Impact of University Fees on your PropVestment

Tuition Fees

Since the announcement some time ago about raising of tuition fees up to £9,000, the pros and cons have been weighed up by the media, but mostly from the perspective of the students and their overall cost of university. At PropVestment we like to consider you, the Property Investors perspective or the “PropVestor” as we like to refer to you.

A recent report by Centre for Cities shows the economic impact of the rise in UK university fees. They suggest that some local economies will be seriously hit by the rise in student fees and the loss of student numbers.

In 2007/08,  the mean total expenditure of full-time English-domiciled undergraduates was £12,254 per student across the three terms.
If this held  true in 2008/09 for the 50,100 undergraduates in Leeds, then their total spending would have been around £624 million; while the spending of the 21,800 undergraduates in Stoke would have amounted to £267 million.
Undergraduate consumer spending alone accounts for up to 10% of the total economic activity of some cities and some of this, the report says, will definitely be lost.The impact will obviously differ across cities. Even though it is estimated for Oxford and Cambridge where students account for 8-10% of economic activity, the institutes will have full admission and places will not be lost therefore the volumes will not suffer. Other cities may fair much worse.
In terms of rental demand, this will change proportional to university places, students need a place to stay regardless. However the amount that students can budget for rents will be much lower and there will be a battle similar to the one with house prices at the moment, where landlords hold out too high rents and affordability is low, this could result in the most stubborn Landlords left with vacant properties, and students out of accommodation.Rising student numbers has been one of the reasons why the buy-to-let market has boomed in recent years, but will pricey tuition fees be damaging to landlords?Whilst the majority of students have historically moved away from home to study, will this practice continue in light of tuition fee increases?
The student population in major university towns could plummet, leading to a catastrophic decline in demand for student housing. Many Landlords have their portfolios quite concentrated on student housing and may suffer with lack of diversification across their portfolio in terms of property type and geographical locations.
Many student properties could be made available for the standard private rented sector, however, the yields on student properties do tend to be higher. Student landlords need to be aware of changing market conditions and to regularly review their business strategies in order that they do not get caught with a glut of unwanted property.

Students staying close to home

Home insurance company LV thinks that there could be flash selling of investment properties in university towns.
The UK university fee increase, together with declining numbers of 18 to 24-year-olds in the general population, will see a 14% fall in higher education numbers over the next decade.
They forecast that the number of students living in the city of Newcastle will slump by 52% in the next nine years – a loss of 15,000 students. It also predicts the student population of Sunderland will fall by 35%.
Other cities which will feel the impact include Swansea, Portsmouth, Stoke-on-Trent and Nottingham, with university student population forecast to decline by 40% in these areas.
Student life is set to be transformed over the next decade, as the impact of rising tuition fees forces university students to reassess their finances and living arrangements.
LV suggests that by 2020, 52% of students will choose a local university and stay with their parents. Only twenty-one per cent of UK full time students currently live at home.

PropVestment conclusion

Overall the rise in tuition fees will impact student landlords, and we are not here to argue the righteousness of university decisions. Like all the best in business landlords much take precautions and adapt their strategies according to changes in the market. In all fairness many landlords, our clients included have enjoyed the student boom and milked rents well, in particular those using HMOs. We advice landlord over exposed to certain geographical areas to research and find the up to date information about the universities future plans, fee charges and expansions. Being ahead of the game and well informed is the fore most priority to be successful. Use this information to adapt your target, maybe start advertising earlier or more strongly for the 2012 intake of students.

If the university has a high percentage of foreign students, circumstances may not change as much as they will still be paying the same higher fees. Alternatively if its one of the top universities or around London, there is so much demand for student living and also young professionals, the impact will be less extensive.
There may be a greater demand for less exclusive or ex-local rental properties and as students budget and trade down to affordable or larger properties with higher occupancy possibilities. From our experience these can be the most appropriate properties for students.
The impact on the whole UK property market will not be much and if anything may help local people afford rentals more, where in recent years they may have been out priced by the influx of students.

We at PropVestment are experienced in Buy To Let and Student rentals so for any advise do not hesitate to contact us, for a no obligation consultation. We have great means to advertise to students, manage lets, legal matters and HMO regulations as well as a tight network of letting agents. Read our buy to let blog.

Have a read of our other articles on Student Housing:

PropVestment in Daily Mail: Wise councils: Spacious and solid, ex-local authority houses can be a very good deal
PropVestment Guide: Top Tips for Property Listings
Today: New Laws for Landlords, All Tenancy agreements upto £100k become ASTs
HMO: Huge Money Opportunity
Landlords : How to protect against bad tenants

Sources:
http://www.centreforcities.org/assets/files/2011%20Research/11-05-05%20Starter%20for%20ten.pdf
http://planetproperty.wordpress.com/2011/04/19/university-fees-the-end-of-buy-to-let/
http://planetproperty.wordpress.com/2011/05/05/university-cities-will-be-hit-hard-by-student-fee-rises/
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