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Student Landlord SPECIAL

This week Property Hawk is concentrating on the student letting market. It’s a niche market for landlords but one that can be very rewarding if a landlord gets it right but equally it’s very easy and expensive if landlords get it wrong.

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Landlords have been letting to students studying away from home for years. Originally the market was relatively small and concentrated in a small number of university towns. However, the explosion in higher education numbers since the 70’s and 80’s and now with the Government’s aspiration to have 50% of 18-30 year olds in Higher Education by 2010 means that demand for accommodation has grown massively over the last 30 years.

The result has been the emergence of a “cottage industry” of student landlords in many towns. Many parents have helped solve their student off springs accommodation needs by financing the purchase of a single investment property to let out whilst their son or daughter completed their education. In this way they ensure that they have some where decent to live whilst also avoiding paying out dead money in rent and also potentially providing a good long-term investment.

Student Landlord Week

This week Property Hawk in a series of articles will look at a number of issues impacting on investing in the student housing market. We look at the demand and supply of student accommodation and the case for investing in student housing. Where to invest, rents, the potential returns, whether it still makes sense to invest given the downturn, case studies, practical guides on renting to students as well as the pitfalls to avoid and finally some alternatives to direct investment.

Demand for student housing

Data from the Office for National Statistics show that the higher education initial participation rate was 40% among 17 to 30 year olds in 2006/2007, down from the 43% achieved in 05/06 but still short of the Governments target of 50%.

According to Knight Frank the UK student population has grown consistently over the last 10 years. Total student numbers have grown from 1.8 million in 1997 to 2.5 million in 2007. Savills expect this to hit 3 million full and part time students by 2014. Growth has been driven in the main by domestic UK undergraduate demand. There is a trend to rising numbers of foreign student, with participation of overseas students at UK universities rising 67% over the past decade. Knight Frank research shows that in 1997 they accounted for 11% (international students) and 21% (postgraduates) of all students; by 2007 these figures had increased to 15% and 24% respectively. Both international students and postgraduates are more likely to opt for purpose built private student housing rather than shared houses. Foreign student numbers are expected to grow from 15% of all students in 2008 to 21% by 2018.

Current supply

Savills research estimates that there are:

*459,000 student beds in halls of residence

*680,000 full time students in Houses of Multiple Occupation (HMOs)

*259,000 full time students live at home with their parents

The number of students living at home with their parents has risen from 13% in 1996/97 to 19% in 2005/06. The number of full-time students living in HMOs has risen from 37% to 46% largely as a result of student number not being matched by the number of student beds provided within purpose built student accommodation.

As a general trend the supply of accommodation by private landlords has been falling in the last couple of years. This is in part to the HMO licensing regulations that came in 2006 and also as a result of the increasing number of private operated halls. In 2005 this type of accommodation accounted for around 7% of all bed spaces with the figure growing to around 10% in 2007. The expansion of private accommodation has partly been as a result of the increasing demand form post graduate and foreign students who demand and are able to afford higher rents and demand a higher standard of accommodation.

Future supply of student housing

Analysis of planning application data shows that there are approximately 78,000 potential student bed spaces in the planning pipeline at the end of 2006. 26% are at the application stage, 42% are awaiting full planning consent and the remaining 32% have planning consent and are under construction.

Student housing rent levels

Research carried out by Savills show that student rental levels have continued to increase over the last 20 years. Their opinion is that:

“This implies significant performance benefits over both conventional residential lettings and the commercial market, where cyclical downturns have resulted in periods of negative income growth.”

However they did express some words of caution.

“increasing levels of supply may also suppress rental growth which suggests that location and proximity to universities will be the key determining factor.”

Over the last 4 years according to research conducted by accommodation for students average rent levels have increased 17% from £52.44 to £62.48.

There are as one would expect large variations in rent levels across the country.

London and the south most expensive; Chester, Exeter and Loughborough are the high flyers, according to latest research (May 08)

The average weekly student rent in the UK is now £61.48, a figure 1.5% higher than last year according to the stats which are based on over 44,000 properties in 76 cities across the UK (see full table below). Over the past 4 years the average student rent has risen 17%, from £52.44 in 2004.

London leads the way with an average weekly rent of £102.85, 67% above the UK average. Moreover, it is generally more expensive to rent student accommodation in the south of the country. Middlesex, Cambridge, Guildford, Surrey, Exeter, Oxford and Brighton are all 20% or more costly than the UK norm. Two notable exceptions are Scotland and Ireland. St. Andrews, thanks, perhaps, to the attendance of Prince William, has an average student rent of £82.29, 34% above the UK average and the highest by far in Scotland. Edinburgh and Glasgow are also above average, but only 14% by comparison, with average weekly rents of £70.26 and £70.08 respectively, the first time Edinburgh has been higher than Glasgow since the research began 5 years ago.

Dublin has been included for the first time. It is not obviously part of the UK but is still popular with students from here; rents are second only to London at £87.68 per week, 43% above average. Belfast, by comparison, can offer inexpensive student accommodation, with average weekly rents being only £51.79, 16% below the rest of the UK.

Some traditional English redbrick universities: Liverpool (£50.52), Birmingham (£54.28), Manchester (£56.65), and Sheffield (£57.12) are still below the average UK weekly student rent (£61.48). However others, like Leeds (£62.03), Nottingham (£61.60), and Newcastle (£58.90) reflect their popularity by rising rent levels. All three have shown rent increases well over twice the UK average of 1.5% over the last year; Leeds is up by 6.5%.

Best value locations in terms of student rental accommodation are the less fashionable student towns like Crewe, Middlesbrough, Stoke, Wolverhampton and Bradford, with average weekly rents of between £40 and £45. has been conducting this research for over five years and some interesting trends can be seen. One has been the emergence of student hotspots where rents have increased well above average. Exeter, for instance, now has an average weekly student rent of £77.54, 26% above average, and higher even than Oxford. Yet five years ago average student rents in the city were only £58, 34% less. Rents in Loughborough have risen 28% in the last four years, from £52 per week to £66.81. But the real current high-flyer in terms of student rents is Chester, where rents have gone up 14% in the last year alone, from £67.83 to £77.12, putting it firmly in the UK Top 10.

London unsurprisingly is still the most expensive city by far, although student rents in the capital have remained stable. However, in comparison, the rest of the UK is catching up. In 2004 the average student rent in London was 95% above the UK average of £53.44. Today, at £102.85, the weekly student rent in the capital is just 67% above the average of £61.48.

UK Student Rent Analysis, April 2008 (76 cities/44,185 properties)

City Average Rent Per Week (£) Index*
London 102.85 167
Dublin 87.68 143
Middlesex 83.97 137
Cambridge 82.98 135
Guildford 82.37 134
St Andrews 82.29 134
Surrey 81.15 132
Exeter 77.54 126
Chester 77.12 125
Oxford 74.71 122
Brighton 73.71 120
Kent 72.24 117
Canterbury 71.96 117
Edinburgh 70.26 114
Glasgow 70.08 114
Bournemouth 69.11 112
Bristol 68.84 112
Warwick 68.75 112
Eastbourne 68.67 112
Bath 68.29 111
Chichester 67.08 109
Durham 66.95 109
Reading 66.89 109
Loughborough 66.81 109
Hatfield 66.35 108
Doncaster 66.04 107
Winchester 65.65 107
Colchester 64.67 105
Portsmouth 64.49 105
Plymouth 63.26 103
Cornwall 62.76 102
Leeds 62.03 101
Newport 61.68 100
Nottingham 61.60 100
Leamington Spa 61.38 100
York 60.63 99
Worcester 60.56 99
Luton 60.35 98
Lincoln 60.23 98
Southampton 60.06 98
Newcastle 58.90 96
Stafford 58.43 95
Aberdeen 58.22 95
Huddersfield 57.87 94
Devon 57.52 94
Sheffield 57.12 93
Cardiff 56.85 92
Northampton 56.76 92
Manchester 56.65 92
Hastings 56.59 92
Norwich 56.44 92
Cheltenham 56.34 92
Swansea 55.99 91
Preston 55.06 90
Leicester 54.90 89
Dundee 54.82 89
Birmingham 54.28 88
Bangor 53.36 87
Derby 51.89 84
Belfast 51.79 84
Lancaster 50.88 83
Liverpool 50.52 82
Coventry 50.42 82
Bolton 50.15 82
Salford 49.73 81
Blackpool 49.34 80
Carlisle 48.25 78
Stockton 47.38 77
Hull 47.11 77
Sunderland 46.70 76
Pontypridd 46.36 75
Bradford 44.61 73
Wolverhampton 43.49 71
Stoke-on-Trent 42.04 68
Middlesbrough 41.54 68
Crewe 40.33 66

UK Average Weekly Student Rent 61.48 100

* Index compared to UK average student weekly rent of £61.48.
2007 Ave £60.58 (-1.5%)

Interpreting the figures

Landlords need to be aware that in viewing these figures that they are the average achieved across the accommodation types. These levels have in recent years been boosted by the upgrading of student accommodation brought about by the contribution of purpose built private sector student halls. This accommodation is frequently provided with ensuite facilities, which according to Savills generates rents that are on average at a premium of 19% to similar shared accommodation. Therefore a prospective landlord should ensure that they do their own local research by talking to local rental agents and University Accommodation Offices before factoring in their expected rents to their investment calculations.

Having looked at the demand and supply of rental accommodation and likely rents we go on in part two to look at the likely investment return and practical considerations of investing in student accommodation including looking at several case studies.

Want to find out whether being a student landlord is for you? Look out for further articles and analysis this week in Property Hawk’s Student Landlord week.

Disclaimer – The information and services provided by the Property Hawk website ("Website") does not constitute legal, financial, investment or tax advice. The Website is intended to provide general information only and does not attempt to give you advice that relates to your specific circumstances. You are advised to discuss your specific requirements with an independent financial adviser prior to entering into any binding contracts.

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