It’s a miserable sign of the times. On the tube the other day, this correspondent on Twitter noticed an ad encouraging home owners with spare rooms to put them on the market for £800 to “ward off rising living costs” and “help ease the housing crisis”.
Or take this one. For a good few years now, students’ unions have been running campaigns encouraging students not to sign on the line for a house share too early. That’s partly because landlords and their agents prey on scarcity fears to lock people in – so taking time means students both are able to look at the property and letting agreement properly.
And it’s partly because lots of things can happen to friendships, academic progression and academic choices between the November, December, January or February when they are pressured into signing and the start of the next academic year.
But things get a lot more difficult when the scarcity thing is real. A bunch of SUs have asked me if I think they should run their campaign this year. In many cities I can’t in good conscience recommend it, and at the very least such campaigns need a rebrand.
In plenty of places first year undergraduate students are feeling the pressure to sign for a house before even the first fee liability point for their first year. What was that cliche about the friendships you make during Freshers’ Week not being the ones that last?
Finding the gate, finding the door
It might turn out that the tales of students queuing through the night to get sight of a house has similar herd instinct/self-fulfilling prophesy characteristics to the panic buying of toilet rolls in the early days of Covid, but a key part of the problem is that we don’t know the actual size and shape of any looming student housing crisis.
When the government liberalised home domiciled student numbers a decade ago and then accelerated international PGT growth a few years back, it pretty much ignored housing on the basis that the magic of the market would rustle up bedspaces.
And because we adopted a largely laissez-faire approach to bedpasces, we didn’t make it anyone’s job to monitor the relationship between supply and demand, location and quality of student housing – fatally split between government departments, local authorities, universities and the corporate social responsibility considerations of PBSA providers and investors.
Despite that lack of central data, there are plenty of indications that if we’re not in the throes of a major student housing crisis already, we’re almost certainly on the precipice of one – a continuum determined pretty much by where you are and who you are.
I need not go over again the flashes of lightning in the perfect supply storm – repeated datasets on sky rocketing rents and reductions in bedspaces, slowing investment in PBSA via interest rate hikes and rising construction costs, mortgage defaults moving more families in the private rented sector, and landlords liking the profits and regulatory regime surrounding converting to Airbnb.
If we want confirmation of what’s going on out there, a good place to start is the trading statements of the major property players – and as luck would have it, Foxton’s published their Q3 trading report this week.
Lettings revenue was up 18 per cent in the quarter to £29.2m, driven by a 23 per cent increase in average revenue per transaction, as higher average rental prices and longer tenancies offset a 9 per cent decrease in lettings volumes.
Yes that’s right – fewer properties, much higher prices.
That rental price growth was underpinned by what Foxton’s calls “strong domestic tenant demand” and growth in international tenants. Lettings revenue for the nine months ended 30 September 2022 was £68.6m, up £10.9m, or a whopping 19 per cent on the prior year.
Sam Cullen, an analyst at Peel Hunt, told the FT the company’s results:
…confirm all the anecdotal stuff you have heard about rents: rental growth is hitting the roof. The trend is likely to continue in the short term, but people have only got so much disposable income to pay the rent. If it’s £2,500 a month and it’s going up to £3,000 you can either afford it or you can’t.”
That pricing thing doesn’t just matter in the houses bit of the private rented sector. There are plenty of international students from the new focus markets that can’t afford the private halls rents that some could even three years ago.
And then there’s the attractive, off-balance sheet PBSA deals that were done over two decades to create supply of first year guarantee accommodation where the small print includes an automatic inflationary rent-ratchet that looked benign at the time, and highly hostile now.
But what about demand?
Finding the streets I used to walk before
Remember that growth in demand has both been by design and a predictable result of that laissez-faire marketisation design of the early part of the last decade. During Clearing 2012, then universities minister David Willetts was arguing that more undergraduate places needed to be created at “heavily oversubscribed” universities to enable more to attend.
He said that universities should take advantage of at the time tentative reforms designed to give universities more freedom to recruit students – criticising the “extraordinary” rules imposed by local councillors in Oxford preventing more students living in rented housing in the city so that “more young people have the opportunity to go to a prestigious university”.
Let’s imagine that outside of Oxford and Cambridge, that has indeed happened. Towns and cities have soaked up a lot of new citizens. And in recent years, in selecting universities there has been further dramatic expansion in that location-agnostic “boarding school” mode of recruitment, and as the unit of resource has come under pressure everywhere, in recruiting universities there’s also been a sharp increase in demand via PGTs, their dependents and their post-study work entitlements.
This creates a policy puzzle, and unlike almost every other policy puzzle in higher education, merely arguing that more money is required doesn’t feel like it will happen, or even work if it did.
When I was free, when I could see
So let’s have a think. When a university recruits a full time, in-attendance student who:
a) is home domiciled and living away from home (or independently and not from the area), or
b) is an international student,
…we might assume a need for that student to be able to find accommodation at:
a) a reasonable cost relative to the income they can access
b) a reasonable distance from the campus where the programme is based, and
c) at a reasonable standard of quality and safety to enable living and study.
To make things a little simpler, I’m going to ask us all to set aside c) for the purposes of this thought experiment.
Other than for the purposes of supply to meet a recruitment “guarantee”, the magic of the market has largely done “worked” to generate bedspaces that fit all three factors. But not any more.
Let’s imagine that a noticeable number of students of the type I’ve described in a given place can’t actually access accommodation that meets the criteria I’ve set out, and assume that that isn’t a problem that goes away after a few weeks (like the “crash pad/sleeping in gyms/muddling through” tales of old).
The key questions might well be:
- Should we try to prevent that situation from happening?
- If so, who should be given the power and responsibility to do so?
- And what should they actually… do (or be supported to do)?
There are lots of permutations. For example you can make a case that says “no” to Q1 – and instead students live further out and come to campus less, enabled by technology. That generates lots of access, equity, immersion and mental health questions – but it also might be the right thing to do given the trade offs.
You also at the very least arguably need to be honest with yourself about those impacts and trade offs, warn students in advance, create some infrastructure to monitor the impacts and have a sense of the pricing and distance that crosses the line of acceptability for different groups of the in-attendance students you’re recruiting.
I wish somebody told me
If you are minded to try to prevent, you can attempt to influence the supply side. To do so you’d need to know the size and shape of the gap, at least roughly, in collaboration with other providers in a location. But before you get there, in the event that in, say, September 2023 you still can’t make both sides of the supply and demand equation match, do you ease off on preventing the situation (making it easier to “succeed” when further away) or bear down on restricting recruitment (because the housing market can’t take it).
Some would say that the pressure of the latter option is likely to help the market (in courses and housing) to respond. Some would say it’s immoral to make the poorest home domiciled students and poorer international students collateral damage in that process, especially if the growth is very rapid and/or the wider supply constriction is rapid too.
You could try to impact demand. Laissez-faire ideologues wouldn’t want to do that at all, but we will surely get to the point where it’s desirable to do so. Immigration controls are a highly problematic option. You could provide “consumer information” on pricing, safety and how tight a local market is – but that may not help as people pile in anyway, and it feels wrong to blame students who were, after all, warned.
You could deliberately seek to shift demand to less populated towns and cities – being tried right now across Denmark. But if you were doing so, would you put caps on more densely populated cities, or use incentives on less densely populated areas?
You could also – partly for social reasons – take the view that long term, we need to reduce the amount of “boarding” in general, and increase the percentage of home domiciled students that go to a university within commutable distance and/or only experience the residential thing in short bursts. Again, would you do that via incentives (on universities or students or both) or via caps and restrictions (on universities or students or both)? Plenty of folks (including the landlord lobby) argue vociferously against the latter, but do we do it in social housing – why not in student housing? What’s the difference?
And if we instead take the view that we need to address the affordability thing, do we allocate even more of what we think of as education spending to the pension pots of investors by providing more financial support, or do we reduce costs – again via incentives or rent caps and controls?
Don’t wanna be all alone
Both DK and I have long argued that coordination and planning over all of the issues should have happened by now – partly because doing so would bring together the right experts to flesh out intel on the options, and partly so that any downsides or crises can be spotted and averted before they hit humans.
I still think that matters, and I can both make a strong case for a specific government department to take responsibility and show some leadership and for student housing to be categorised and regulated in a similar way to the social housing sector. I also think we need to properly understand the wealth transfer and social mobility implications of a system which tops up others’ wealth via a long term financial instrument loaded onto graduates.
But even if I was at a round table right now, as well as having a dataset to play with and being able to find a minister to tap for a quote, we’d need some views to emerge on the options I’ve outlined above.
My personal view remains that providers in a city should be required to carry out an analysis, agree a total recruitment number with their local authority and local MP in each spring that includes some bespace slack, publish that plan and then be required to stick to it as part of their civic commitments.
But it’s clearly not the only option – and the alternatives are worth consideration. I’m even open to the idea of consciously deciding not to intervene, as was the case back in 2012. I do however think the sector has a responsibility to the people it recruits to consciously decide its approach one way or another – sharpish.