Should House Builders Have Gone To College?

Residential developers and volume house builders are often the most astute players in the property world. That relatively few have been lost in the downturn - now in its fourth year - is testimony to that.

But have they missed a trick with the student accommodation sector?

I’m doing a story for Estates Gazette about this market, which performs strongly despite the downturn elsewhere. It strikes me that entering into joint ventures with universities and colleges was an obvious move for house builders wishing to diversify.

In 1999 there were 334,594 accepted applicants for British universities - those were ‘first year’ students in 1999-2000, suggesting 1.1m undergraduate students existed in total (as most courses are three years in duration). Add to that another 75,000 postgraduate students per year - so double that, as most postgrad courses are two years.

By 2009 there was an average 44% rise in all of those figures - remarkable growth. Since then another 5% rise has taken place, despite the introduction of some fees. The largest growth has been in overseas students needing year-round accommodation.

Yields for student accommodation have been very strong during the past decade - from 6% to well over 9% per year according to research by Investment Property Databank. So this sector has rocketed, and has kept rocketing, at precisely the time the mainstream housing market was itself booming - but then dropped off sharply for the downturn.

Of the big residential names only Berkeley Group diversified with its Berkeley First student operation - why did the others choose not to?

After all, they flirted with other sectors when they tried to off-load unsold stock in 2008 to housing associations - why did they not do the same with universities or colleges?

Is it just that house builders have substantial land banks and insist on waiting for the resi market to lift? Are there tax advantages from not building at all, rather than building lower-return properties like student accommodation.

Perhaps. But now it’s too late. The student sector remains strong but there are several specialist developers now dominant and others are unlikely to enter with higher fees and possible caps on foreign student numbers set to make the market tougher in future.

Has this simply been a missed opportunity?

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