Ways the Augar review could tackle student housing

Over the past two decades, student accommodation in the UK has changed fundamentally. In the late 1990s there were an estimated 300,000 purpose-built bed spaces for students in accommodation owned or leased by universities. Much of this accommodation was of indeterminate quality because of historic underinvestment. By 2019, this figure has increased to more than 627,000. 

While a tide of development has undoubtedly floated the boat of quality, it has been argued that investment in the accommodation sector has led to a widening of the affordability gap between current levels of maintenance grants and annual accommodation fees.

In considering regulation to reduce the cost to students and the public purse, the imminent Augar review of post-18 education in England would have to contend with a fully developed and mature industry whose assets have become a property class in their own right; one that is highly diverse in terms of size, approach and intention. 

However, it is no accident that this industry has developed as it has. It has its origins in decade-old higher education policy and market mechanisms that have developed to compensate for substantial reductions in capital grants from the now defunct Higher Education Funding council of England, identified by the 2015 Frontier Economics review as falling from £1.2 billion per annum in 2005-06 to £340 million by 2013-14.

It might be that the Augar review looks to drive affordability by suggesting that the government imposes a cap on rents, where universities own and operate their own accommodation. This could take a variety of forms, such as a ceiling rent agreed with the Office for Students and each institution, based on a relationship to median rents and local market conditions, for example. 

But such an approach would prove subjective, political and untenable in terms of the level of bureaucracy involved. It would also involve a further reduction in revenue for universities. 

The OfS could alternatively seek to set a minimum proportion of affordable rooms relative to tuition fees, along similar lines to those proposed by the National Union of Students in its latest annual accommodation costs survey that called for 25 per cent of rooms offered at 50 per cent or less than current student loan funding. 

Assuming there is an appropriate mechanism for making this enforceable, this would certainly benefit those students attending universities in cities where accommodation markets are pressurised and for those on more expensive campuses. 

However, unless carefully administered, this move would disproportionately benefit middle-class students at larger and wealthier institutions and have limited impact on those attending universities in more socially disadvantaged areas. It would only have a marginal impact as about 20 per cent of rooms are already priced in line with NUS recommendations and 70 per cent of institutions have already taken steps to improve affordability.

Augar will also need to take account of the impact that such steps could have on the sustainability of the estates of universities and individual institutions’ debt. If rumours that the review will recommend cutting tuition fees are true, this loss of income, compounded by a fall in residential income, would probably result in further structural underinvestment as debt servicing becomes the priority. 

The quality of the learning environment could be damaged as a result, alongside a continued rise in institutional indebtedness that, since 2010, has gone as a percentage of total income from 21.9 per cent to 31.2 per cent.

In terms of indebtedness, only 13 per cent of new beds becoming operational were developed by universities. A significant number have chosen to generate capital for investment leveraged off their existing residential assets. Long-term partnerships with private sector providers to develop new accommodation on campus are designed to share the risks and benefits of developing new assets. But these should also provide financial benefits for the whole term of the arrangement and demonstrate social benefits for institutions and the HE sector more generally. 

However, the trade-off is the requirement for long-term agreement on rents as part of the contract. In these arrangements, operators are typically entitled to increase rents by an amount linked to the Retail Price Index. In practice, setting rents is a negotiation between the partners and their students based on market conditions. This means that the OfS has limited wriggle room to reduce rents in accommodation procured in this way.

A review of accommodation affordability would be complicated further by the nature of the market for purpose-built student accommodation (PBSA). In the case of direct-let operators the scope for reducing rent prices would be limited because such accommodation forms part of a highly competitive, open market in university cities across the UK and is home to 30 per cent of full-time first-years. 

While accommodation costs will include a consideration of prices in university stock, they more readily reflect demand and supply dynamics and their impact on net asset value. Although variable by market, rent rises have therefore continued at rates slightly in excess of RPI. Ironically, rent increases in PBSA accommodation tend to be more restrained where a university nominates part or all of a residence, allowing influence over the operator on price.

If the Augar review chooses to address accommodation costs directly,  it must recognise the complexity of providing homes for students. Accommodation is an integral part of the student experience and is vital to retention and ensuring students are integrated into university life. 

More students than ever are studying away from home and in an environment where local authorities are limiting the supply of houses of multiple occupation, there remains a structural undersupply of quality accommodation. The review will need to tread carefully if it is to avoid further damaging university income streams, which are currently compensating for decisions on spending made more than a decade ago – or else it could inadvertently disadvantage the very students it seeks to help. 

Jon Wakeford is group corporate affairs director at the University Partnerships Programme.