Crunching the numbers to get to the truth
There are plenty of property investment opportunities being sold which specialise in providing accommodation to a growing student population. While these types of property investment are an interesting niche addition to the property investor’s breadth of investment opportunity, what is less considered is the impact of a growing student population on house prices. We’ve found that, generally speaking, house prices rise where there are large student populations, though by how much depends on a number of other factors, too. Analysis of the student population should be only one facet of your investment research.
The best place to find property research about student population price impact
When we began looking at the impact of a growing student population on house prices, we searched in all the usual places: property experts, economics analysts, estate agents, and even landlord associations. Then we realised we were missing a trick – where better to find in-depth research that relates to the property investor and student populations than universities themselves?
Sure enough, there is a mass of information, studies, surveys, and detailed research that relates to the impact of a growing student population on house prices (we’ve included links to a few of these resources at the bottom of this post). We’ve crunched all of this research for you, and in this post present the major findings that we’ve found to be consistent across the board.
Student population growth increases prices and demand
Where student demand is greatest, rental rates and house prices tend to rise more quickly. This is really basic supply and demand economics in action. For example, in Manchester, high student numbers (there are around 100,000 students studying in and around the city) has positively impacted rents and property values in and around the major higher educational institutions (HEIs).
Students want to live as close to their place of study as possible; but where there is an undersupply of student accommodation, demand spills over into nearby neighbourhoods.
Students can alter neighbourhood dynamics
A large student population can alter the dynamics of a neighbourhood. Human capital and an increased harmony are often seen, along with a more educated neighbourhood. This can encourage employers into an area, increasing work opportunities for all and raising area affluence.
However, in some areas where there is a large and dominant student population, perhaps where developers have purposely built accommodation to supply the student market, there can be something called “student ghettoisation”. This is a dynamic that causes existing and would-be residents, perhaps professionals or families, to look elsewhere for homes.
Where the population mix is right, rents are higher
In locations that are close to HEIs but not dominated wholly by students, rents are highest and house prices increase the most. This is the property investor’s nirvana. In these locations the market tends to perpetuate itself, as families, professionals, and students compete for properties.
And while on this subject, a Savills study in 2013 found that where purpose-built student accommodation competes with private rented housing, students are more inclined to choose the private rented housing. This again increases demand for such accommodation, with families and professionals prepared to pay more to secure such properties.
Other factors have to be considered by the property investor
A growing student population is not, on its own, sufficient to provide evidence of the growth and income potential of a property investment. Investment property fundamentals must be in place, too: in other words, buy the property, not the deal.
A review of the Nottingham market, conducted by Unipol, studied eight wards of Nottingham that contain substantial student populations and found that prices and relative performance were not distributed evenly:
Average house price as % of Nottingham city average
|Ward||Average Price 2007||Average Price 2012||Relative Performance|
|Radford and Park||135%||163%||Better|
|Dunkirk and Lenton||136%||115%||Worse|
|Wollaton East and Lenton Abbey||108%||97%||Worse|
As you can see, while six of the eight wards still had property prices above Nottingham City’s average, five of them had localised property markets that underperformed the wider Nottingham market. So while student population generally provides upward pressure to house prices, other factors are clearly in play. This includes the composition of the local private rented market, which may include:
- young professionals and working households
- those in the process of selling and requiring temporary rented accommodation
- relocating families
The conclusion of all this research into a single factor of house price performance is clear: the impact of a growing student population on house prices is positive, but it is more positive where other property fundamentals are firmly in place. And that’s how we at YPC always research an investment opportunity: comprehensively.
For more information about investment opportunities for property investors, or about property research methodology, call our team on +44 (0)207 923 6100. We’re here to help.
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The nature and impact of student demand on housing markets – Julie Rugg, David Rhodes, Anwen Jones, 2,000