Student rents can outgrow the funding students live on for a few years, and then the catchment narrows.
Take the rent the student actually pays for the contract, weekly rate times contract weeks less any discount, and divide it by the maximum maintenance loan for the year. On an illustrative 440-bed scheme and an illustrative £10,830 loan, the blended rent of £8,476 takes 78.3 per cent of the loan, leaving £53.50 a week of term for everything else; a studio takes 93.9 per cent, and at 4.0 per cent rent growth against 2.8 per cent loan uprating it passes the whole loan in year 6.
Worked in full in Student Housing Real Estate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Affordability is the slow constraint on student housing rents. A scheme can raise its rate card faster than the funding students live on for a few years, and the market will bear it; after that the students who can pay are the ones with family money, and the scheme's catchment narrows to them. The test is a simple ratio, but it has to be run on the right numerator, the right denominator and the right number of weeks.
| Room type | Beds | Rate, £/week | Rate card, 44 weeks | Rent paid |
|---|---|---|---|---|
| Cluster ensuite | 260 | 178.00 | 7,832 | 7,707 |
| Premium ensuite | 90 | 199.00 | 8,756 | 8,616 |
| Studio | 70 | 235.00 | 10,340 | 10,175 |
| Large studio | 20 | 275.00 | 12,100 | 11,906 |
| Blend | 440 | 8,476 |
The other inputs: 40 per cent of students book early for a 4 per cent discount, an average of 1.6 per cent off the rate card; an illustrative maximum loan of £10,830 for a student in England living away from home outside London, and an illustrative minimum, the amount available whatever the household income, of £5,048; rent growth of 4.0 per cent a year against loan uprating of 2.8 per cent. Agent commission is not deducted: it reduces what the landlord receives, not what the student pays.
Share of the loan = weekly rate × contract weeks × (1 − average discount) ÷ maximum loan
Studio: 235.00 × 44 × 0.984 = 10,175; ÷ 10,830 = 93.9%
Left per term week = (loan − rent paid) ÷ contract weeks = (10,830 − 10,175) ÷ 44 = 14.90
Years until rent passes the loan = LN(1 ÷ share) ÷ LN((1 + rent growth) ÷ (1 + loan uprating))
In Excel: =LN(1/Share)/LN((1+RentGrowth)/(1+LoanGrowth)). The relative growth here is 1.17 per cent a year.
| Room type | Share of max loan | Share of minimum loan | Left per term week | Years to 100% |
|---|---|---|---|---|
| Cluster ensuite | 71.2% | 153% | 70.98 | 29.3 |
| Premium ensuite | 79.6% | 171% | 50.32 | 19.7 |
| Studio | 93.9% | 202% | 14.90 | 5.4 |
| Large studio | 109.9% | 236% | −24.46 | already over |
| Blend | 78.3% | 168% | 53.50 | 21.1 |
Three readings matter. First, no room type is affordable on the minimum loan: even a cluster room costs 153 per cent of it, so the scheme's market is students with the full loan or outside support. Second, the blend looks comfortable at 78.3 per cent and, on the growth assumptions, does not reach the loan for 21.1 years; by year 5 it is 82.9 per cent and by year 10 87.9 per cent, with £39.26 a term week left in that year's money. Third, the studios do not have that time. The standard studio crosses the loan in about five and a half years and the large studio is already above it. A ten-year cash flow that grows every room type at the same rate is assuming that students will pay more than the loan for a studio for most of the hold.
| Rent growth | Loan frozen: yr 10 | years | Loan +2.8%: yr 10 | years | Loan +4.0%: yr 10 | years |
|---|---|---|---|---|---|---|
| 3.0% | 105.2% | 8.3 | 79.8% | 126.1 | 71.1% | never |
| 4.0% | 115.9% | 6.2 | 87.9% | 21.1 | 78.3% | never |
| 5.0% | 127.5% | 5.0 | 96.7% | 11.6 | 86.1% | 25.6 |
The ratio depends on the gap between the two growth rates, not on either alone. Loan uprating is set by government, not by the market, and a freeze moves the crossing point for the blend from 21.1 years to 6.2. That is the scenario to put beside the base case, because the rent growth in the business plan was not set with it in mind.
The usual error is comparing weekly rates without the contract length. A 51-week contract at £235 costs £11,793, 108.9 per cent of the loan, while the same rate on 44 weeks takes 93.9 per cent. A competitor quoting £202.75 a week on 51 weeks is charging the same for the year as £235 on 44. The second error is dividing the weekly rent by the loan over 52 weeks, £208.27, which puts the studio at 112.8 per cent and mixes a term-time rent with a full-year income. Compare annual rent paid with the annual loan, then express what is left per week of the contract.
Use the rent paid, not the rate card. Discounts reduce what the student pays; agent commission and nomination discounts reduce what the landlord receives. Only the first belongs in an affordability test.
Rent affordability is annual rent paid over the maintenance loan: 78.3 per cent for this scheme's blend, 93.9 per cent for its studios, with the studio crossing the whole loan in about five and a half years at a 1.17 per cent annual gap in growth. Run it room type by room type and against a loan freeze. The free companion workbooks for the book carry the same test by room type, and whether to cut rent to fill beds prices the other side of the trade.
Convert both to rent for the contract. £235 a week on 44 weeks is £10,340 on the rate card, while the same rate on 51 weeks is £11,985 before discounts. A 51-week contract at £202.75 a week costs the same for the year as £235 on 44 weeks.
The gap between rent growth and loan growth widens to the whole rent growth. On the illustrative scheme the blended rent, 78.3 per cent of the loan today, passes the loan in 6.2 years with rents rising 4.0 per cent and the loan frozen, against 21.1 years with 2.8 per cent uprating.
No. Commission reduces what the landlord receives, not what the student pays, so it belongs in revenue, not affordability. Early-booking discounts do reduce what the student pays: here 40 per cent of students take 4 per cent off, an average of 1.6 per cent.
This article is one calculation from Student Housing Real Estate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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