The interplay between growing student demand, constrained development, and regulatory changes is shaping the future of student accommodation, with significant implications for landlords, investors, and universities.
The key factor influencing demand for student accommodation is the growing student population, particularly the rise in international students. Universities have increasingly turned to this demographic as a key source of revenue, driven by stagnant domestic tuition fees and broader financial pressures within the higher education sector.
Despite the growing demand for student accommodation, the supply side remains constrained. Purpose-built student accommodation (PBSA) has slowed in development. Knight Frank has reported that in the 2024/25 academic year, fewer than 17,500 new student beds are expected to be delivered, representing a modest 0.6% increase compared to the previous year. This figure is significantly lower than the pre-pandemic average, which saw more than 25,000 new beds added annually.
This slowdown has been exacerbated by a range of factors, including higher construction costs and the impact of inflation on the broader economy.
According to a recent Savills report, many key university cities in particular are struggling to provide enough PBSA to meet the growing demand. The report highlights that the ratio of full-time students to available beds in 20 major UK markets stands at 2.7, with certain cities facing even more acute shortages. Glasgow, for example, has the highest student-to-bed ratio at 3.8, followed closely by London and Bristol at 3.6 and 3.5 respectively. In contrast, cities like Liverpool, Sheffield, and Oxford have ratios below 2.0, indicating a more balanced market.
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While some cities have taken steps to address the shortfall, the overall supply remains constrained. Bristol, which is set to increase its PBSA stock by 45% in the near future, will see its student-to-bed ratio drop to 2.4, while London is expected to reduce its ratio from 3.6 to 2.9 with a 24% increase in available beds.
However, in cities like Glasgow, where the pipeline is less robust, the student-to-bed ratio will remain high, only decreasing marginally from 3.8 to 3.4. Savills suggests that an ideal ratio for student housing is around 1.5, a level that would ensure an adequate supply of beds without oversaturating the market. To reach this target, an additional 234,000 PBSA beds are required across the 20 key student markets, with London alone needing nearly 100,000 beds.
Despite efforts to increase PBSA, large-scale developments alone are unlikely to fill the gap in supply. The complexity of securing new land, coupled with rising costs and regulatory hurdles, means that smaller-scale PBSA projects, as well as traditional HMOs, will also be necessary to meet the growing demand for student housing. As universities continue to seek both new supply and private sector investment to meet future needs, a diversified approach to student accommodation is essential.
To achieve this, developers need providers who have the appetite for funding this niche. For example, at Inspired Lending, we have seen significant demand for short-term finance for the purchase and refurb of or conversion to houses of multiple occupancy (HMOs), which have traditionally been popular with students who don’t want to be in halls of residence. We have funded several of these loans in recent months, with further deals in the current pipeline. We also recently completed a £1.22m bridging loan (at 70% loan to value (LTV)) secured against a residential property to facilitate an investment in a smaller PBSA site.
Potential problem
It is worth noting that the student HMO market is facing a challenge from the government’s Renters Reform Bill. The bill, which aims to overhaul the private rental market, includes provisions that could disrupt the delicate balance of the student housing sector. One of the key changes in the bill is the abolishment of Section 21, which currently allows landlords to evict tenants at the end of a fixed-term tenancy without needing to provide a reason.
The bill proposes replacing fixed-term tenancies with open-ended, periodic tenancies. The academic year structure means that landlords typically rely on fixed-term tenancies to align their rental cycles with the academic calendar. Removing this provision would make it harder for landlords to regain vacant possession of their properties at the end of a tenancy, making it difficult to prepare and market their properties for the next intake of students.
The National Residential Landlords Association (NRLA), alongside several universities – including Cambridge, Leeds, and Southampton – has expressed concern over the impact of these proposed reforms on the student accommodation market. They argue that the unique nature of student housing, which requires coordination with the academic cycle, makes it ill-suited to the proposed changes.
While the PBSA sector is exempt from the bill, HMOs are not, which could lead to a shift in demand away from HMOs and towards PBSA. As the bill has not yet been debated in Parliament, there is still time for sensible views to prevail; one suspects the government will not want to be accused of creating a wholly avoidable crisis in the supply of student accommodation.
The next few years will be crucial in determining how the student housing market adapts to the challenges it faces and whether it can meet the evolving needs of the UK’s growing student population. What is certain, however, is that there are nowhere near enough large-scale PBSA developments in the pipeline and that smaller PBSA and HMOs will need to plug the gap. The good news is that there are lenders out there – like Inspired Lending – who have the appetite and the funding to support this area of the student housing market.
