I’ve never bought into student accommodation being countercyclical to the strength of the economy, but I’d argue that it is independent from it. In choosing to go to university, my son had no regard for economic or political conditions. He has wanted to study Aerospace Engineering for more years than I can remember, and nothing was going to dissuade him.
And so it was for a record number of UK 18-year-olds this year across the full spectrum of subjects, with the Universities and Colleges Admissions Service (UCAS) managing the university application process, reporting that nearly 280,000 such students were accepted this year. This is a 2.8% increase over last year and reflective of the growing number of 18-year-olds in the UK, with the peak not due until 2030.
But while the state of the economy itself has limited bearing on the decision of young adults to head to university, personal finances and seeking value for money do. While it will increase slightly from next year, the concept of tuition fees being capped and currently at £9,250 (US$11,914) for domestic students will remain, whether you study at the illustrious University of Bristol (writer bias must be declared) or elsewhere.
The UK government also announced last year that it will introduce Shariah compliant student finance, so that as many Muslim students as possible can use the government’s funding for tuition fees and living costs.
So, while a student’s grades rather than necessarily depth of pocket will determine where they’ll be heading, there is an increasing realisation that a degree from an average or poor university isn’t worth the investment or debt incurred. Again, the UCAS figures support this, with a 7.8% increase in undergraduate acceptances for the universities requiring the highest grades and a 4.4% fall among those universities requiring the lowest grades.
My son and I saw this live on results morning, with many top universities dropping their grades slightly to fill their courses, using the equivalent of live pricing, with required grades returning to their normal level as places ran out. They were able to grab students who would otherwise have headed to a university slightly lower down the rankings, and judging by the UCAS numbers, this seems to have occurred across the country.
At this point it’s important to point out that the definition of those universities requiring the highest grades or ‘highest tariff’ as UCAS defines it is a little opaque, but they’ve told me that it’s roughly the top third of universities and colleges they manage admissions for. With 405 such institutions listed on their website, it’s certainly more than just the top 10, the Russell Group of 24 universities or even the 50 that are in the ascendancy.
But back to finances and this time regarding the universities themselves. At GBP9,250 (US$11,914) per annum, the income they receive from each student has been fixed since 2017, with some heavy years of inflation in between. The universities need the overseas students to subsidise the domestic, and while the previous UK government became less welcoming to students arriving from overseas, the reality is that overseas undergraduate admissions dropped just 0.6% on last year.
While much noise has been made around the fact that undergraduate acceptances of Chinese students fell by nearly 2%, seemingly significant as they represent around a quarter of all overseas students, the fact is that their places were taken by other nationalities. In absolute numbers, those from Nigeria, China and Hong Kong were the biggest fallers, but those from Turkiye, Singapore and Canada were up the most.
Finance providers, including many Islamic providers, remain happy to finance the acquisition of purpose-built student accommodation, recognising the security that the sector offers, even if the current level of the underlying profit rate swaps makes it possible for such finance to be accretive to current distributable returns.
What to conclude from this? Demographic trends are hard to beat. An English spoken university education remains in demand. But market forces are starting to bite, with the weakest of the universities and colleges facing a triple whammy of fixed fees, falling student numbers and rising costs. Focus on the better university cities and the demographic wind will be behind you for at least the next five or so years. Oh, and my son likes his accommodation so much, he wants to stay there for at least another year. Must have been Dad’s guiding hand!
Written by Philip Churchill, first published in Islamic Finance news Volume 21, Issue 46 dated 13th November.