Towns and cities up and down the country are experiencing pressure from the continued withdrawal of Buy-to-Let landlords (-76,000 net Buy to Let mortgage redemptions in the year to Aug-22) and the recent surge in rental demand. Nationally, there were -29% fewer listings on Rightmove in Q3 2022 vs the 2017-19 average, while annual rental growth has risen to 11.9% in August 2022.

Falling supply has been felt strongly across all major urban areas. But shortages have been particularly acute in student cities, especially those where there is high graduate retention and where the ratio of students to Purpose Built Student Accommodation (PBSA) beds is high (Fig 1). In these cities, inadequate student housing provision has greatly increased competition for rented housing in the wider market.

Compounding the issue further, full-time students grew by 8% in the latest academic year according to HESA data, following over 560,000 acceptances – the second-highest number on record.

RISING STUDENT NUMBERS WILL SUPPORT THE GRADUATE POPULATION FOR YEARS TO COME

Student numbers are likely to remain elevated with the UK’s 17-19 year old population projected to grow more than 17% by 2030 (Fig 2). Based on current participation rates, this will amount to an additional 155,000 first year applicants over the next eight years. We may even see participation rates rise as more young people choose education over an uncertain jobs market.

Where student numbers rise, so do the number of graduates, a  core tenant base of Multifamily (MF). Graduates are important for MF because many have lived in PBSA and will be accustomed to the benefits of purpose built housing of this kind. They like living in modern, secure schemes in close proximity to employment and leisure. They also favour single-unit occupation with the benefits of shared amenity space and access to friends and local community.

Investors could therefore capitalise on a bumper wave of graduates entering employment in the coming years. Unite’s first foray into the MF sector with the recent acquisition of One Eighty Stratford shows how a PBSA brand and operator is looking to extend its reach beyond the student years. Unite join Vita Living and Watkin Jones in expanding to cover both PBSA and MF markets and we may see other investors follow suit.

NORTHERN STUDENT CITIES HAVE THE GREATEST CAPACITY TO ABSORB NEW GRADUATE HOUSING SUPPLY

Rising student numbers will have the largest impact on rental markets that retain a high proportion of graduates. Belfast, Glasgow and Manchester retain the greatest number of graduates relative to the number of rental properties available to rent in each city (Fig 3).

This means these cities have an increasingly well-educated, young workforce that is seeking close proximity to employment and greater choice in the rental market. These cities have the capacity to absorb lots of new rental homes to house their existing and future graduates.

UK BUILD TO RENT INVESTMENT

Over £5 billion was invested into UK Build to Rent during the 12 months to Q3 2022 and investment in Q3 alone is up 75% year on year. Whilst increases to debt costs and a recent period of economic uncertainty has brought into question investment strategies across all real estate sectors, transactions in Build to Rent continue to progress.

Recent major transactions include AimCo’s acquisition of the Angelo Gordon portfolio Grainger & Network Homes’ Merrick Place forward funding agreement and Unite’s aforementioned acquisition of 180, Stratford. Other transactional activity included Roundhill’s first foray into UK Build to Rent with Olympian Homes, and two Watkin Jones transactions in Bath and Leatherhead with DWS and Get Living, respectively.

Given the affordability of homeownership is further from reach than ever and rental demand/growth continues to rise, the investment fundamentals of BtR remain compelling.

UK BUILD TO RENT DEVELOPMENT

The UK’s Build to Rent stock now stands at 76,800 completed homes with a further 49,800 homes under construction. The future pipeline currently stands at 113,500 homes, including those in the pre-application stage. This brings the total size of the sector to 240,200 homes completed or in  the potential pipeline.

There are now 15,000 Single Family Rental (SFR) homes currently in the planning pipeline – more than doubling in 12 months. Operational SFR schemes have grown to an average of 77 homes, with sites under construction and in planning set to deliver an average of 94 and 103 homes, respectively. This shows the direction of travel, with investors seeking larger SFR schemes where economies of scale can be driven.