Initial pandemic concerns resulted in fewer students living life on campus for the 2020-2021 school year. But the 2021-2022 fall season is here, and life on campus is in high demand. So much so, in fact, that some colleges are suffering from a student housing crisis with a serious shortage of student housing per enrolled student. This unique college "rush" is leading to some interesting challenges and opportunities for real estate investors in desirable college towns. Here's what you need to know.
How is there a shortage?
In a normal school year, universities and colleges offer a range of programs, including study abroad or internships in foreign countries. Additionally, many students may not enter college right away after graduating high school, taking what's dubbed a "gap year," which is often used for travel. But as concerns and challenges relating to international travel continue, more people are choosing to jump right into college life.
On-campus housing almost never supplies enough housing units for enrolled students for the given school year, and that's in a "normal" year. Most universities and colleges were already entering the school year with a short deadline, but this year's record demand is forcing colleges to get creative. The University of Tampa is offering up to $3,500 grants to students who seek off-campus housing to be applied to the school year's tuition or costs. The College of Idaho is converting shipping containers into student housing to attempt to increase supply. But even with these new efforts, on-campus housing waitlists are long, and many students will be forced to live off-campus.
Private college-housing market is flourishing
The private market has already supported the shortage of housing for colleges and universities in the past, growing into a multi-billion business for landlords and larger companies like real estate investment trust (REIT) American Campus Communities. But this year, the pressure is on for the private market to fill the gap. Brookfield Asset Management announced its plan to spend $1 billion for student housing through a joint venture with Scion Group.
If the real estate market has shown us anything over the last year, it's that a lack of inventory and high demand pushes prices up. Rental rates in many popular college towns were already rising, but new demand and high inflation means rates are rising at a greater pace.
In a survey by Realtor.com, 33% of students entering the 2021 fall school year stated they have not been impacted negatively or positively in their search for housing; however, 43% stated they are having trouble due to a lack of housing, competition, or cost, among other reasons.
It's not any one state that is dominating demand -- it's mainly driven by the college or university itself. This means investors who are positioned in ideal markets located near high-demand and high-enrollment campuses may see new opportunities this school year, including wider tenant pools or the possibility of increased rents or adding favorable lease terms. This is welcomed after a tough 2020-2021 school year, when over 58% of students surveyed returned home to complete the school year.
Not all college towns are feeling the pinch
Not all college campuses are experiencing abnormal demand compared to previous school years. Smaller colleges and universities are in large part operating at par with previous years, meaning their supply of on- and off-campus remains steady. In some cases, smaller colleges are even struggling with enrollment and on-campus housing demand, offering incentives to students who live on campus. It's likely we'll see more struggling schools enter into a public-private partnership with companies like ACC to help offset some of the burden of filling university or college housing -- which could be a good boost for ACC after a super-tough run.
An uptick in demand is definitely a good sign for investors, but it's important for landlords to keep affordability in mind as they lease. Housing affordability continues to be a growing concern across our nation, and student housing right now is expanding into the standard rental market in many places, pushing rental rates up across the board. Keeping this in mind, it could be beneficial for landlords -- particularly those who own multi-unit rental dwellings (such as a duplex, triplex, four-plex, or apartment) -- to consider offering a portion of their rental units as affordable housing or offer leasing rates at slightly less than market value in order to secure high-quality, long-term tenants.
The college housing crisis is definitely hard on families and students right now, but there's a strong chance housing demand will return to normalized levels for future school years. In the meantime, investors should be ready.