Student let management may change under the Renters (Reform) Bill - and Sean Hooker, Property Redress Scheme, and Glenn Perry, Zest Property, answer some of your top questions about what that means.
The student let market will see some change under the current proposals for the Renters (Reform) Bill. Sean Hooker, Head of Redress at the Property Redress Scheme, and Glenn Perry, Founder and Managing Director at Zest Property, talked through what those are in our recent webinar, and offered their expert insights into what that could mean for landlords and tenants operating in that market.
Prefer to watch or listen to their conversation?
What this article covers:
- How does the student let sector currently work?
- What measures has the government previously put in place to regulate the student let sector?
- What impact will the removal of section 21 have on your student landlords?
- What's the biggest concern for student landlords?
- What could be the impact of the new tenancy system and break in seasonality on students and on supply?
- Could nine or twelve month agreements in the student sector be the solution?
- How many students are paying rent in advance?
- How could the new section 8 antisocial behaviour ground affect students?
How does the student let sector currently work?
Glenn Perry: Students that go into private sector student accommodation have spent typically a year in purpose-built accommodation. They've had the experience of being in that managed environment. It's quite a high end proposition.
They then seek out a house that they can share, with a communal kitchen and bathroom. They then take on the responsibility of a shared joint liability agreement, either working directly with a landlord who manages it, or an agent who manages it on behalf of landlords.
For those landlords and agents managing student accommodation of this kind, there is a seasonal predictability with the fixed-term tenancies that are currently in place. It's a huge value to the student market to have that predictability around availability of stock.
[...] At the moment, the purpose-built student accommodation is excluded from the bill, and student accommodation is included. Although, a week after unveiling it, Mr. Gove was in the Telegraph, and he did hint at the possibility of a U-turn to accommodate this part of the student market, because of the anxieties the agents and landlords feel.
What measures has the government previously put in place to regulate the student let sector?
Sean Hooker: In many of our towns and cities, the student sector is a huge contributor to the economy - in terms of not just accommodation, but all the services that it uses. It also brings disadvantages. A large number of students move into an area and the original residence families move out and they're displaced from that student area.
The area then just becomes almost exclusively student. [...] So, over the years, we've brought in restrictions. Local authorities have brought in HMO licensing, and you could have a designated special licensing for special areas, which will limit or control the amount of student accommodation in certain areas.
You've also got the planning rules - article four in particular - where you can restrict the student accommodation because of the way that it is built, so that you need planning permission to convert properties into purpose-built student accommodation.
What impact will the removal of section 21 have on your student landlords?
Glenn: We don't really use it. It doesn't have a place for us with student accommodation. It may be different in different parts of the country, but, where we are, the fixed term that exists for a student household is normally 11 or 12 months. They're legally liable to give a month's notice but, ultimately, they never do. They leave every year.
Their attention to detail on their legal obligations is another thing. We give them a huge amount of legal documentation, yet we are trying to educate them on the basics throughout their tenancy.
The various legal aspects aren't something that they're always on top of. They certainly don't give notice at the end, but they leave. That may be different in other parts of the country.
What's therefore the biggest concern for student landlords?
Glenn: Student landlords have become used to their security. They can market the property well in advance, and therefore they can secure tenants well in advance.
It's a huge operation, whether you're a landlord managing it yourself, or whether you have a specific student agency managing it for you.
Moving to a two-month window [as the new tenancy system allows tenants to give two months' notice to leave on periodic tenancies] for marketing, finding tenants, doing all of the legal background work, and multiple guarantors, as well as then coordinating with inventory companies, cleaning companies - operationally, it's a huge anxiety for an agent and for a landlord.
How can that be brought together in that small period of time when it's been structured over a number of months, historically? That's a huge challenge.
Sean: The student sector is different. In any other part of the private rent sector, signing a contract so far in advance is normally frowned upon, but it's the only way the student sector can work because of the logistics of getting that window of preparation.
What could be the impact of the new tenancy system and break in seasonality on students and on supply?
Glenn: For students, all it's likely to do is to cause further anxiety amongst a cohort of the population, which is already suffering mental health issues far greater than ever before. If this does go ahead, we'll find a solution, we always do. Whenever legislation comes in, we adapt to change, that's what we are here for.
However, perception wise, the appetite amongst landlords to remain in the market when they have been squeezed in many other ways historically over the years - I do think it's going to be a problem. It's going to have a ripple effect on supply. That's going to have a massive impact on students who are already clamouring to try and access accommodation, which there is not enough of.
Could nine or 12-month agreements in the student sector be the solution?
Glenn: With a nine-month contract, there's revenue for the landlord, but I would say 50% of our student clientele remain in the property for longer than nine months because they have jobs. They may not have a home to go back to.
In a 12-month scenario, the issue is that you can't do a turnaround in two days - especially if you want to elevate the standards of student properties, because periodically you need a larger window.
That's why we diversify between nine and 12-month tenancies depending on where that student accommodation is in its cycle of repair. We need to be able to continue the elevating of standards of student properties, and we need maybe a two-month window to do that sometimes.
How many students are paying rent in advance?
Glenn: For our agency, it's maybe 2%. It's a very small percentage. Normally we have UK-based guarantors, which are the security that we need. If not, there are guarantor schemes, for which students can apply. Very occasionally, international students will pay in advance. That rent is secured in a ring-fenced client account allocated to that property.
Sean: It is very regional. In central London, the number of overseas students that want to pay large rents up front. [The new system with rent periods of one month] will throw into chaos the business models that some of the universities are relying on.
So, it needs to be addressed. I don't think that taking large amounts of rent upfront for any purpose is the best idea. I think the guarantor model and making sure that there are affordability criteria built into your systems when you are taking it [should be enough]. If you're taking rent because you don't think they're going to be paying it, they shouldn't be taking that property. I know it's more difficult in student accommodation, because they're not earning and they are relying on grants or parents, etc. But I think generally the move to get rid of paying large sums of money in advance is a wise idea.
How could the new section 8 antisocial behaviour ground affect students?
Sean: In the past, it was very difficult to get an antisocial behaviour order. The definition has now been broadened. The definition of antisocial behaviour isn't necessarily what you or I think: rowdiness, drunkenness, all that sort of stuff which we all would associate with students. It's also behaviour that would cause disruption to neighbours and to your fellow residents. [...] The judge has got to make a judgement on what they would define as being antisocial behaviour.
Glenn: Landlords are looking at the product they need to provide for the student client group. They're elevating the standards around the expectations of a new population of young people and what they need for the next 10 years to be comfortable in their student housing, to be productive at university and enjoy their living. So they're considering how to future proof their property investment to appeal to this market.
That means that they're already signing up for the slightly higher risk that there may be antisocial behaviour because of that particular client group, and the perception there may be a slightly higher chance of annoyance or nuisance or disturbance with neighbours perhaps. However, a landlord's not going to want a student to exit because then they're going to be missing out on their finances - within this new framework, they could have a void for 10 months.
