Recession boost for student towns

University cities defy property slump as new graduates snub tough jobs market, reports Hilary Osborne

The Observer, Sunday 2 August 2009

The recession has had a big impact on the property market, but one sector appears to be benefiting from the downturn. Demand for student digs is rising due to an increase in the number of A-level students going on to further education and new graduates snubbing the jobs market in favour of a higher degree.

"Undergraduate [course] applications rose 9% in the 2008/09 academic year and are forecast to continue growing," says Lucian Cook, director of research at property firm Savills.

"Postgraduate numbers are expected to see a similar surge in response to weakness in the jobs market. Purpose-built student accommodation has failed to keep up, diverting students into the private rental sector where they compete with aspiring first-time buyers."

This is the case at the University of St Andrews, on the east coast of Scotland. Local estate agent Ian Morton, a partner at Bradburne & Co says the university saw a surge in numbers last September and this year could be equally busy. "People are not taking gap years because they realise it is hard to get a job," he says. "Last year there was a major shortage of accommodation and the university had to rent from the private sector."

Rents are high - top digs fetch £500 a month, a room - so investors and parents are still keen to buy, paying around £150,000 for each lettable bedroom.

Scottish government figures for the wider area of Fife show property prices are down just 0.8% year on year, against a fall of 4.4% in Edinburgh.

Prices are also holding up in the student areas of Nottingham, according to Paul Perriam, area director of estate agent William H Brown.

"The core student area is Lenton. It is primarily Victorian terraced houses which are now almost entirely given over to student accommodation," he says. "Prices have held up really well - they have come down, but not to the extent of the general market." According to Perriam, a room in a good property can attract £75 a week .

In Canterbury, Mark Weller, an area partner for Connells, says several investors have added five or six student homes to their portfolios this year. "Properties suitable for student buy-to-lets are selling quickly, particularly three-bedroom semi-detached and end-terrace houses, that can be extended or converted in some way to produce four- and five-bedroom properties," he says.

But there are signs the general slowdown is having some impact, even in St Andrews. Morton says some parents who had planned to sell up as soon as their children left university have opted to hold on to property while they wait for an uplift in prices.

In Norwich, where students at the University of East Anglia flock to an area called the Golden Triangle, Joanne Pennells of haart estate agents says fewer properties have come back on to the market than in previous years.

Just as the student property market has specific drivers, it also has its own threats. One problem is that universities are creating more accommodation for second and third-year students.

In Durham, building by the university has led to a fall in demand from investors and parents, says Geoff Graham of estate agent JW Wood. "There seems to be a bit of an oversupply," he says. "Landlords have been finding they can't get tenants, or where they would have five in a house they are now getting three or four, or the rents they can get are lower."

Another potential problem in England is proposed changes to the rules on houses in multiple occupation (HMOs), which form part of a government consultation set to close on Friday.
The change, designed to reduce the "studentification" of large areas of towns, would force anyone letting a home to more than three unrelated people to get planning permission to make their property a HMO - now this only applies if there are six or more tenants.

Giles Ferin, a planning specialist at law firm EMW Picton Howells, says it could have a serious impact on the property market if the government adopts the proposals. "A lot of parents buy properties for little Jimmy or Jenny to live in while at university, and rent rooms to their friends to cover the mortgage costs ... this would potentially scupper that. If the number of people you need to cover the mortgage is going to be your child, plus more than two others, you are going to have to get planning permission."

This will add extra cost and time for the first set of people converting these properties and will mean they can't go back on to the market as regular homes. It's by no means a done deal that the rules will come into force. But if they do, they could be a bigger concern in many university towns than the recession.