Student accommodation: A market plagued by bed shortages, rising rents and 51-week leases

Facing soaring rents and an acute shortage of housing options, Ireland’s third level students – and their parents – have been exposed to some of the harshest realities of the free market over the past decade or so. With colleges and universities struggling to cobble together the funding to expand their accommodation offerings, deep-pocketed private operators – many of them backed by international capital – have entered the frame and come to dominate output.

Students have clearly had enough. In Galway, a move by Hubble Living to increase rents by 30 per cent for the upcoming academic year met backlash from student representatives, who successfully mounted a protest that pressed the company into rowing back on its plans.

The Government has also committed to introducing legislation aimed at protecting student lease lengths following outrage over a decision by private operators, obliging students to sign up to 51-week leases, massively increasing their housing costs.

Yet, despite a decline in private investment in recent years, international property groups are primed to remain significant players in the market here. “We believe that there are opportunities to continue investing in Ireland, however the current environment is challenging,” a spokesman for Global Student Accommodation (GSA), which operates 4,000 beds in Dublin and Cork, said this week. “The right conditions need to exist to support further development of student accommodation, so that it can meet the growing demand for higher education.”

Every time I travel abroad I am gripped by the fear that Ireland is making a fool of me

---

Mood of nation lifted as pandemic restrictions were eased, CSO data shows

---

Tánaiste claims Sinn Féin’s Pearse Doherty is ‘Jekyll and Hyde’ character in Dáil housing row

---

As the first wave of student accommodation projects was delivered around 2016 and 2017, money began to pour into the sector from abroad, attracting high-profile operators

The business case is clear. The Republic’s student accommodation market presents a promising investment opportunity for property funds looking to develop or just operate a property due to a sizeable shortfall in the number of beds in the system relative to demand. By some estimates, this shortfall could be as high as 25,000 or 30,000 beds in Dublin alone. In other university cities – Cork and Galway, in particular – the trend is similar but accurate figures are difficult to come by.

How did this situation come about? It is, after all, not that long ago that student housing was seen as a particularly attractive asset for foreign investors. As development activity ramped back up again in the latter part of the last decade following the implosion of the property market here post-2008, developers – some foreign investors, such as the UK’s Ziggurat, specialists in the field – began snapping up distressed property assets, many of them in Nama, to convert into private student housing.

As the first wave of these new projects was delivered around 2016 and 2017, money began to pour into the sector from abroad, attracting high-profile operators such as US real estate giant Hines, Global Student Accommodation, which trades as Yugo, and insurer AIG, to name but a few.

This was a time when higher education institutions had effectively quit the stage when it came to capital spending. Hobbled by austerity policies and having had their funding slashed by successive governments, institutions struggled to deliver new beds for students, whether on or off campus. Into this void stepped private developers and operators with war chests ready for deployment.

[ Student accommodation: Without decent housing it’s hard to get a decent education ]

Over the past three or four years, however, development activity has slowed down and so, too, has investment. There were just two active private student accommodation development sites in Dublin city, home to the largest student population in the country. Several factors have played into this crisis.

“Firstly, during Covid, occupancy levels dropped significantly – naturally, with universities and many recreational facilities, etc, closing for periods,” says Kevin McMahon, director of investments at property agent Savills Ireland. “Investors and owners were just wary about what the post-Covid student market might look like. We all thought during Covid that remote learning could be here to stay, but clearly it hasn’t.”

In a broader sense, the macroeconomic environment – rising interest rates, post-pandemic materials price inflation and labour shortages – has also conspired against the construction industry and property investment at large. Viability is a watchword across the construction industry now, and there has been a degree of caution with which developers and owners have approached new business.

The use of student housing to accommodate people seeking temporary protection following the outbreak of war in Ukraine in 2022 has been another hurdle for students to clear. Some 1,990 beds across 11 properties were in use for that purpose at the end of March, according to figures released to Sinn Féin’s spokeswoman on higher education Mairéad Farrell by Minister for Integration Roderic O’Gorman. Contracts for these beds were not awarded through a competitive tendering process.

Instead, the minister relied on a derogation under EU rules, allowing the Government to bypass normal procurement rules due to the “extreme urgency” of the crisis.

If the era of hair-shirt budgets has long since passed, higher education institutions still face cumulative funding shortfalls with enrolment having climbed by 15 per cent between 2009-2016, while investment decreased by 12.5 per cent

Exactly how many of these nearly 2,000 student beds that have been taken out of the system are viable as student accommodation is unclear, however. In August 2023, Mr O’Gorman, reached an agreement with then Minister for Higher Education Simon Harris to reject further offers of properties that have been used as student housing in the previous 12 months. “The protocol is operating well and will be kept under review as necessary,” a spokesman for Mr O’Gorman said recently.

Underpinning all these issues is the fact that higher education institutions remain underfunded relative to their growing student populations, a fact established in a European Commission analysis of the sector in 2022. If the era of hair-shirt budgets has long since passed, institutions still face cumulative funding shortfalls with enrolment having climbed by 15 per cent between 2009-2016, while investment decreased by 12.5 per cent.

[ Students are pawns in accomodation providers' business models ]

When it comes to building accommodation, viability and cost are not just issues for the private sector. Universities and technological institutes have struggled to expand their offerings for students, both on and off campus, against a backdrop of soaring building costs and confusion about the level of Government funding on offer. Many – including Dublin City University (DCU), University College Dublin (UCD) and Trinity College Dublin – have housing projects for which they have received planning permission that remain stuck in the pipeline.

In his former role as higher education minister, Simon Harris last December announced a €434 million pot of funding, available through the European Investment Bank and the Housing Finance Agency, to support the activation of some of these projects. While borrowing to fund the activation of dormant projects will suit some institutions, others are already highly leveraged and reluctant to take on new debt. Lacking a Government-approved borrowing framework, there are also questions as to whether the technological universities are actually allowed to take on debt to develop housing and teaching space.

Core funding from the department is what the sector is crying out for and to some extent, this has been recognised in Government. But questions have been raised about the urgency with which the Coalition has dealt with the issue. In January, Mr Harris, Minister for Housing Darragh O’Brien and Minister for Public Expenditure Paschal Donohoe attended an event in DCU to “unveil”, according to a press release at the time, plans for more than 500 student accommodation beds, 405 in DCU and 116 in Maynooth. The Union of Students in Ireland at the time accused the Government of engaging in “smoke and mirrors”, highlighting the fact that the 405 DCU beds had already been unveiled in March 2023 as part of a €40 million investment.

In response to queries from The Irish Times, a spokeswoman for the Department of Higher Education highlighted that the Taoiseach’s successor in the role, Patrick O’Donovan, had gone to Cabinet again seeking a funding package to speed up bed delivery.

“On April 23rd, Minister O’Donovan brought a memo for information to the Government on the activation of a student accommodation project at UCD (493 beds), and a specific update on DCU (405 beds) and Maynooth University (116 beds),” she said.

The funding will be “prioritised” from an additional €100 million capital allocation from the National Development Plan for the years 2024 to 2026, the spokeswoman said. “Further proposals are under assessment at UG and UL. The department is also continuing to engage with TCD in relation to a potential project (358 beds).”

‘We’re well past time just reannouncing beds that were given planning permission years ago, but for which a brick has yet to be laid’

—  Mairéad Farrell, Sinn Féin higher education spokeswoman

This week, property industry figures raised questions about whether the €100 million allocation over three years will be sufficient to bring the projects to fruition in the current cost environment. “Obviously, €100 million is a lot of money,” said one. “But the simple maths would suggest that that’s only going to be a part of the cost to deliver these.”

[ Severe shortage of student accommodation offers opportunity for investors ]

In its alternative Budget 2024, Sinn Féin allocated €100 million in each of the next three years to fund the delivery of these beds. “We actually need to invest in student accommodation,” said the party’s higher education spokesperson Mairéad Farrell this week. “We need to look at the TU sector as well, because currently they can’t borrow, can’t do anything.”

Whether or not the Government’s proposals will be enough to alleviate the crisis is up for debate. “We’re well past time just reannouncing beds that were given planning permission years ago, but for which a brick has yet to be laid,” says Farrell. “The student crisis needs a crisis-level response, not one based on optics and energy in lieu of action.”

What is not up for debate is the State’s reliance on the private sector to deliver the beds necessary to alleviate the crisis. The Department of Higher Education said this week that since 2020, some 8,618 student beds have been added to the system, with 6,423 of these beds in the private market and just 2,195 beds provided by public higher education institutions.

“As of March 2024, work is under way on site on an additional 2,117 bed spaces,” the spokeswoman said, “while planning permission has been obtained for a further 11,422 beds; 7,907 of these beds have been granted planning permission since 2020. It should be noted that this number could include projects where planning was granted but the project never progressed further and may be on hold. Planning applications in respect of a further 1,858 beds have been submitted.”

In the meantime, private companies retain the whip hand in the market and the Government has had to scramble to curb some of the worst excesses. The Irish Times reported in January on a decision by some private student accommodation operators, Yugo and Hines-owned Aparto, to increase lease lengths for the 2024-2025 academic year, meaning students would have to sign up for a 51-week tenancy, some 10 weeks longer than the typical lease for this year.

In some cases, questions were raised about whether the decision would be in keeping with the original planning permissions received for the developments. The move faced widespread criticism from students, universities and opposition politicians. The Government subsequently outlined plans to introduce legislation before the summer recess to protect student lease lengths.

Asked for an update this week, a spokeswoman for the Minister for Higher Education said: “Officials from the department have been engaging with officials from [the Department of Housing] on the decision of private student accommodation providers to move to 51-week leases. Officials from both departments are examining a number of potential legislative amendments to the Residential Tenancies Act 2004-2022, which will require Government approval.”

She said the ministers were “keen” to advance the legislative amendments before the summer recess “to ensure that enhanced tenancy protections are in place before the 2024/2025 academic year”.

For students and parents facing uncertainty about living expenses for next year, the clock is ticking and sharp focus is being brought to bear on the Government’s priorities. But whatever gets decided, private operators are poised to retain much of the power within the market.

• Sign up for Business push alerts and have the best news, analysis and comment delivered directly to your phone
• Find The Irish Times on WhatsApp and stay up to date
• Our Inside Business podcast is published weekly – Find the latest episode here