New figures have shown Simon Morris that student housing investment volumes are set to triple by the close of 2015, as investors come to realise the benefits of this lucrative asset class.
The UK’s student population has recorded impressive growth volumes in the past few decades. Figures quoted by the Economist show that the UK’s undergraduate population expanded 45%, to 1.8 million, from 1994 to 2012. London’s full-time student population is set to grow 50% in the coming decade.
Despite these growth volumes, the student housing market hasn’t traditionally been viewed as a lucrative opportunity for investors. However those same Economist figures indicate that this trend started to reverse in the 2000s. The number of students living in halls owned by the private sector rose 46,000 to 102,000 between 2007 and 2014.
Rising investment volumes
New research from property firm JLL shows that investors have started to capitalise on the student housing market. Property Wire reported that JLL’s research indicated investment in student housing is expected to triple to £5.7 billion by the close of 2015. Meanwhile direct investment in student housing increased from less than £500 million in 2010, to £3.8 billion over the first half of 2015, with £1.5 billion invested in the London market.
Why are investors turning to the student housing market? It may be because constraints on mortgage lending, coupled with rising house prices, have forced the UK’s student population to increasingly turn to rented accommodation. In other words more students are renting, especially from buy-to-let residential property landlords. 28% of the UK’s student population now live in Houses of Multiple Occupation (HMOs).
Good quality accommodation
Philip Hillman, chairman of JLL’s Alternative Division explained: “The provision of good quality student accommodation was traditionally the responsibility of the universities but in recent years, most new accommodation had been provided by private investors and developers.”
He added: “We have seen extraordinary growth in UK student numbers over the past 20 years and while UK student numbers are now stabilised, international student numbers set to rise dramatically in the next decade.” With student numbers growing and the responsibility of providing good quality housing increasingly falling to developers, investors are realising that they can make significant returns by investing in student property.
Invest with pension?
This may suggest to investors that they can utilise recent reforms to swap their pensions for buy-to-let property, in order to accrue the stable income stream they need to support retirement. As Simon Morris has recently commented, however, this strategy comes with a number of risks, which is why investors should conduct extensive research before pursuing it.