Why Student Rental Prices Will Just Keep On Rising

While inflation and the cost of living continue to soar across the UK, students can expect to see rental prices rise by five percent in the next year, analysis has revealed.  

Nationwide has reported that UK house prices saw their biggest monthly fall for more than two years in November - a decline of 1.4% from October - with rising interest rates putting off buyers, the lender said. 

And last month, the government's official forecaster predicted that house prices will fall by 9% over the next two years as affordability issues restrict demand.

But house buyers aren't the only ones who are set to struggle with rising housing costs, students are set to see hefty increases in rental costs as a whole host of factors combine to push already high prices even higher.

Writing in the Financial Times, Cat Rutter Pooley has outlined how a combination of private-equity investment, shortage of supply and resilient demand are causing students to pay out a larger and larger proportion of their finances on rent.

“Student property has been the sort of market that private equity dreams are made of,” Rutter Pooley writes. “A sector with a structural supply imbalance, supported by resilient demand from wealthy foreign students and well-off middle-class parents who prioritise spending on their offspring’s education.”

Over the last few years a number of private equity investors have piled into the purpose-built student accommodation market. A number of examples have been highlighted in the FT, including Blackstone paying £4.7bn back in 2020 to buy IQ Student Accommodation from Goldman Sachs in the UK’s largest private real estate deal. 

And despite the economic outlook beginning to turn, it doesn’t seem to have put off investors, with US developer Greystar and Singaporean wealth fund GIC agreeing a combined fee of £3.3bn for the Student Roost portfolio.

So, why are investors so keen to get a foothold in the sector? Well, there are a number of factors in play.  

Rutter Pooley writes: “On the demand side, the end of a demographic dip means the number of domestic students is likely to rise for the rest of the decade. And however hostile the government’s anti-immigration rhetoric might be to international students, cracking down on the 22% of students who pay 44% of university tuition fees would create a funding headache for the sector that politicians would probably prefer to steer clear of.”

And accommodation providers are already implementing price increases. Unite - the UK's largest student landlord announced last month that it would be hiking rents by 5% in the 2023-24 academic year as demand for accommodation rises.

But it’s not just demand that will see rents increasing. The introduction of tougher rules governing houses of multiple occupancy (HMOs), stamp duty changes, increased efficiency standards and renters’ rights reforms - all of which are positive for the experience of renters - have seen a reduction in the number of private landlords coming to market. 

This coupled with the tightening of planning processes by local authorities and universities leaving the private sector to pick up the slack in providing accommodation has put increased pressure on supply as well - 

The combination of these factors - restricted supply and increasing demand - will only cause rental prices to move in one direction - up. 

According to Rutter Pooley, supply shortages have been ‘particularly acute’ in places such as Bristol, Edinburgh and Manchester, with rents in the cities rising faster than the rate at which maintenance loans are increasing. 

Real estate services group Cushman & Wakefield, found that, on average, outside London, private sector rent accounts for nearly 75% of the maximum student maintenance loan (a larger percentage for students who are not eligible for the full amount) which alongside tuition fees and other cost of living increases, means university is simply becoming out of reach for those students from less privileged backgrounds - especially at some of the more prestigious institutions. 

A survey of more than 4,500 UK university students, carried out by the National Union of Students (NUS), found that 96% are making cutbacks, with over half spending less on food, another half heating their homes less regularly, and one in ten cutting back on sanitary products. 

Three quarters report socialising less to save money while more than 25% of students are left with less than £50 a month after covering rent and bills.

Chloe Field, NUS Vice President Higher Education, said: "It’s clear that students have not been considered in support schemes so far. This is having a profound impact on all students. 

“Students with caring responsibilities, who don’t have time to supplement their income, cannot get Universal Credit. International students, who pay higher tuition fees and Visa costs, are limited in the hours they can work. Students from poorer backgrounds, whose families cannot top up their loan, face the choice between working longer hours or dropping out completely. 

“The Government must take action urgently to relieve the pressure. Until they do, institutions must step in to support their students with the cost of food, rent, and energy. Students are our future nurses, teachers, and other key workers, and we need support now to protect everyone’s future.” 

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