By Sadie Malim
Moorfield’s Sadie Malim on why fixing the student housing crisis means fixing HMOs too
Moorfield’s Sadie Malim on why fixing the student housing crisis means investing in HMOs too
It is no secret that there is a student housing crisis. Recent data from StuRents, which is part of a growing body of alarming research, points to a 283,000 supply shortfall as a combined total for the purpose-built student accommodation (PBSA) and houses in multiple occupation (HMO) subsectors. The supply-demand imbalance could reach as high as 620,000 by 2026, according to the company.
Sadie Malim
Students being forced to live more than an hour away from their campus are all-too-common reports. Others must settle for nearer but subpar accommodation at a price firmly out of kilter with the quality and management of that home.
This is unacceptable for a country whose universities are globally admired. Put simply, this crisis threatens the UK’s reputation on the academic world stage, where economic growth prospects, research and development capabilities and inward investment volumes are all by-products.
Harnessing the power of institutional capital is critical to increasing the quality and quantity of student housing.
The record-breaking £7.2bn invested in UK PBSA last year makes clear that institutional investors such as insurers, pension funds and sovereign wealth funds see the opportunity. Attractive diversification qualities are found in the promise of long-term, risk-adjusted and inflation-linked income streams in a deeply undersupplied sector.
The market opportunity in the lesser discussed HMO market – which accounts for almost 30% of all UK students privately renting – is just as compelling, with some added benefits, too.
Investing in existing housing stock enables investors to access resilient income streams without having to navigate planning risk and rising construction costs. It also allows them to contribute to the greening of the built environment through funding upgrades to improve the energy efficiency of homes, which are some of the oldest in Europe. Moreover, the growing sophistication of operational management means strategies of granular aggregation in highly fragmented markets are being seen as an opportunity, not a disincentive.
The sector is fertile ground for the implementation of environmental, social and governance (ESG)-focused investment and asset management strategies, with technology-driven refurbishment projects helping to reduce operational carbon emissions and future-proofing assets for regulatory changes. Greening the UK’s housing stock, while housing the next generation of scientists, artists and economists, provides a positive societal benefit that speaks to today’s ESG-minded capital pot.
The professionalisation of a sector will raise the management standards that are often left waiting, principally for domestic students – helping to ease any concerns around a post-Brexit ‘brain drain’ and what this means for the country’s competitive edge.
Investors will be encouraged by recent developments in Westminster, where government has formally recognised the fundamental importance of fixed-term tenancies to the student HMO business model, as it has already done in the PBSA market. It plans to “introduce a ground for possession that will facilitate the yearly cycle of short-term student tenancies” in the upcoming Rental Reform Bill. This compromise, although not fully optimal, will provide landlords with a degree of reassurance that the cyclicality of income streams can be preserved.
The Rental Reform Bill contains several other potential pitfalls for investors. A collaborative approach with government must be maintained to ensure further proposals, such as the abolition of a minimum notice period, are revisited. However, any lobbying efforts must be made through the lens of the impact on supply and the livelihoods of students, and not around any negative impact to the bottom line.
Fixing the multi-dimensional housing crisis requires collaboration between government and industry, with a recognition in the untapped potential of institutional capital to deliver better-quality homes in the student housing sector and beyond.
Sadie Malim is the head of ESG, special projects and legal at Moorfield Group