This blog was written in a personal capacity by David Tymms, Chair, British Property Federation Student Accommodation Committee and a Director at iQ Student Accommodation.
London is the epicentre of the United Kingdom’s, and arguably the world’s, higher education system generating £17 billion of goods and services in 2020 according to the CBI. With more than 50 universities, the capital is a popular destination for UK and international students, and home to four of the world’s top 50 universities.
In the 2020/21 academic year, there were an astonishing 370,000 full-time higher education students studying in London, which is around four times the 97,000 Purpose-Built Student Accommodation (PBSA) beds available; a student-to-bed ratio that is almost tragically inadequate. Growth in full-time students from 2015/16 to 2020/21 was 80,000, equivalent to adding the University of Birmingham and Nottingham Trent University to the capital in just five years. HEPI’s 2020 report, Demand to 2035, foresees continuing significant student growth in London.
At the same time, the number of PBSA beds grew by around 17,000. The Greater London Authority’s (GLA) own forecasts, published in October 2018, projected full-time student numbers in the capital would reach just over 350,000 by 2041/42 year, a figure already hugely exceeded. In the same report, the forecast need for PBSA beds was 170,000, way above the 97,000 PBSA beds currently available.
So, the problem is writ large, and everyone agrees – there are insufficient purpose-built student beds in London.
The result of rapidly expanding student numbers and limited new supply is, of course, soaring rents, which now average above £300 per week in Zone 1 of the London Underground. Most UK students cannot access affordable PBSA and are pushed into poorly regulated houses in multiple occupation, accommodation which itself is desperately required for other groups, including families. Almost one-quarter (23 per cent) of the emerging Build to Rent (BTR) sector is occupied by students in the capital – not its target market and further reducing housing for families and professionals.
The London Plan 2021
The GLA recognised this issue in the development of the London Plan 2021. Following consultation, it introduced affordable rents and put universities at the heart of student housing development. The central policy plank required 35 per cent of rooms in new schemes to be affordable and the ‘majority’ of beds to be nominated (contracted) to a university. Affordable rooms, irrespective of location, type and size, were to be priced at 55 per cent of the maximum London student loan. Today, this equates to around £180 per week for 40 weeks.
The problems with the policy
The desire of the GLA to support widening participation was laudable. However, the method chosen has instead stunted supply and forced rents in existing stock to record levels. The reasons for this were largely foreseeable:
- Viability: Land values in London are some of the highest in the world. Inevitably, affordability requirements have resulted in competing uses (hotels, offices, etc.) producing higher land values and the requirement for identical rents in Belgravia and Barnet has, unsurprisingly, proved to be extremely challenging.
- University Balance Sheets: Finance heads at higher education institutions have been understandably reluctant to underwrite third party accommodation in an uncertain funding setting and volatile post-Covid student recruitment environment.
- ‘Majority’ Rooms Provision: With 35 per cent of rooms required to be affordable, 15%+1 of the remaining market rent beds must also be contracted to a higher education institution for policy compliance. Universities willing to take the affordable rooms are often unwilling or simply unable to contract for the balancing 15%+1 room.
- Room Mix: The affordable beds must be evenly distributed across all room types to avoid stigmatising less well-off students. This policy necessitates placing (and isolating) first-year undergraduates in studios priced at the same rate as regular rooms, creating allocation headaches for university accommodation officers.
- The Affordability Definition: Linking rents to the maximum London maintenance loan (which itself has no basis and few students receive) damages investor sentiment as the figure is at the whim of the Treasury and therefore lacks certainty.
Although early days, planning applications just pre- and post-Plan adoption indicate how delivery is starting to reflect Plan policy. Of the 20 submitted since March 2021, when the Plan became effective, five have been granted consent to develop, three have been withdrawn and 12 are awaiting consent.
Under the London Plan, only 3,187 beds have been granted consent providing just 1,320 affordable beds. Of these 20 applications, only 10 have identified university letters of support, a key part of the policy, calling into question the chances of success of the others. The applications with letters of support, except one, are all from Russell Group universities. The London Plan is demonstrably failing to meet the needs of smaller higher education institutions and post-92 universities and has delivered only a tiny number of affordable beds.
A great deal can be done by the GLA in its next iteration of the London Plan to improve supply. Removing the requirement for universities to contract greater than 50 per cent of rooms rather than just the 35 per cent affordable beds would immediately improve engagement between developers and universities. Allowing variable affordable rents across London Underground zones one to six and for just the entry level room type to be designated affordable would significantly improve viability. London higher education institutions should also consider working with London Higher or similar so a coordinated approach to affordable PBSA need can be developed rather than the present situation which sees the Russell Group dominating opportunities to the exclusion of others.
Ultimately, if implemented, even these changes will still deliver only a fraction of what is required. The small numbers of affordable rooms delivered will be allocated to first-year undergraduates who will then have to wrestle with market rents for the remainder of their studies. As student housing charity Unipol have championed, far better that the financial support is attached to the student rather than to the bricks. But that is for another blog.
London has a world-class higher education eco-system. The time is here for student housing planning regime to match it.