Purpose-built student accommodation (PBSA) and student housing: research

7. PBSA Review – Points to Consider

Introduction

In this short chapter, we set out a series of points for the Review Group to consider. The PBSA Review is wide-ranging and as it progressed it simply grew with a broader set of interests wishing to provide evidence and reflect on the future of student housing. We have tried to keep our points to consider more focused and directly relevant to the needs of the plural interests of the sector and in particular the students that are to be catered for. Throughout we have also tried to think about student accommodation as a system and one that overlaps with HE and the housing sectors. We think, across the ten themes below that there are common elements of partnership and joint-working, a greater reliance on data and evidence, and the need to continually seek to manage and trade off plural interests in order to support HE, maintain a viable business model and, most important, to provide safe, decent and affordable homes for students.

Challenges Facing the Sector

First, we should be clear about key challenges facing the Scottish PBSA sector (private and university-provided):

• Demand is high and growing and will continue to have large numbers of international students and a high probability that in future years more home students will come from lower income widening access backgrounds. There is an appetite from investors and a supply chain response but it lags behind demand. There are widely heard concerns that the traditional HMO part of the PRS is declining in terms of its willingness to house students, and this makes meeting guarantees to new students harder to achieve.
• There appear to be gaps in the market provision associated with developer and investors moving up-market (and declining numbers of university halls). This will be, at the margin, increasing the quality-unadjusted rent and reducing the relative supply of unaffordable units. This leads to the argument in favour of more modest but sufficient quality mid-range PBSA supply.
• Student voices and their representatives (as well as other stakeholders) argue for better provision, indeed guarantees, to provide accessible housing for disabled students without higher cost penalties. There is also debate about the effectiveness of redress measures, with students arguing that these need to be more visible and transparent, more simple to follow and less 'unfit for purpose'. Despite the fact that other stakeholders argued that redress measures do work, there clearly needs to be review and a focus on redress processes to make them more accessible to students.
• There is also wider debate around the future of student rights and whether they should remain exempt from aspects of private renting tenancy law. From the provider/investor/institution point of view this is problematic because the 28 days' notice or cooling off period that private tenants enjoy in Scotland, as well as the limited rights to repossess and indeterminate tenancy length, both cut right through the business model which offers students a session long contract and enables providers to move on to house new students in the next session. However, at the same time, students look at the rights enjoyed by students in the HMO PRS, the much more extensive levels of regulation (rights are likely to be extended in the near future), and consequently see PBSA, for all its higher quality provision in many cases, as being less regulated, higher cost (utilities payments excepting) and harder to achieve redress than in the PRS.
• Rented housing reform is underway and a recent consultation exercise by the Scottish Government (Craigforth, 2022) has found considerable support for rent control in the PRS (which is government policy) and for students enjoying the same rights as other private tenants (and PRS renting students). The opposite position for both points is also argued for but write-in campaigns mean that the great majority of responses favour these equalising changes. This is a major challenge for the future of student accommodation in Scotland.
• PBSA has in many minds shifted from being a modern solution to studentification and poor quality PRS student digs, to part of the problem of perceived over-supply and new neighbourhood dominance by student accommodation across cities and towns. This has a development planning dimension regarding the opportunity costs of further such developments when this is viewed as being at the expense of needed affordable housing supply. At the same time, new PBSA supply and further product differentiation could be an important part of post-Covid city centre regeneration through new build and refurbishment of specific parts of cities e.g. the under-performing Sauchiehall Street segment of Glasgow city centre. The challenge is how the sector can work more effectively with planners and local authority housing strategy teams.

Considerations

The Current Model of PBSA Provision

A positive case can be made for private and university PBSA provision. PBSA has been a remarkable success in terms of the private sector providing accommodation for students that universities could not – or did not want – to provide. At the same time, universities have upgraded their existing provision and become partners with the private sector. PBSA has effectively created an additional source of supply, relieving pressure that would have been hard to manage within existing stock/ willingness to offer PRS.

The challenge from quarters in government and student bodies regarding possible extension of rights, notice periods and rent caps across all student accommodation would threaten the university, investor and provider business. Retaining the present broad approach to PBSA is to continue to set it apart from the rest of the private rented sector. How can this be more acceptable to those arguing for universality of rights? It requires compensating actions on regulation, redress, affordability, rent-setting and the supply offer made by the supply interests. We introduce some of these ideas directly below and also under later consideration headings.

The quid pro quo might include a series of elements. Strengthening the combination of HMO licensing and Unipol National Codes as the chief way of regulating PBSA. A more visible set of combined regulations, with regular renewal and inspections more readily understood by students through more transparent and regular communications, in particular in the area of redress – and a capacity and willingness to amend approaches locally and nationally, are essential. There should be a commitment to expand new/refurbished affordable PBSA as a larger market segment (also part of the response to the changing demographic of future student demand including more on precarious incomes).

This package should include a cautious expansion of repurposing of vacant city centre office and retail space (particularly so being mindful of quality issues, following some of the difficulties found with the expansion of Permitted Development Rights for office-to-residential conversions in England). There could also be a presumption of flexibility and fair dealing towards the end of annual contracts (e.g. building on the break clauses already in contracts and the informal practice that appears to already exist that allows students to leave a week or two early at the end of a 44 week contract). There should also be the expectation of monitoring students comprehensively in terms of accommodation experience across all protected characteristics, but also international students, care-experienced and estranged students. A particular effort in this regard must be made to strengthen the accessibility and appropriateness of PBSA properties for disabled students, without penalising their ability to pay and be fully involved in the student experience. Wider monitoring should include more comprehensive and robust analysis of affordability (discussed further below).

Student Housing, Local Housing Strategies and Needs Analysis

Both the National Planning Framework and local housing needs demand assessments should take explicit account of student housing demand and its impact on local housing systems. Future demand growth should be a material concern regarding development plans and housing strategies. Student housing should also be a planning focus for housing strategies including the traditional HMO sector. Landlord registration data should routinely capture whether or not the property is aimed at students.

Affordability and Evidence

We cannot properly debate or make definitive recommendations around rents and affordability, as well as wider student experiences, without credible and regularly updated empirical information. Representative and statistically significant data should be a priority if the sector is to evidence robustly the levels of affordability, student financial circumstances, and do so at the local level. This is true of both the PBSA and HMO PRS segments. Qualitative data collected in this study suggests that many students believe that housing costs relative to their financial resources are a problem. Housing cost data should distinguish whether or not utilities are included and, if so, which elements, as well as providing accurate data on the property, amenities provided and other key property attributes. The resources data should seek to understand all sources of student income and distinguish between temporary, part-time, and full-time jobs and, critically, the significance of parental or other financial contributions and borrowing, commercial or less so. Enhancing the data available will give greater insight into these issues across Scotland. Data should be collected annually (especially during dynamic economic and financial times such as the present). Each HEI and local authority with HEIs and FE (with student accommodation) should have a robust minimum survey sample target size, including targets for students with different protected characteristics. Providers should contribute to this sector-wide initiative since all parties stand to benefit directly from better publicly available data.

The current debates in Scottish housing about the meaning, nature and a shared sense of rental affordability should also inform the development of student affordability and cost of living analysis. Affordability is inherently a subjective, normative judgement about what a third party thinks is a tolerable financial burden that can be borne by certain groups of the population in question. There is no objectively correct answer. Instead, we need a sector-wide consensual agreement about what is not acceptable and then develop policies to protect the most exposed to unaffordable housing costs and unprecedented energy costs and general inflation. However, we also need sufficiently fine-grain robust data to operationalise this idea. We simply do not have this at the moment and that has to change.

Cost of Living

We recognise that high rental costs and financial precarity are a reality for some students now and that without intervention this may only get worse in the foreseeable future. The Scottish Government does intend to introduce some form of rent controls to the private rented sector and there are constituencies seeking rent freezes as a response to the current cost of living crisis. Student accommodation cannot be immune or wholly separate from these debates. As the NUS says, seeking rent fairness is a valid option.

In the short run, we recommend that PBSA providers move more to some form of consistent cost-based index-linking of rent increases and that students as residents get the full benefit of any energy cost supports offered by government or others. HEIs involved in partnerships like nomination agreements should seek such a move away from benchmarking rent increases against competitors, and instead focus on cost inflation.

In the medium term, there should be a sector wide review of both how rents are set in the first place and how they are increased each year. One of our interviewees within the HEI community argued that rationalising rent increases does not address inflated base rents. A review of rent structures might therefore also involve a sense of what good quality mid-point rents ought to be for different classes and vintages of PBSA housing. This has close parallels to current Scottish debates about rent control for the PRS, which has included examination of models in operation in France and Germany which set base rents when a tenancy commences by ensuring that the rent is no more than e.g. 10% +/- for a similar property type and size. Subsequent rent increases are targeted to an agreed formula. Initial rents here and with PBSA are clearly important determinants of what happens next. This is why the key informant is right to argue that these need to be examined alongside principles for rent increases is a context where energy and wider cost inflation is so out of control.

At the same time, and as evidence of unaffordability and rent pressures grows, this may also necessitate a linked review of the funding of student support for living while studying, ranging from parental support, loans, bursaries and maintenance grants to reviewing the part time student labour market (e.g. in terms of supporting student living wage minima as part of the Fair Work agenda).

Maximising Partnerships

In order to apply the information generated by the more active monitoring of students and their accommodation, there should be a more consistent relationship between the pastoral duties of the HEI in situations where students are living in private PBSA. All students living in PBSA should have a direct link to their university or college and those educational institutions should have formal relationships with the provider, focusing exclusively on the wellbeing of the individual students. There is good practice from both sides of the sector (as indicated by ASRA and CUBO in our stakeholder interviews) that should be emulated more widely.

At the same time there needs to be more proactive engagement from the beginning of the student's lease that includes clear advice on where to go to get help externally if the relationship with the provider is not working and redress can be made and easily understood regarding how to go about it. The stakeholders provided quite different perspectives about the extent and the adequacy of current arrangements. Student interviews appear to back up the NUS view that certainly there are students who either do not understand their powers of redress or feel unable to take them up. More must be done to make it consistently easier for those affected to be able to get timely redress.

Working with the Traditional PRS

In parallel to these proposals for the PBSA sector, there needs to be more concerted supportive action to maintain and improve the quality and experience of the large number of students in the traditional HMO PRS. This remains a popular choice for many students. Proposals for greater enforcement capacity in the sector more broadly would also help students, for instance, one stop portals that explain rights and obligations for both parties and where to go to get help if in dispute. We feel strongly that, although this is a report about PBSA, the close and symbiotic relationship between the traditional and PBSA market segments of the system of student accommodation is such that they have to be considered in the round. The problems that are evident in certain Scottish cities, where there appears to be an overall shortage of rental market housing for students, makes this point clear.

It is undoubtedly challenging to understand better what is going on in the largely atomised and highly variable private rented sector but this is precisely why HEIs and providers need to work more closely with local authority housing planners and strategy teams. There is much information and intelligence to share. A starting point would be to convince Government to include whether a property is let to students in the landlord register (with current proposals on the table to reform it in any case). Second, student accommodation needs should be a legitimate part of housing strategies and development plans and PBSA providers and HEIs ought to be involved in strategic discussions about their cities and towns, not least because of their knowledge about these rental markets.

Moving with the Times

We need to recognise that PBSA activity is not uniform or monolithic but is constantly evolving. The Scottish Government and the parties to the Review need to recognise and reflect on these changes: bespoke student hotels for part-time and modular students, partnerships with Build to Rent and also new forms of delivery working more or less closely with specific educational providers. Our stakeholders have suggested several of these innovations and examples of good practice (e.g. student hotels) and possible future innovations (sometimes borrowing ideas already found elsewhere in the UK such as novel partnerships between investors, providers and HEIs, or indeed positive innovation through specific Build to Rent models). At the same time, we recognise the scepticism and rather negative experience of the growth of permitted development rights for re-use of existing buildings in England and caution against their use in ways that may make student housing quality and experience worse rather than better. There is clearly an opportunity to re-use existing vacant properties in good locations, but the refit of the property must be of good quality and of such high standards that it competes with the best quality in its class and such that it will easily pass reasonable regulatory standards.

Widening the Offer

Linked to the previous point, there is much interest in closing the gap in the market that arises because of the shrinking volume of traditional HMO renting available and the apparent appetite for more affordable private PBSA. New development is relatively upmarket, studios rather than ensuite rooms, and rents are correspondingly high. There was much interest and claims of underlying substantial demand, for a cheaper and less frills budget offering akin to a 'Premier Inn' mid-market hospitality model. This may not be the optimal solution but we recommend that the Review Group and Ministers consider more fully how different interventions (e.g. soft government loans) and re-positioning for instance of refurbished student halls or other refitted properties might achieve similar ends. We note that the NUS expressed concern about how this would further stratify the quality of the available PBSA units by ability to pay and the concern that many students would be condemned to poorer quality accommodation. We do not accept that developing a new affordable midrange sector need contribute to such a problem but agree that that there have to be minimum standards required of all such property, including attention to issues of quality and design (see below). Regulation is also an important dimension in protecting standards and quality. However, the sector needs to better understand why developer and investors are not filling this gap and what would be needed to be done to encourage that additional segment.

Quality and Design

The study has highlighted a range of student preferences and concerns in relation to the design and layout of accommodation, including proximity to neighbouring buildings, internal design and suitability for students with disabilities, access to natural light and outdoor space, and provision of common spaces. These aspects of accommodation have a significant impact on student experiences and should be borne in mind during the planning and (re)development of new PBSA, considering the density and design of new-builds and suitability of accommodation that might be refurbished to increase supply. We strongly encourage new PBSA developments to include user-testing and post-occupancy surveys to help with design work, including their suitability for disabled students.

Future-Proofing

The HE sector planning assumption appears to be that future housing demand from domestic students will include increasing numbers of lower income students coming from widening participation backgrounds over the next decade or more. When the sector is responding to rising student demand it needs to recognise the greater financial or economic insecurity of a larger part of its market and provide a wider range of accommodation. This study has highlighted that the reasons for living in PBSA (or not) and experiences of it are not universal and vary significantly within the student population. Again, evidence and data is essential but there will, rightly, be calls on the student accommodation sector to moderate housing costs and also for the wider sector, including government, to consider how this can be affordable for students while also viable for the providers, investors and HEIs. The parties should be planning now how they balance these competing objectives in society's interest and not just their own. The Scottish Governments' arbitrating role is therefore critical.