Nick Hillman, HEPI Director, recently made the following remarks at the QX Student Accommodation Insights Evening in The Shard.
I want to start on a positive as demand for higher education from 18-year olds is up a smidgen year-on-year, at least according to the early UCAS numbers for 2026/27. The small uptick in demand confounds those who thought the declines of recent years would continue. It is a particularly notable feature of recent years that short-term predictions about demand for higher education have often been wrong.
- It was the same back in 2012 when everyone said higher fees would mean lower demand among full-time school leavers, which was comprehensively disproved in the years that followed.
- Then during COVID, the consensus was demand would slump; in reality, as young people realised they did not want to be locked down with their parents any longer than they needed to be, demand for higher education rose.
- Then after COVID, as the world righted itself and people assumed the increase in the number of 18-year olds would further strengthen demand, applications fell as the pig-in-the-python represented by the extra COVID-related demand worked its way through the system.
- Now, just as people were coming to think this slump might represent a new normal encouraged by all those culture warriors attacking universities, it looks like demand is recovering somewhat.
All this chopping and changing makes planning difficult, but it is at least good to know that teenagers continue to do the opposite of what is expected of them.
it is good to know that teenagers continue to do the opposite of what is expected of them
Of course, it is not certain that the modest increase in demand over recent months will continue, especially when some of the first home students to face £9,000 fees back in 2012 are now doing their level best to imply they regret going to higher education. These 30somethings have found themselves in positions of power and influence which they are using to complain vociferously. One thing they are unhappy about is seeing 9% of their income over c.£28.5k taken from them in student loan repayments. Another is the 6.2% interest rate imposed on the outstanding loans of those earning over £51k. A third is the Government’s decision to freeze the repayment threshold for three years, meaning higher repayments caused by fiscal drag. Intriguingly, most of the loudest complaints stem from the left of the political spectrum but they are not making a left-wing argument when they complain about high tax, NI and student loan repayments that together mean they keep less than 50p of each extra £1 they earn. Indeed, they mainly resemble those who lobbied Margaret Thatcher to reduce the top rate of tax down to 40%.
This is not an argument about higher education but one about take-home pay and the risk is that it sends a message that higher education is not worthwhile – even though many of the complaints have come from doctors who would never have reached their current position without attending higher education and who are among the most likely to pay off the entirety of their loans in due course. I do have sympathy for them because the student loan system was endlessly tinkered with after 2012, raising the amount people are expected to repay, but it is still ironic that the people in the forefront of the war against student loans have very well from their (multiple) degrees. Incidentally, if you want to know more about the current row, do take a listen to the new IFS Zooms In podcast on the issue which I recently took part in.
The bigger problem for higher education students today is not, however, the repayment terms they might face long after leaving university; it is the lack of cash in their pockets now. The maximum maintenance package, which is currently worth £10.5k for English students living away from home and studying outside London, goes up each year in cash terms. However, because the inflation rate used (forecast RPI-X) invariably turns out to be nonsense, the real terms value of the maximum maintenance package has declined by 10% since 2020/21. HEPI’s work with Loughborough University and Technology1, published as the Minimum Income Standard for Students, suggests students need a little over £20k a year if they are to get the full benefits of university life. So it is no wonder that most young full-time students now work in paid employment during term time. I was annoyed to see a Treasury Minister (Torsten Bell) explicitly deny this fact the other day on BlueSky, but the chart he used to illustrate his point ended in 2019 and the growth in term-time employment has happened more recently, particularly as a result of the big post-COVID increase in inflation. Indeed, the percentage of students working during term-time doubled from 34% to 68% in just four years between 2021 and 2025 according to our annual Student Academic Experience Survey with Advance HE.
Moreover, students’ parents are ever less able to chip in to support their student offspring because the threshold above which they are expected to help cover their student children’s living costs upfront and at which point the maintenance loan is gradually reduced remains at £25,000. This is lower than the annual income of someone on the minimum wage working 40 hours a week. The threshold was first set at this level by Gordon Brown immediately after taking office back in 2007 and the National Union of Students are right to note that, if it had been uprated in line with the changing value of money, then it would be set 75%+ higher at something like £41,000 today.
What does this all mean for student accommodation providers? I fear Martin Blakey, the former CEO of Unipol, may be correct in his assertion that ‘the party’s over’, even if the hangover has yet to sink in. Higher build costs, higher interest rates and higher regulatory costs have raised the price of brand new accommodation to levels such that other countries or other options, such as co-living and Build to Rent, are coming to seem like better investment prospects. I used to think that, if I won the Euromillions, I might invest it all in PBSA; now, I think I would spread my bets elsewhere too.
There are still some major new student accommodation projects of course: until recently, I was on the Board of the second-biggest regular university in the country, the University of Manchester, and their Fallowfield Campus Development is set to replace accommodation that seemed tired even when I was a student there in the 1990s, with over 3,000 new beds. At the other end of the scale, I am still on the Council of one of the UK’s smallest universities, the University of Buckingham, where they have followed a different approach, including taking over a Best Western hotel, rather than building new stuff on their own or with others, and offering much of this space as twin rooms.
One consequence of all that is happening is that more students are living at home. This has been predicted for years but, until recently, data experts like Mark Corver, who is one of the smartest people in UK higher education, said this trend was evident ‘everywhere – except in the student data’. It is not that the data were wrong; it is that the data were either unavailable or out-of-date or both. Now the numbers are catching up with reality. New published UCAS figures suggest that there has been an increase of about one percentage point a year for a decade in the proportion of young ‘accepted applicants intending to live at home’. Over time, that adds up to a lot of beds especially if these students do not change their living arrangements for years 2 and / or 3 of their studies. Perhaps the only silver lining in all this is that it will be harder for a populist government that wants fewer universities to shut some down if more and more people opt to access higher education close to their home rather than much further away and thus come to feel a deep affinity with the institution on their doorstep.
Perhaps the only silver lining in all this is that it will be harder for a populist government that wants fewer universities to shut some down if more and more people opt to access higher education close to their home
Finally, and changing tack, my first career was being a History teacher and my own academic research has primarily focused on the history of boarding schools. So I found myself quoted recently in an excellent Times Higher Education piece by Patrick Jack headlined ‘Is it time for the UK to expel the boarding school model of HE?’ saying ‘an all-round education is one of the UK’s great gifts to the world and it would be idiotic to give it up. After all, people don’t just go to university to get a degree; they go to find themselves, to explore life beyond their hometown and to build new social networks’. Paddy Jackman, who understands the boarding school world very well having served as Director of Operations at Ardingly College for many years, makes a similar argument in a forthcoming piece for Upfront, a magazine on student accommodation.
That argument about the value of the residential student experience has to be made loudly and clearly and repeatedly because, given the perfect storm of rising commuter students, falling real-terms maintenance support and an ever-growing number of university critics, the long-standing arrangements that have worked so well for PBSA (Purpose-Built Student Accommodation) providers for so long cannot be taken for granted anymore. However, as I noted at the start, predictions do not always come true and we should not forget our own capacity to make the weather.
So, to end, let me pose three questions about the future:
- Are PBSA providers ready to defend themselves against questions on current pricing trends, including dynamic pricing and ‘cashback’ offers, as these issues will inevitably flare up at some point?
- Are PBSA providers ready to respond to expectations from policymakers, universities and students, for lower-cost developments, perhaps via more retrofitting rather than new builds or providing larger cluster flats with smaller rooms?
- Are you ready for the additional regulation that is hinted at in the Post-16 Education and Skills white paper? This promised a new ‘statement of expectations on accommodation which will call upon providers to work strategically with their local authorities to ensure there is adequate accommodation for the individuals they recruit.’