Is student housing a good investment?

At first glance, student housing may not seem like the wisest investment. The student lifestyle doesn't exactly tick all the boxes on a landlord's “perfect tenant” checklist, nor are students known for having an abundance of cash. But there are some significant benefits that make the education sector not only a viable investment opportunity, but also a perfect platform for budding investors to learn the ways of the property industry. It is, as Go Global Investments puts it, “a bite size chance to invest”, and the compact nature of student houses makes them easier to maintain and less admin-intensive.

However, if the only advantage is that they are more manageable, they wouldn't be considered such a sound investment. The fact is that a student property actually offers stronger returns than a buy-to-let, with net yields amounting to around 6.9%, compared to the average gross yields of 6.1%. So it should come as no surprise that the student housing market has seen £5 billion worth of investment in the past two years, with a further £2.5 billion worth of transactions being forecast for 2014.

Here are a few reasons why now may be a particularly good time to invest in student housing.

Government support: It’s no secret that the UK has a severe housing shortage. The government sees specialised student housing as a potential solution to the problem. The past decade and a half saw a 46% rise in the number of full-time students living in the UK, and universities’ inability to meet the demand for accommodation saw many students turn to the private sector. Landlords benefited from the arrangement, with many students investing in shared housing, otherwise known as HMO (Houses in Multiple Occupation).

However, local councils are introducing legislation to discourage student HMOs; for example, Article 4 Direction, a regulation requiring landlords who operate an HMO with more than three stories to obtain a permit. This is a concerted effort by councils to free up housing for families in need of a home, who up to now have been a less profitable source of income for landlords compared to a student house share.

Demand keeps growing: UK universities and degrees are in high demand among both domestic and international students, particularly those from Europe and the Far East (the latter market averaging growth of 8.5% per year over the past six years). According to Property Wire, international students spent over £10 billion on tuition and living expenses in 2011/2012, and the number of international students in the UK is expected to grow by 15 to 20 per cent over the next five years.

This demand will continue to rise regardless of the economic situation. If anything, it only increases during periods of economic slowdown, effectively rendering the student housing market recession-proof.

High rental rates: In addition to high yields, rental values continue to grow at a healthy rate, with index rental values for student houses in regional towns increasing by an average 3.36% over three years, and by 20% over the same time period in London.

Be a student of the property market

High rental rates and yields, government support and growing demand all combine to make student housing a strong investment option. However, like any such venture it has its share of risks, so it’s best to get professional financial advice before taking any decisive action.

The information provided is for general information purposes. It does not constitute investment advice nor can it take account of your own particular circumstances. If you require any advice on investments, you should contact a financial or other professional adviser.

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