October 25th, 2017
As student landlords it’s always pertinent to remember that as profitable and successful as the Purpose Built Student Accommodation (PBSA) asset class is, it relies on students being able to get sufficient and fair funding from the government to be able to study.
Student rents are, more often than not, paid for by student finance and as such it’s important for landlords to remember that their income relies on the government encouraging young people and those looking to further their education to attend university.
Student finance, fees and bursaries have been prominent news for some time following the rapid rise of Jeremy Corbyn and his brand of Labour politics. Having pledged to abolish fees and reintroduce bursaries that had been abolished by the current government, further education came under increasing scrutiny by the media and the voting public.
It’s not just that, though, as Brexit begins to bite there has also been a focus on student numbers and the potential for them to decrease, especially from Europe. Many in the academic community fear loss of funding and a barrier to cooperative research currently underway.
With that in mind, we’re asking – what’s the reality of student finance today?
According to The Guardian, ‘the average rent for a room in purpose-built student accommodation has gone up by 25% over the past three years to just under £123.96 a week, according to the latest figures from the National Union of Students (NUS). That is £5,244 a year, 95% of the maximum available student maintenance loan.
But there is a big variation in weekly rents charged by different provider types. Purpose-built accommodation is divided into three broad categories. The average weekly rent is £118.49 in university-owned halls of residence, compared with £119.83 in privately owned halls of residence linked to universities through a “nomination” agreement and £140.07 in halls operated by private suppliers without institutional links.’
With the average rents sitting at over £5,000, what do students receive for living costs?
According to the government’s student finance advice website students living away from home can receive up to £8,430, but this is means tested according to incomes. Once students have paid the average rent, this would leave them £3186 per year to live off, or alternatively just under £100 per week if you’re at the very top of the scale. This money is provided to pay for food, travel costs and study costs as well as other leisure costs.
It’s not difficult to see why students may struggle. The fact remains that PBSA rents aren’t particularly expensive relative to the experience to the student. It’s well noted that many of the university associated housing stock was subpar and lacking in even basic luxuries such as a private toilet.
Nicky Morgan, former education secretary, will be leading a government enquiry into student finance and tuition fees in order to find whether there is a fairer way to balance things out. One of the proposals on the table will be a graduate tax, which would replace fees.
The Prime Minister Theresa May recently announced that she will freeze tuition fees at their current rate and will also raise the income threshold at which students repay their loans from £21,000 a year to £25,000 a year.
According to the same Guardian article, The Institute for Fiscal Studies (IFS) has estimated that the changes will shift the cost of higher education by £2.3bn a year from graduates to taxpayers, with 83% of recent graduates unlikely to repay their income-contingent loans in full.
Earlier this year, the free-market think tank Adam Smith Institute proposed a graduate tax in its A Millennial Manifesto publication. It suggested a tax of 5% levied on graduates earning over £22,500 in income, rising to 8% for those earning over £30,000. It also suggested that there should be no interest charged, instead indexing the amount each year in line with inflation.
Further to this, though, Labour and many student groups have suggested that the removal of bursaries and loans from poorer students have harmed social mobility and discouraged those from less wealthy backgrounds from attending higher education.
If we can draw a conclusion, it’s that the system may work for now but there seems to be a growing consensus that it can’t continue as it is. The PBSA asset class certainly doesn’t look likely to slow down any time soon but it’s worth noting that for these yields and rents to continue to fund high profits for landlords, the government needs to ensure proper and fair funding for students.