Huge undersupply of student rentals causes problems for new undergraduates

First-year students are usually guaranteed a place in university halls of residence. However, this year, many were told by their university over the summer that halls were oversubscribed, with some even offering financial incentives for undergrads to live off-campus.

Just some of the reports that have hit the press recently:

• The University of the West of England in Bristol still had 485 students on its accommodation waiting list at the start of September.
• Glasgow University informed students that university accommodation couldn’t be guaranteed and applications from anyone living within commuting distance would be automatically rejected.
• Manchester University has been offering new students £2,500 to live off-campus. They’ve also secured ‘contingency’ accommodation in Preston and Liverpool and are giving students £100 a week to help with the 45-minute commute.
• The president of National Union of Students Wales said that some students studying in North Wales are commuting from Northern England because they could not find adequate accommodation
• St Andrews University has been advising prospective students to live in Dundee and make the hour’s journey each way for their studies.

Not every student and university is struggling, but a combination of not enough bespoke accommodation and a lack of properties on offer from private landlords, means some areas are desperately short of suitable rentals.

Some students are having to live at home with their parents and some are in temporary digs until they find more permanent accommodation.

Those who have had to rent in neighbouring towns and cities and commute for their studies aren’t getting to enjoy student life in the city they chose.

Worst of all, some students have had to turn down their offer of a place for this year because they simply weren’t able to find a home.

Why is there a student accommodation shortage?

The problem has come about through a combination of factors:

1. Unprecedented demand. The biggest reason why so many students have been left without accommodation is the sheer number starting university this year.
   
   The pandemic caused a lot of undergrads to defer their places, which has led to an influx of students in the post-lockdown era.
   
   And this is on top of already booming student numbers from the previous two years. In 2020, a record 570,000 students were accepted onto places at UK higher education institutions (according to UCAS).
   
   And the figures of accepted students remain high, with over 550,000 students accepted in the 2023 academic cycle.
    
2. Not enough purpose-built student accommodation. At the same time as demand has risen sharply, the supply of student rentals has fallen. Since 2020, the number of new beds have been slowing down. In 2020, 29,048 new beds were created. It has reduced every year to 2023, where on 13,543 new beds were created.
    
3. Lack of stock in the Private Rented Sector (PRS). Increased regulation in the Buy to Let sector, combined with the temptation of bigger profits, has seen some landlords move over to Airbnb and holiday lets.
   
   Others have simply sold up and exited the market altogether, either because that had always been their long-term investment plan, or they were encouraged to cash in due to recent increases in property values. 
    
4. Reduced turnover of stock. Some existing students, who would normally have moved on to different accommodations after their first year, have chosen to stay where they are.
   
   They’re aware of the lack of choice out there and don’t want to risk losing a home in the city altogether or an almost certain rent increase.
   
   That means there just isn’t the same flow of rental properties coming onto the market as in a ‘normal’ year.
    
5. Properties that might be available are too expensive. Students who can’t secure a place in university halls are left looking in the PRS. In just 2023, the rent for PRS went up 6.1%.
   
   Rising energy and household running costs has meant demand for smaller properties that are cheaper to run has massively increased, and students are simply being priced out of two and three-bedroom flats.

This shortage could offer good investment opportunities

Houses in Multiple Occupation (HMOs), where you have three or more unrelated people sharing, can make a great investment.

And with a huge back-up of demand in many areas, plus landlords all over the country keen to sell properties that they’ve been successfully letting for years, this could be a fantastic time to jump into the student rental market.

Four key reasons why HMOs offer a solid investment opportunity:

1. The rental income is very secure. Some landlords worry about students not paying, but they’re usually very reliable tenants. To cover yourself against being left out of pocket, you can:
   • Have them all sign one tenancy agreeing to be jointly and severally liable. That means they’re obliged to pay the total amount of rent as a group, so if someone leaves or doesn’t pay, the remaining students have to make up their share of the rent.
   • Ask their parents to act as guarantors. That means they have to cover the rent if their child defaults and you have extra financial security if there’s any damage at the end of the tenancy.
2. Demand is strong and consistent. Most universities are oversubscribed, meaning there’s solid demand from students every year. Just find out which areas are most popular, so you get the pick of applicants who are willing to pay the best student rents.
    
3. It’s a regular 12-month rental cycle. Even though the academic year runs September to early July, most landlords ask students to sign a 12-month agreement.
   
   That’s generally fine with the students because they often stay on through the summer to work, study or carry on with their social lives. As and when they leave, it will usually be at the end of a 12-month cycle and they tend to give plenty of notice.
    
4. Yields are usually higher for multi-lets. Ongoing costs for maintenance and admin will be higher than for a single let, but charging on a per-room basis should give you enough rental income to cover the extra outgoings and still leave extra profit on top. 

If you’d like to know more about investment opportunities and the demand for student accommodation in your local area, just contact your local Your Move branch and speak to one of the lettings team.

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