Competition from build to rent and other land uses, as well as planning policy, are factors making purpose-built student accommodation hard to build in London. So how do you make it affordable too?
Affordable housing is at the top of the agenda in the UK, but how about affordable student accommodation? Competing land uses and planning policy are continuing to put a strain on the viability of development of purpose-built student accommodation (PBSA) in core locations. Adding a ordability to the mix will only hold back new development.
London has become a particularly difficult market to conquer with the Supplementary Planning Guidance issued by the mayor of London in March 2016 (2016 SPG) requiring new development to include an element of provision that is a ordable for students. So, what should developers consider under the 2016 SPG?
Not all developments require a ordable student accommodation. Only when a provider does not have a nominations agreement with one or more academic institutions that speci es that the accommodation will be occupied by students of the relevant institution or institutions, will they need to provide it.
What amounts to “affordable” PBSA is considered annually by the mayor and published in his London Plan Annual Monitoring Report. It is based on a formula that requires the annual rental cost to be less than or equal to 55% of average student income (de ned as the maximum maintenance loan for living costs available to a UK full-time student in London living away from home). According to the 2016 SPG in 2016/17, this would equate to an initial annual rent of £5,886 or less. For a 38-week contract this equates to weekly rent of £155. The 13th Annual Monitoring Report published by the mayor in July 2017 confirms that for the forthcoming 2017/18 academic year the annual rental cost for affordable PBSA must not exceed £6,051. For a 38-week contract, this equates to weekly rent of £159. The element of affordable student accommodation provided in a development should be “the maximum reasonable amount subject to viability”. Boroughs should take into consideration the percentage of students with lower household incomes that are eligible for the means tested proportion of the maintenance loan.
Developers of PBSA face increased competition for prime sites from developers of build to rent
To enable PBSA providers to maximise delivery of a ordable student accommodation by increasing profitability of the scheme, the 2016 SPG suggests boroughs consider allowing ancillary uses of the accommodation during holiday periods. Conditions and/or legal agreements could be attached to planning permission so that these ancillary uses do not result in a material change of use.
When determining the amount of affordable student accommodation to be provided, boroughs must take into account viability implications of locally specific requirements for PBSA developments in their local plans, such as student bursaries and CIL charges.
Noting that a ordable student accommodation is not eligible for social housing relief from CIL charges, the 2016 SPG encourages boroughs to revisit their CIL charging schedules. In doing so, they should consider viability of the a ordable student accommodation and apply nil or reduced rates compared to market PBSA, based on the outcome of the viability assessment where a ordable accommodation rents are secured.
Developers of PBSA also face increased competition for prime sites from developers of build to rent and micro-living products which may prove more viable. The different approaches to the sectors that underpin current and emerging planning policy may well swing the balance in favour of build to rent.
In relation to London, the 2016 SPG encourages the development of build to rent schemes and recognises the “distinct economics” that may affect its viability. In contrast to PBSA, where the emphasis is on the provision of a more a ordable product, the guidance on build to rent schemes promotes a potential relaxation of the requirements.
The current Mayor has given further support to the build to rent sector in his “Homes for Londoners” Affordable Housing and Viability Supplementary Planning Guidance issued in August 2017 (2017 SPG).
The 2017 SPG highlights the contribution that build to rent developments can make to boosting housing supply and builds on the measures to level the playing eld that were set out in the earlier SPG.
There are strong similarities between PBSA and build to rent products. As the build to rent sector gains more traction in the UK and potentially offers enhanced returns, developers, investors and operators with strong track records in the PBSA sector may well divert some of their attention to that sector. However, this ought not be too detrimental to new developments of PBSA. Perhaps we will start to see a merging of the sectors with branded platforms operating both PBSA and build to rent housing.
Paul Leamy is a partner in the real estate group at Taylor Wessing