Lack of Student Accommodation Pushing Up Demand

With a record-high number of university applications, the supply of student accommodation is struggling to meet demand. As landlords consider their next investment, the student property market offers attractive benefits for investors looking to achieve high yields and strong demand.

Recent data from UCAS and UniHomes reveals that university applications from 18-year-olds have reached their highest levels in almost a decade. For context, the academic year of 2020/21 saw 88% of its 2.66 million student population living in student accommodation, and this figure promises to continue to grow.

As well as a record number of applications, almost 30,000 students deferred their places for September 2021, a 12% increase on 2020. This significant increase is likely down to the pandemic restrictions putting many undergraduates off, but as they now start their degrees, they will need housing too.

Despite these record numbers, landlords may be surprised to learn there is still a real gap in the market awaiting prospective investors. Recent legislation and regulation changes to financing HMO properties have resulted in some property investors deciding to leave the market. With tougher regulation in place to create higher HMO standards, it has left many in the sector struggling to afford the costs that come with making these changes. As such, supply levels are not where they should be compared to the demand.

The 2019/2020 academic year saw just over 511,000 HMOs in England alone, but this fell to 497,000 by the following year. London saw the most significant drop-off in student HMOs, with a loss of 13% just one year. This level of decline at the same time as the increase in demand means that landlords looking for a future investment have the opportunity to truly maximise their profits.

Why invest in student HMOs?

Other than the increase in student demand, rental yields for HMOs can be much higher than on a standard buy to let. Data from our latest Buy to Let Mortgage Index reveals that while vanilla buy to let properties had an average yield of 5.35% in Q1 of this year, HMOs had an average of 7.57% for the same period. Despite this yield disparity, purchases for HMO properties were 19% lower than that of a standard buy to let, again highlighting the opportunity available for landlords.

While HMOs are the traditional property for students, other property types also do well. It’s not uncommon for three to four students to live in multi-lets (house shares that do not require an HMO licence) or one- and two-bedroom flats. So, if you’re not keen on running a medium to large HMO, you can still reap the rewards of student letting!

Where to invest in student accommodation?

When considering where to invest, there are many different aspects to bear in mind in order to make a successful investment decision. These can include what students look for in accommodation (e.g., what facilities are most popular, proximity to campus, etc. ) and when specifically students will be looking to decide on accommodation. However, perhaps the most important factor is where regionally is best to invest. Recent data from Trussle has shown the current top five UK universities based on rental yields:

Source: Trussle.

Data from Paragon showed that student properties generated a mean gross yield between 6.15% and 6.6%. This far outperforms the broader private rental market, where yields sit between 5.43% and 5.6%! Furthermore, Savills Research predicts that the 2022 autumn intake will be c630,000, the third year in a row it’s been over 600,000 for undergraduates alone. So the demand isn’t going away anytime soon!

If you’re considering diversifying your portfolio and investing in student accommodation, we can help. Our experienced whole-of-market brokers can search the market for the property finance that suits your needs and sets you up for success. To get in touch, call us on 0345 345 6788, or submit an enquiry.

For more information on investing in student accommodation, don’t miss our Guide to Becoming a Student Landlord.

19th August 2022