as long as the development is used for student accommodation.
■ “If the accommodation is not secured for use by students and for occupation by members of one or more specified higher educational institutions as set out in paragraph Policy H18: Large-scale purpose-built shared living, it will not be considered as purpose-built student accommodation or meeting a need for purpose-built student accommodation, and the development proposal will be considered large-scale purpose-built shared living and be assessed by the requirements of Policy H18: Large-scale purpose-built shared living.”
■ “At least 35% of the accommodation is secured as affordable student accommodation as defined through the London Plan and associated guidance.”
Previously: direct let
Private operators have, until this time, been able to build both “direct-let” and “partnership” developments, depending on whether they are working alone or with universities.
There has been some criticism in the past that the direct-let model has not been properly regulated, with non-students using the facilities.
Ian Fletcher, director of real estate policy at the British Property Federation, says the policy is essentially closing the door to speculative student development in London.
“We think that is out-of-step with how higher education is developing in London, which is seeing lots of universities outside London establishing London campuses. Having to have a link will work fine for the Imperials, UCLs and LSEs, which can give that commitment, but it will mean that more students from this growth area will end up in HMOs.
“Hopefully we can articulate that during the consultation phase, as I am sure it is not the mayor’s intent to make it harder for students to find quality accommodation,” he says.
Previously: affordability
The new affordability commitments could affect the amount of future development.
Student schemes have previously not required a high level of affordable, which have been defined by viability. They will now be hit with the same flat 35% rate of affordable provision as the housing market.
Affordable in the sector is defined as “a PBSA bedroom that is provided at a rental cost for the academic year equal to or below 55% of the maximum income that a new full-time student studying in London and living away from home could receive from the government’s maintenance loan for living costs for that academic year”.
The matter is being complicated by the fact this loan no longer exists, but some form of mayoral guidance is expected.
Meralina Monk, partner in the student property team at Knight Frank, says the higher level of affordable housing could halve the amount of development.
“Since the introduction of higher CIL rates, we have already seen the London development pipeline almost halve, and I think it will halve again,” she says.
Some 12,600 beds are currently in the pipeline across London, though demand still outstrips supply. JLL estimates the city needs a further 35,000 units. Of the 269,000 full-time students in London, 17% have university provided accommodation, 11.8% have private sector accommodation, while the remainder are in the private rented sector.
“It is something that is going to need to be priced into models, and something we need to think about. It is absolutely something that is going to rock the market,” says Monk.
“In terms of development viability, the sector is being hit twice through the planning system,” says James Kingdom, head of alternatives research at JLL. “They are paying a huge chunk for the land, and there is only a certain level they can go to for rent before it stops being viable.”
He says while there is an argument for more affordable accommodation, it could increase rents for other units. “The offset is that any of the beds outside of that 35% will have to jack the rents up,” he says.
Consequences
A number of consequences are possible from the changes, alongside more expensive rents on the non-regulated side.
The most obvious is that development could be slowed in central London, or development could follow the housing market to the outer boroughs, where land prices are lower. There could also be a premium placed on existing portfolios, which do not have the same affordable requirements.
The changes could lead to more of a parity between co-living, PRS and student schemes. Previously, student schemes had roughly 100bps on the PRS. The cuts could reduce that.
However, the consequences for universities that need to be able to offer central London accommodation could be more severe.
Will Lingard, senior director in the London planning team at CBRE, said: “We need to settle the evidence base around the affordable housing percentage. It needs to be set at a level that gives institutions a slight advantage over conventional residential, as it is something so important to London. Its world-class institutions especially need to be supported at the moment.”
Co-living
The recognition of co-living makes a huge difference for the sector, which while still in its infancy has attracted considerable attention.
The new Draft London Plan recognises co-living as “a large-scale, purpose-built shared living sui generis use development, where of good quality and design, may have a role in meeting housing need in London if, at the neighbourhood level, the development contributes to a mixed and inclusive neighbourhood.”
However, the sector will still be hit with high affordable payments, as it does not count in the plan as affordable. This anomaly is still being worked through.
Boroughs can decide that either they want an up-front payment of half the market value of the 35% of units, or they want half the rental income pa from those units.
But while costly, the sector has still gained official recognition.
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