The case for student accommodation in the U.K. is exemplified by the recent experience of David Seivright, a bright and ambitious 18-year- old teenager, who received final confirmation of acceptance for an undergraduate programme at the University of Kent in 2021. Unbeknownst to David, who was excited at the prospect of college, were the challenges he would have had to overcome to secure a bed in his future university town. And David was not alone in this struggle.
In recent years, a growing number of students have been desperate to find suitable and affordable accommodation. The shortage is so acute that pupils’ adversities in the media became a national sport, commonly referred to as the “UK student housing crisis”. “Devastated UK students forced to live in neighbouring cities in university accommodation crisis”, an article from The Guardian wrote in 2022. “Undergrads could start the term in hotel rooms ...or in completely different cities” titled the Daily Mail in August this year. These headlines reflect the grim reality facing students from Glasgow to Bristol, from London to Manchester where a worsening demand-supply imbalance is pushing rents higher without solving the underlying shortage of suitable accommodations. And there lies the investment thesis for student housing in Great Britain in a nutshell.
Estimates show that the shortfall of student beds across the UK’s top 20 university towns and cities increased to 240,000 in 2023, an unprecedented level amounting to a crisis in housing. The gap is causing negative effects at multiple levels, including much longer commutes, higher rents, deprivation, and even mental health issues in the most extreme cases. Thus, economically disadvantaged students have to sometimes defer their degree programmes or abandon them altogether due to the lack of suitable accommodation. The new phenomenon of couch surfing by students descriptively demonstrates the dire situation some pupils are facing. Should the emergency continue or worsen, the international reputation of UK higher education, an economic powerhouse whose exports amount to roughly £23bn per year, may also take a knock.
How did the situation escalate this far? And most importantly, what can the investment management industry do to alleviate the problem? These are the two main questions addressed in this paper.
EXHIBIT 1: Student housing press review points to a severe shortage
Source: Various media outlets, 2023
High education demand has boomed... and is yet to slow down
There are several factors that have led to the current student housing crisis in the UK. A key driver of the abysmal state of student living is the steady expansion in the student population which has constantly grown over the past decades. In post-war Britain there were fewer university students than in most other Western European countries. Higher education was considered a path only a small elite group could follow and afford. In those days, the number of the “chosen few” was below 200,000 people, of which women accounted for merely a quarter.
A structural change occurred during the 1960s when parliament and public opinion embraced the principal that an inclusive (rather than elitist) higher education model was a desirable goal to pursue. By expanding the university provision, Parliament argued that society at large would benefit from the spreading of knowledge, the uplift of labour force skills, and the advancement of the economy. The new golden rule was to build a larger and fairer tertiary education system where all applicants with appropriate attainment and ability who wished to attend it should find a place. Those years marked the birth of the mass higher education model we have today, which revolves around a centralised admissions service and a national financial support system. These reforms allowed a larger set of young people to attend university, attracted by the prospects of a professional career and higher relative wages.
EXHIBIT 2: The remarkable rise of UK higher education student population
Higher education student population in the UK over 1960 -2022, thousand people
Note: 2022 figure includes alternative providers
Source: HESA, London School of Economics, 2023
Since then, the increase of the student body has been remarkable. Participants in UK universities reached a new all-time high in 2022, when the total number of enrollments jumped to a record 2.86 million, driven by an increase in both domestic and international students, which accounted for 76% and 24% of the total respectively.
The growth in foreign intakes have been particularly strong over the last decade. Brexit and the COVID-19 pandemic notwithstanding, concerns over a trend reversal due to higher fees, travel restrictions and coronavirus prevention measures were soon blown away as applications from international students continued to surprise on the upside.
Estimates for future demand shows the growth trajectory is likely to continue as the number of people between 15 to 19 years of age is forecast to rise by 400,000 people from 3.1 to 3.5 million between 2020 and 2035 in the UK, according to official figures from the Office of National Statistics (ONS). Meanwhile, demand from overseas is also set to increase, amid favourable socio- demographic trends in developing markets - China, India and Nigeria are the top three domiciles of international students in the UK - and expanding global student mobility. In other words, there exist all the ingredients for the student housing crisis to spread more broadly in the years ahead, should the new supply of beds not ramp up accordingly.
EXHIBIT 3: The UK has the second largest number of student population after the U.S.
Evolution of foreign students intake over 2000-2022, thousands
2022 data available from the UK only
Source: PMA, 2023
EXHIBIT 4: Global student mobility is rising
Global international mobile students, millions
Source: OECD, 2022
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MM9914-08 | 10/2023 | 3150160-122025