Students under pressure as reality bites hard

Universities UK (UUK) held its Access, participation and student success conference this week under a cloud of increasing financial pressure on students. The 2023/24 academic year will be a watershed year that triggers a major reform of university and student funding.  The conference concentrated on the considerable efforts to monitor student progress to identify and support those failing to engage.  Much was ‘turgid’ about sharing methodology for data and analysis.  Their considerable efforts are laudable, and necessary, but they seem to be ‘rearranging the deckchairs’ in the face of a major storm. Most of the old assumptions about students are being blown away on the wind.

TEFS has consistently warned of the impact of faltering student finances on the ability of students to succeed. Mostly this revolves around spending too much time in part-time jobs and/or commuting to make up the deficit or cut costs. This reached a breakpoint in 2022/23 when it emerged that the majority of students were now working in term time (TEFS 29th June 2023 ‘More students in jobs as fewer travel first class on the university experience train’).  With more universities resorting to food banks for their students, it looks like the system is breaking down (TEFS 20th September 2023 ‘The cost of learning: low paid jobs and food banks’).

Injecting some reality.

The UUK conference had a sharp dose of reality injected into it in the afternoon of the conference. Dominated by access and participation plans, demanded by the Office for Students, and data revolving progress, engagement and mental health, there was confusion about what are ‘white working-class boys’. It seemed detached from reality. However, an earlier breakout session ‘estranged students’ access: support and success’, where the charity Standalone played a leading role, set the scene for later.

One panel session in the afternoon, ‘Cost of Living: preparing for rising bills’, lit a fire under proceedings. Zaid Mahmood, Kent Students’ Union President, gave the view from a student perspective that was otherwise missing from the conference. Josh Freeman discussed his report from earlier this summer for the Higher Education Policy Institute (HEPI) that concluded that 27% of universities now operated food banks. The issue of rising accommodation costs and the potential for homelessness was not raised. Then Vivi Friedgut, founder and CEO of the student financial advice organisation, BlackBullion, outlined in stark detail the financial challenges often underestimated by students. The coming year began to look ominous for those in the audience wrangling the student support beast. It will not be sorted out by universities; they are probably at the limit of what they can achieve as they gather the data for evidence of what is happening.

The dark cloud of rising accommodation costs.

With Home Secretary Suella Braverman declaring homeless people should not be given tents to shelter in this winter, it appears that homeless people are not seen as serious in terms of votes. But lying in wait are students forced out of accommodation as costs rise. While many will not end up on the street, but instead doubling up and sleeping on floors or dropping out to go home, votes will be leaking away fast. There’s a strange political naivety in play.

No doubt that she had not considered the report on escalating accommodation costs the week before from Unipol and the Higher Education Policy Institute (HEPI) ‘Student accommodation costs across 10 cities in the UK’ (pdf). This captured the shocking extent of the issue. In an interim report (the next is due in 2024) since the last one in 2021, the conclusion was,

“Rent now swallows up virtually all of the average maintenance loan as the student accommodation market reaches ‘crisis point’”

The report is limited to some extent as it excluded London and Edinburgh and is therefore an underestimate of what is happing now. The maximum maintenance loan in England of £9,978 pa is only available to families with income below £25,000 pa. This drops to £4,651 pa where the income is over £78,000. Thus, richer families can expect to get expect considerable support (see latest from Save the Student).

However, the average maintenance loan of £7,590 this year is now too close for comfort to the mean rent of £7,566 with little left over. The mean loan figures are reflected in the distribution of household incomes reported by the Office for National Statistics and it is clear that the £25,000 threshold is now far too low.  With families finding they cannot support their adult children, even with prior planning, the students have little choice and resort to part-time work. It is definitely not a ‘lifestyle choice’. This is inevitably at the expense of their study time and is a fragile balancing act.

The discovery in the report about those providing student accommodation,

“Around a fifth of providers have already recouped – or intend to recoup – lost revenue through current or future pricing”

emphasises the profit motive in the sector and doesn’t offer much solace for students in the future.

Investment for profit in a seller’s market.

The market is in essence quite simple. If there is a shortage then demand means sellers can inflate prices until no one can afford it.  I worked for many years as a student in a wholesale fruit and veg market where this principle was experienced in the raw. Pricing was calculated ‘on the hoof’ each day.  So, one might expect that more student housing would drive down rents. In turn, it pays for investors to stay below a demand threshold.

Most of the major inflation of student rental costs is driven by shortages and expensive new developments.  However, the Unipol/HEPI report focuses on rising UK inflation as the main contributor, especially energy costs.  But with these stabilising, even falling, one might expect the rental charges to fall too. This may not happen soon as investors are encouraged by more student numbers exceeding the demand. Despite a downturn this year, there appears to be confidence in UCAS predictions that the numbers of new students will rise from 622,000 this year to a landmark one million university applicants in 2030. This will only be affected by any future government plan to restrict numbers.

Driven by a belief in rising numbers in the UK, Savills property management company have provided a handy overview of the current investment market in UK Purpose-Built Student Accommodation’ (PBSA) that is attracting huge amounts of foreign investment.

“Global investors continue to target UK PBSA, with a shortage of supply and rising student numbers resulting in strong rental performance”.

They are of course in it to maximise their profits and this will keep prices high, despite lower costs, as long as demand expands. Taken from their report, it is clear that North American investors are ahead of the pack (Figure 1). This also indicates the extent to which profits are flowing abroad and not back into the system.

Follow the money.

The sharp escalation of accommodation costs is going to fuel profits for the major investors as well as the so called ‘rogue landlords’.  Many observers have argued that issuing more loans to students will simply increase flow to the investors.  This might begin to look like a ‘Ponzi scheme’ whereby the initial investors see a quick profit while still holding the main assets at the end. The later investors lose out, and students at the bottom of the pile borrow more money to invest in their own futures on the promise they will gain in the end. Eventually this reaches a break point when the costs begin to outweigh the benefits. It starts to look like the government is forcing students to borrow to pay international investor friends and increasing maintenance loans might be welcome in some quarters. Others might hope for measures to cut rent costs.

Yet students failing in the face of the expanding pressures is also beyond the pale.  This could end up as a graduate tax that leaks money outside of the UK unless accommodation is reigned back into the UK.  The current arrangements must break down as a model eventually if not sooner.

The authorMike Larkin, retired from Queen’s University Belfast after 37 years teaching Microbiology, Biochemistry and Genetics.

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