Awaiting the outcome of Scotland’s purpose-built student accommodation review

The summer is a welcome break for higher education students across Scotland. But, as coursework and exams are temporarily put to the back of minds, a potential reform is looming that could have major implications on the student living experience in Scotland.

This relates to the outcome of a much-anticipated review into its purpose-built student accommodation sector (PBSA) – first initiated in 2021 by the Scottish Government.

The review is based on the results of a research project by the Collaborative Centre for Housing Evidence - a multidisciplinary partnership of academic institutions, housing policy and practice – that seeks to address the challenges currently impacting the PBSA sector.

Considering the high-levels of investment into PBSA in Scotland, it is hoped that the outcome of the review will maintain the positive momentum that is being experienced within what is now a well-established, expanding and robust area of Scotland’s real estate market.

Market demand

Demand for high-quality PBSA is strong. Analysis from Savills shows that the sector defied macroeconomic challenges in 2022, with £7.8bn of UK stock traded – up 89% on 2021.

Though investment activity has been more subdued in 2023 as a result of economic conditions, Scotland’s PBSA sector remains an attractive proposition for investors. Its world–renowned universities continue to attract significant numbers of domestic and international students, fuelling the demand for accommodation in Scotland’s university cities.

Savills ranked Edinburgh, Glasgow and St Andrews as top-tier locations in its PBSA Development League Table, with a high student-to-bed ratio and/or a limited pipeline.

In Glasgow, the city with the largest student population north of the border, 300 PBSA units are planned in a development announced in May 2023 by Nova Living. Notably, accompanying Nova’s planning application was a ‘statement of need’ – citing the intense pressure within the city for rented accommodation, as student demand outpaces supply.

This demand for accommodation underlines the sector’s growth potential. It is showing resiliency at a time when economic challenges are impacting the wider real estate market.

Review

As a result of this demand, however, some domestic students are now struggling to secure an affordable residence within a reasonable commute of their education centre.

Edinburgh University Students Association has published its concerns about the affordability of PBSA. The Association specifically referenced PBSA’s exemption from the Private Housing (Tenancies) (Scotland) Act 2016 and local authority affordable housing criteria.

Joining calls to reform the sector is the National Union of Students Scotland, which has argued for the Scottish Government to introduce a PBSA regulator and for the creation of more ‘rights to quit’ student tenancies – providing greater control over ending leases.

These are just some of the factors that are set to be considered as part of the PBSA review. It will also explore the possibility of providing rights to terminate student leases on 28 days’ notice to match the Scottish private residential tenancy, and for a rent control mechanism.

Meanwhile, in England, The Renters (Reform) Bill was given its first reading in May 2023 after five years of consultation and refinement. Though PBSA is exempt from the Bill’s rules on assured tenancies, it will impact private lettings to students, with the legislation providing greater flexibility and security for student tenants, as is the aim of the Scottish PBSA review.

Striking a balance

Urgent action must be taken to boost the supply of PBSA, with estimates showing that the UK could potentially face a shortfall of up to 450,000 student beds by 2025.

The Scottish review must take this supply squeeze into account. It must also anticipate the impact potential measures could have on the market, investment flows and developers’ ability to bring new beds forward, with the demand for PBSA showing little sign of relenting.

The challenge for the review is to identify a sustainable way forward that considers the interests of all parties. One that succeeds in striking a balance between allowing the sector to continue expanding, while ensuring students have access to quality accommodation.

Any significant legislative and regulatory intervention could risk undermining confidence and the goal of alleviating pressure on the private rental sector in university towns and cities.

There are also macroeconomic conditions that must be considered alongside any potential legislative or sector reform, with developers currently dealing with inflationary pressures and subsequent interest rate rises - factors that are already hampering the delivery of schemes.

Finding this balance isn’t easy. By focusing on developing codes of good practice for the industry, however, the review could reaffirm confidence in Scotland’s PBSA sector and stimulate the investment and development needed to rectify the accommodation shortage.

Kirsten Belk is a real estate associate at Shoosmiths