OK, if you are not in the UK, or more specifically England and Wales, you may not know about the current attempt to revolutionise the way UK Higher Education funding works, but you have probably seen the pictures of some small amount of rioting associated with the two huge student protests that have occurred so far. There is another protest scheduled for Tuesday I believe; what puzzles me is why Daily Mail readers have not joined the students on the marches and fighting?
Let us start with the key facts: what it is about. In essence, until now the UK Govt has given universities a block grant, a sum of money to each university to subsidize their students, and this system has lasted about fifty years. Since the 1980’s, with the biggest single change in student wealth — the withdrawal of Housing Benefit, a payment that subsidizes rent, followed shortly by the withdrawal of dole payments in the vacations — a variety of different changes have tried to improve the system. First grants, which did not have to be repaid, were replaced by government backed student loans, and then tuition fees were brought in. Now they are up to about £3,000 p.a; the latest change will see them rise to up to £9,000 per year, and the government will cease to support the universities, which will be dependent on tuition fees to survive. (There are a few exceptions, and I have not time to do the issues justice. There is an excellent overview in depth here.)
Now OK, I can’t see many Daily Mail readers fuming at the prospects of tuitions fees. The Daily Mail is a right-wing UK newspaper that is read, by one presumes, the home-owning middle classes, and while they may resent having to pay extra-for their children’s education, they can probably afford it, unless they were almost bankrupted by the fees putting their kids through private school educations, as some are. So why do I foresee Daily Mail readers suddenly rioting? Because this could I think indirectly lead to their worst nightmare — a fall in house prices.
COULD FERAL CHILDREN GIVE PROPERTY PRICES CANCER?
You may have guessed that is not a real Daily Mail headline – it’s from the Daily Mail Headline Generator. A few seconds playing with that should give anyone who has read this far but has never heard of the paper the idea. The Mail is obsessed with property prices, which are seen as possibly the single most important thing in the universe as far as I can make out. Any fall in them should be met with sackcloth and ashes, lamentation and gnashing of teeth.
Now I don’t know that a rise in tuition fees will result in a fall in house prices, but I’m going to argue why it might. Firstly, since the baby boomers grew up past university age, you might have suspected that universities would have retracted, and less places would be available now that in say 1985. In fact as UCAS figures show, the expansion in UK student numbers continued — for details see HESA – this conjuring trick being pulled off by having a higher percentage of school leavers entering tertiary education.The figure varies by source, but between 30 and 40% of school leavers now go to university.
And most of them still leave home, and give the chronic shortage of dorm places in most universities, fueled by two decades of rapid expansion in the size of the institutions, they rent from the private sector. I don’t think the commercial student accommodation companies who build large dormitory style blocks have much to worry about — that market is probably pretty safe, and they will weather tuition fee rises, simply adjusting rents. In fact, it is probably a sound place to put your money – such large student blocks look like the will be perennially popular, as student flock together, and in a crunch can always be converted to hotel or flat accommodation for non-students.
A huge amount of student properties however seem to be ones bought by parents for their kids at uni, then rented to others after the children leave the uni. Other canny investors bought cheap in the 90’s property slump, and have been living off the proceeds of student rents ever since.
So what will happen if tuition fees rise? My first guess is that a lot of kids will be put off going to university, or simply unable to afford the fees, even given government loans. So if that happens the universities will see a retraction in numbers, and the immediate knock on effect will be to the student rental market, as less students will be competing for the same housing. Prices will inevitably drop, and given you can cram a lot of students in to a small house, the alternative, young working or HB supported couples, will not be as lucrative. In the university towns even a small reduction in numbers could trigger a lot of properties being put on the market, and as they buy to let for students market falters, house prices generally will drop. Of course nightclubs, bars, and student targeted businesses will suffer first as students have less disposable income, and are unable to afford the excess of today’s generation – but the housing market can hardly be unaffected? Increased caps on Housing Benefit will again reduce the potential of that part of the market, which can not take up the slack. The only way is down for prices if student numbers fall?
I expect that there will be compensating mechanisms – the 18 to 21 year old population will still need housing – but if significant numbers stay at home with mummy and daddy and go to a local uni, or get jobs instead and live as couples not four to a house or more, well, inevitably the university towns student rental sector will decline, and there will be a knock on effect on housing stock prices throughout these towns, and then the wider property market? It’s still a few years off yet, but perhaps Daily Mail readers might want to pull on their balaclavas and go riot on Tuesday? 🙂