PBSA Sector Waits On Foreign Student Policy Amid University Funding Crisis

British universities have been ramping up the pressure on the next government over a growing cash crisis among the UK’s higher education institutions, as student immigration visas, raising tuition fees and bolstering funding to avoid bankruptcies become political hot potatoes. 

With the perception that Rishi Sunak’s regime has made lucrative international students feel unwelcome, universities are becoming increasingly concerned that one of their main revenue sources is under threat. And as a result, the purpose-built student accommodation sector anxiously awaits how the next administration tackles foreign student numbers and any impact on room demand.

Bisnow asked a higher education think tank, two owner-operators and an adviser about the possible fallout from the election campaign's tough rhetoric over foreign student numbers and what they would like to see from the next government.

The Issue: Finance And Foreign Student Immigration

The Office for Students has forecast that 40% of England’s universities will end this year in the red, and there have been calls for tuition fee reforms of an additional £2K to £3,500 a year per student to stabilise finances amid inflation and static domestic tuition fees. This cash-strapped environment has seen many universities increasingly reliant on the higher fees achievable from overseas students.

However, at the start of this year, tighter rules were introduced, meaning that international students could no longer bring family members to the UK unless they were on postgraduate research courses or government-funded scholarships, because of fears it was being used as a loophole to bypass the wider immigration process. That has caused concern in the university sector.

While neither party has so far focused on the issue, Shadow Education Secretary Bridget Phillipson said a Labour government would recognise the “major contribution” made to the UK economy by international students, and a report published in May by the Migration Advisory Committee found no evidence that the graduate visa had been misused, as was claimed when the new rules were introduced, and said it should be retained in its current form.

The Education View

“Over the span of the Conservative government, we had quite strict rules over international student visas for the first few years, until Boris Johnson liberalised the market, but since then we’ve seen a gradual tightening again,” HEPI Director Nick Hillman said. “Any further tightening is a real concern for university finances.”

HEPI is an independent think tank, and Hillman added that so far the organisation has not seen any suggestions from Labour that it would take a widely different approach, although he said there is a “general sense that a Labour government may be more relaxed,” which the sector would see positively.

“That said, left-leaning administrations in Australia and Canada are tightening their rules, so you can’t make assumptions,” he added. “In addition, if we look back to 1997, it took the Blair administration two or three years to really set out their stall, so it may well take some time for us to see any real changes from a new administration anyway.”

Hillman said that any changes will impact universities differently, with those in the Russell Group typically oversubscribed for international students. But several well-established universities have reported financial difficulties.

“The main challenge is that some of these issues are quite pressing, and we don’t want to be leaving them for another two or three years,” he said. “Although it’s not a popular opinion, it is probably time for tuition fees to rise and for the government help funding students with larger loans to try and alleviate the cost-of-living issues they are facing.”

The Owner-Operator View

“There are only a handful of global student markets, notably the UK, U.S. and Australia. And the UK offers not only the heritage and prestige of the Russell Group but also educational costs well below an Ivy League university,” Empiric Student Property CEO Duncan Garrood said.

“But there’s a feeling that international students are not as welcome as before,” he added. “The report from MAC showed emphatically there is no widespread abuse of student visas. That was crystal clear. And it would have been interesting to see how the Conservative government responded, but then parliament was dissolved.”

While he said that should Labour win, then at worst the party would maintain the status quo and could be more flexible, he is concerned that it will not be seen as a priority.

“Many universities have become quite reliant on overseas students, and unless there is some sort of review of student tuition fees, then we may see universities being very vocal on their funding requirements or going bust, neither of which is desirable for a new government,” Garrood said.

“There have been reports that the clampdown in January has seen applications fall. In fact, the drop has been for dependents,” he said. “This is not a major factor for PBSA, because the vast majority of accommodation is single occupancy for those in full-time education.”

Garrood said that he would like to see more positive sentiment from the incoming government.

“International students not only bring money but are also highly qualified people,” he said. “So why would you not want to keep them? And I would like to see the benefits of university extolled for all students.”

He also called for planning simplification, with a centrally driven mandate to “stop the variability in local authority interpretations and help attract investment.”

The European Investment View

“Tuition fees have been the same for a long time, so you can’t blame universities for looking at the higher fees they can charge international students as a path for growth,” GSA Global Head of Real Estate James Hunt said. “Their challenges are deep-rooted, and rather than cutting down on weaker courses, what would be better is to consider variable fees for different courses in different locations, based on probable outcomes.”

He said there is a danger of international students being looked at as “low-hanging fruit” in terms of migration, instead of considering the fact that the UK has a world-class higher education system that should be embracing overseas students and retaining them as highly qualified members of the workforce.

“The clampdown on international student numbers is certainly a hot topic among investors. Our recent focus has been on Europe more for opportunistic reasons than because of a possible threat in the UK,” he said. “Nonetheless, the situation does encourage that diversification.

“The devil is in the detail. If you are specialised in very high-end accommodation for foreign students and, for example, less Chinese students come over, then that could have an impact. For players in the middle markets, it’s less of an issue.” 

He would like to see an incoming government show more recognition of the important role of universities and also help with the challenge of PBSA developments being perceived as coming at the expense of residential development by some councils.

“If there is less purpose-built [student] property, then those students will have to rent from the residential market anyway,” Hunt said. “I would like to see councils view us not as part of the problem but as part of the solution.”

The Adviser View

Jennet Siebrits, head of research at CBRE UK, said the independence and status of the MAC report means that whoever wins the election is likely to use the findings rather than commissioning fresh research.

“The report was independent, so although administrations may interpret the report differently, it’s unlikely that their views will be radically different or that a new report would be instigated,” she said.

“There is some anecdotal evidence that the January clampdown has impacted the numbers coming through. But as undergraduate students tend to be in single-occupier rooms and this is unlikely to have any major impact on the PBSA sector, which tends to be very popular among international students as there are packages available, plus a ready-made community,” she said. “However, the PBSA sector has a lot of other challenges, such as planning, scheme financial viability and land pricing, which come further up the agenda than international student numbers.”

CBRE Valuation and Advisory Director Kirsten Dyer said the impact of restrictions on overseas student numbers will be felt differently by the higher education institutions and the real estate sector.

“For higher education, the money from international students tends to cross-subsidise domestic students. For real estate, in locations with high demand, there has been far less impact,” she said. “Some universities already have a clear undersupply versus demand challenge, so actually, it’s that imbalance which is the issue.

“From an investor perspective, there are many factors in assessing the financial viability of a scheme, and understanding the exposure of a university to foreign student numbers is just one of them.”