Is investment in student houses in Lancaster still a good idea?

There is much discussion amongst Lancaster property investors and Landlords of student houses in Lancaster about what impact the amount of new purpose built student accommodation will have on demand for rooms to rent in houses. The question is will student house investments make a good return in Lancaster in the future?

In Lancaster, the current demand from investors to buy good quality houses and apartments to rent to students is extremely strong – as strong as we at Mighty House have even known it. Let’s refer to these houses and apartments as “HMO” (Houses in Multiple Occupation) from hereon. I personally believe that despite the proposed creation of more purpose built student accommodation (PBSA), HMO student accommodation are an excellent investment in Lancaster and I will explain why:

Lancaster has two Universities – Lancaster University and the University of Cumbria. Broadly speaking there are 14,000 students at Lancaster University and 5,000 students at the University of Cumbria.

Although the University of Cumbria student numbers have fallen in recent years, Lancaster University has grown by double the UK University average of 8% per year. Post graduate numbers have grown by 18% compared with the UK average of 4%. Lancaster University also performs inside the top 10 Universities in the 2017 league tables and has aspirations of attracting an annual intake of 20,000 students. That means a requirement for approximately 6,000 additional beds should these aspirations be met.

So how much new PBSA is proposed?

It’s a little tricky to get an accurate assessment of the amount of bedrooms which are proposed in the various PBSA blocks in Lancaster. Here is my assessment of the larger proposed PBSA blocks:

Proposed Student Developments: Approx. Number of bedrooms:
Lawsons Quay between Caton Road and Bulk Road 630
Waring and Gillows Building 100
St George’s Works Mill 419
St Leonard’s House 81 studios and 99 rooms
King Street, Lancaster (City Block) 70
Galgate Mill 107 student flats
Miyabi Restaurant opposite bus station and former Georgian Club at 5 Cable Street 90 studios
Total 1,596 rooms. Assume studios and flats 50% double occupancy = 1,735 student places.

 

In addition to the above schemes, there are numerous smaller scale conversions of accommodation above retail units and infill developments within the City Centre. An extremely broad assumption would be to say these could make up another 150 rooms.

As can be seen, there is not enough capacity to cater for the proposed increase in student numbers.

Is the PBSA affordable?

PBSA Rent: Rents typically start in excess of £130 per week for PBSA. Studio accommodation is more expensive and is upward from £160 per week for a single occupant and often much more.

HMO Rent: Rents for HMO start at around £85 for a basic room with a double bed for locations 10 to 15 minutes walk from Lancaster City Centre. More spacious rooms in quality houses in these locations achieve around £95 per week. Rooms in HMO in the Centre of Lancaster (houses or apartments above retail units) are typically £100 per week up to prices of around £115 per week for excellent quality and spacious accommodation.

(All the above prices are quoted on a bills inclusive basis).

Our student letting division, Mighty Student Living, find that the majority of students they let to have a limit of what they can afford, or are prepared to pay, of up to £110 per week. This is backed up by statistics from research done with students from York, Liverpool and Durham Universities where 1000 students were questioned in a private study and 54% of students could afford up to £110 per week and no more. Only 14% of students surveyed could afford £130 a week or above.

As an aside, there is a tendency for overseas students to have the highest budgets and so continued demand from overseas students is likely to determine the success or failure of PBSA.

Our student housing division, www.mightystudentliving.co.uk, are finding rents are going up for HMO which in part could be because of the substantial disparity between the higher rents charged by the PBSA compared with HMO.

Planning restrictions underpinning values:

Due to the increase in number of HMO in other Cities, such as York and Durham, Local Authorities have put in place new planning rules called “Article 4 Directions” which means that planning permission is required for C3 dwelling houses to be rented to 3 or more unrelated people and become a C4 house in multiple occupation.

There is no sign of such a restriction being introduced in Lancaster yet but in the coming years it is quite conceivable that such a restriction may be imposed. Should such a restriction be imposed, existing HMO will have established use and not require planning consent. The effect of the restriction in other Cities is that existing HMO have increased in value.

Summary:

Not only is PBSA unaffordable for many students, HMO accommodation is the preferred choice of others as it represents better value for money.

Projected student numbers at Lancaster University far exceed the projected number of beds that will be provided by the PBSA underpinning the need for more quality HMO.

Rents charged for HMO are growing due possibly in part to the substantially higher rents charged by PBSA and the existing disparity between PBSA and HMO rents.

Should planning restrictions be imposed in the future, the capital value of houses with rooms let to 3 or more unrelated parties are likely to increase.

There is therefore a compelling argument to invest in HMO. We are in no doubt that suitable houses taking in to account room sizes, location, appropriate bathroom and kitchen facilities for number of occupants and within 10 to 15 minutes walk from Lancaster City Centre represent excellent investment opportunities. We can’t see an end in sight to the strong demand for quality HMO high yielding student accommodation in Lancaster by investors.

Investors throughout the UK and overseas are looking at Lancaster, seeing the University doing well, that it has space to expand and that it has aspirations to expand considerably. Furthermore, unlike other Cities, Lancaster has no planning restriction on the creation of HMO and investors are attracted to invest in Lancaster property! In fact with the cheap pound also bringing in foreign investment to Lancaster, we could see prices rising quite considerably.

 

About Peter Charnley

Owner of Mighty House, an Estate and Letting Agents based in Lancaster. Peter is himself a portfolio Landlord throughout the North West and has expert knowledge to help you buy or sell a property. Call him on: 01524 548 888
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