Sheffield and Leeds top the list of university towns and cities that could benefit from more purpose-built student accommodation.
Savills say that 3.971 homes in Sheffield and 3,889 in Leeds could return to family use if students swapped shared houses for specially-built flats.
In its Spotlight on Student Housing report, the firm reveals that lucrative HMO’s (houses in multiple occupation) price local tenants out of the lettings market and restrict the supply of conventional family homes.
It estimates that 66,000 HMOs in the UK could be freed up through the delivery of more specialist accommodation and calls on councils to recognise the importance of promoting the schemes through planning.
“Student lets have become an increasingly attractive target for private investors, because students are prepared to over-occupy properties, boosting rental returns. The result is a double whammy for local non-student tenants and aspiring home owners. Not only are they priced out of many family housing areas, credit conditions post-downturn have favoured landlord investors rather than less equity-rich potential owner occupier buyers,” says Savills’ research analyst, Neal Hudson.
He adds that freeing up 66,000 homes would create demand for up to 260,000 student beds, opening up opportunities for developers and institutional investors.
Savills also argue that local authority coffers would be boosted by returning student houses to families. The move would increase council tax returns by around £1.5m per town or city, since student-only houses are council tax exempt. There is also potential for councils to claim six years worth of payments through the New Homes Bonus on the new-build accommodation.
“The conversion of family housing into student lets has been a significant, but largely ignored feature of the housing boom,” says Neal. “Our analysis shows the important contribution that purpose-built student accommodation makes. Planning applications should not be considered in isolation, but rather as an intrinsic part of the whole housing market dynamic.”
Marcus Roberts of Savills Student investment team, says that universities now compete both in the UK and internationally and need to show quality of accommodation.
“One of the advantages of halls is that students pay an inclusive rent, typically for a 43 or 44-week contract,” says Marcus. “They are generally well maintained and often closer to the university, which can be more conducive to students achieving a 2:1 or better, something that they need in order to compete with peers in the current jobs market.
“Additionally, management companies are often able to split accommodation between first, second and third years if required, to cater for each student year and their differing needs. However, there will always be a market for homes in multiple occupancy due to more choice of location and in some cases, cheaper pricing.”
Savills Student City Monitor has graded university towns and cities according to their purpose-built investment potential.
It is a combined measure of demand, student demographic, university academic rank and financial health, affordability of local rental market and the supply of purpose-built accommodation.
London, Oxford and Cambridge are among those who got a “First”, York and Sheffield received an Upper Second. Bradford, Leeds, Huddersfield and Hull got a third
“Our research shows Sheffield as one of the ‘2:1’ university locations. Its universities have a strong research base, which is attractive to the international student market.
“Investors are attracted to York because it has two universities, both of good calibre, and a relatively small purpose-built market.”
There are concerns about the impact of higher tuition fees. UK university applications fell by 6.7 per cent last year, though numbers are up by 2.7 per cent for 2013-14 and demand from abroad is growing.
UCAS figures show an 8.5 per cent increase in applications from the Far East over the past six years, a 9.9 per cent rise in those from China and 19.3 per cent from India.
“The student housing market has been a resilient and stable investment during the downturn,” says Marcus.
“But the market is not without its risks.
“Investors should consider investments on an institution by institution basis, remaining mindful of the city supply where there are multiple universities.”