How government policy on Universities disrupted the UK housing market

The recent UK Political Party Conferences all focussed on the problems with the UK housing market. The shortage of social housing is clear and the policy to address this issue is clear – build more units and provide the finance to local authorities to achieve this.

What I want to focus on the rest of the housing market and how this has been affected by a government policy unrelated to housing and the knock-on effects on Local Authority finances. That issue is the growth in Students in Higher Education.

From the Office of National Statistics paper the 18 – 24 age group of students has grown from 984,000 in 1992 to 1,870,000 – a rise of 886,000 or a 90% increase – largely down to the opening up of higher education by the Blair government, which aimed to have 50% of the population attending university. Most UK students move away to study and what this growth has done is to create an additional demand for accommodation in University towns (as students in effect have 2 “homes”). Without an increase in residential construction the increase in demand has inevitably led to higher rents in these areas. This increase in demand is augmented by the growth in academic staff in those same towns. A recent report claimed that university town property prices carried a premium of up to 60% over the surrounding areas, this is a function of demand outpacing supply.

This increase in students is the equivalent of roughly 300,000 new 3 bedroom homes over the last 25 years. To put this in perspective, house building completions in the UK, in this period have totalled between 150,000 and 180,000 so this equates to 18 months to 2 years of houses built!

What this has led to is the growth of HMOs (Houses in Multiple Occupation) and the effect on neighbourhoods. Students in HMOs now make up 90% of some parts of Nottingham, in the 1990s it was 10%.

Aside from the property market, there are also some interesting fiscal consequences. The growth of student HMOs also has an effect on Local Authorities. Normally an HMO is subject to council tax on the landlord who passes it on in the rent to the tenants. However, if there are a majority of students in an HMO, the property is exempt from Council Tax by contrast. So University towns suffer a decline in local taxation at the same time as property prices rise and those students do still consume Council services. A growth in HMOs leads to an increase in property prices as the yield from more rentable rooms compared to a normal letting or occupation allows HMO landlords to outbid others ie potential home owners in the property market.

UK government policy to increase the proportion of young people going to university, together with the growth in University staff as a result, has undoubtedly increased demand and increased both property prices and rents in university towns. This has added to student loan balances. If students decide to stay in the town they study in they continue to face this property market and its costs.

Government should look again at all the impacts of the increase in those in university education who study away from home. Aside from the future fiscal impacts of Student loans not being repaid, the growth in both property prices and rents in these towns and cities has been a major contributor to the growth of “generation rent” in these areas.

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