GXE1J8 Welcome sign for Student arrivals at the Metropolitan University of Manchester, in Fresher's week, September, 2016, UK
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In my first year of university I lived at the top of a damp tower block with snot green carpets and strip lighting. I had no choice in this matter, apart from choosing whether I could afford to live in a small, medium or large room. I spent the next year happily taking my turn using a communal bathroom that would make the showers in a council-run leisure centre seem luxurious.

None of us had any complaints. Until, that was, the great toilet debate (GTD). The GTD was essentially a stand-off between the first-year undergraduate community and the university, who were “consulting” us on whether we would like “en suite pods” in our meagre rooms in exchange for a rent increase. We had no interest in having toilets tacked to the foots of our beds and made our views clear. A few years later, the university installed the pods anyway.

Fast forward to 2016 and purpose built student accommodation (described by investors as PBSA) is on steroids. Private investors have piled in as numbers of students — and the rents they are prepared to pay — keep on rising. The UK PBSA market is now worth about £43bn, and the landlords are no longer universities staffed by well-meaning but slightly distracted academics, but professional student room providers.

The biggest is stock market listed Unite Group. In the past five years, its shares have practically trebled in value. Other providers have copied its model of bright and mould-free rooms which can be booked online, and come with free WiFi. Some even lay on cinema rooms and gyms.

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So why are students still not happy? Weighed down with greater levels of debt than generations before them, it rankles that their inflated rents are lining the pockets of older investors. Jenny Killin, a student at Aberdeen University, recently embarrassed trade publication Property Week by publishing an open letter on Twitter announcing (at the last minute) that she and fellow undergraduates would not judge the magazine’s student property awards.

The students argued that, at best, high rents were forcing poorer students to work long hours in part-time jobs to fund themselves while their wealthier counterparts devoted more time to their studies. At worst, they caused poorer students to shun higher education altogether. “None of the entrants could demonstrate to us that they are meeting the urgent need to students to live in accommodation that will not force them into poverty,” they said.

The National Union of Students is also angered: it recently produced a report in partnership with housing provider Unipol to survey the rents paid by students living in halls. It found that in 2016 the average weekly rent in London was £982 per month, while outside London it was about £640 a month, an 18 per cent rise on 2013. A separate report by commercial property agency GVA gave similar figures, and noted that the average rent for a bedroom in a house share outside London was £325. The sharp increase documented by the NUS is partly because of the shift to private accommodation — students living in the remaining university-owned blocks pay about £2,200 less rent a year, the union said.

To put this in the context of what is affordable for students, the maximum annual maintenance loan available to those living outside London for 2015-16 was £5,740. This has increased to a little over £8,200 for this academic year (don’t forget interest is rolling up at RPI inflation plus 3 per cent).

So why are universities not protecting their students by building more accommodation and letting it out at low rents? One analyst covering student accommodation providers said he had recently coined the term “misdirectionalisation” by way of explaining why universities were shying away from the accommodation problem. The theory is an old one — businesses should stick to what they’re good at and be very careful about trying to do other things. Running student accommodation is apparently harder than it looks, and universities, already hit by cuts to their budgets, are wary of misspending capital. They want to focus their energies on teaching and research rather than on being landlords.

Cinema Room - Student accommodation from ESP's investment portfolio ESP
A cinema room in student accommodation from ESP's investment portfolio

But a serious problem is brewing. Accommodation providers are forecasting even more rent rises, in part driven by supply-demand dynamics. According to Unite, there are 3.5 students for every PBSA bed. It says it expects to see 60,000 extra first- year students next year, with the popularity of UK universities fuelled by the abolition in 2015 of a cap on the number of students a university could take. Sterling weakness is also making UK universities look cheaper to overseas students, analysts say.

There are problems for investors, too — the most obvious being the myth of infinite and unimaginably wealthy overseas students. Expensive and glamorous student accommodation is in itself not a problem, and it’s good that it exists for those who can afford it and want to live in it. But a reliance on overseas students for high rents could leave investors high and dry if Theresa May decides to alter the visa system and make entry to the UK more difficult. According to Unite’s latest accounts, overseas students account for one-third of their residents. GVA, a commercial property agent, puts the figure at 50 per cent for Unite’s London portfolio.

Anecdotally, it seems students are already thinking twice about whether they want to attend some universities because of the cost of living. Some cities are just more expensive to live in. Accommodation providers are alive to this dynamic and are focusing their efforts in what they call “higher quality universities”. You could argue that this is part of competitive choice — Bristol is more expensive to live in than Lancaster, but if students insist on studying in Bristol anyway then they have to pay the price. But this hardly seems fair when maintenance loans barely cover costs. There shouldn’t really be such a thing as a “wealthy student” and a “poor student”. When we use these terms we’re usually referring to the wealth of the student’s parent.

If you invest in student property, you might be feeling smug about high rental incomes. But if you have university-age children or grandchildren who need your help paying the bills — you might change your mind.

Aime Williams is a reporter on FT Money. aime.williams@ft.com; Twitter: @Aime_Williams

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