Student Housing Market Overview

Crew believes that the type of student housing properties that we intend to acquire are attractive investment opportunities for the reasons discussed below.

Student Housing Market Overview

Yardi 200 Total Sales

Figure 1 — Source Yardi Matrix Student Housing Q3 2023 Report

Student housing remains an ascendant asset class in the early stages of institutional adoption (Figure 1). Larger institutional and cross-border investors continue to be attracted to the category due to its favorable supply/demand characteristics as well as the sector’s historical stability and resiliency of cash flows.

Many of the questions coming out of the COVID pandemic were answered by the category in the subsequent academic years. According to the Yardi Matrix January 2024 National Student Housing Report, Fall 2023 final occupancy settled at 94.6% (a slight 1.6% decrease compared to Fall 2022 but still ahead of 2019-2021), based on a representative sample (the “Yardi 200”).

For the 2024-2025 leasing season, December 2023 saw the fastest pre-leasing start ever, reaching 47.3% for the Yardi 200 compared to the previous record of 38.4% in December 2022.Similarly, the average rent per bedroom is $858 as of December 2023 (a record high), 4.9% higher than the prior year.¹

Transaction volume (Figure 1) after the pandemic was very strong in 2021-2022 before seeing an expected dip in 2023 due to inflation and interest rate hikes. As investor interest and transaction volume for the category have increased, capitalization rates have steadily decreased since 2016, averaging 4.92% in 2022.²

Demand Drivers for the Category

Public 4-Year Universities have Displayed the Strongest Enrollment Resilience Over the Past 50+ Years & Continue to See Greater Enrollment Growth than 2-Year & For-Profit Institutions.

Figure 2 — National Center for Educational Assistance

The historical stability of university enrollment (Figure 2) is driven by the economic advantage a college graduate has over non-college educated peers. According to the Bureau of Labor Statistics (BLS),³ in 2021, median weekly earnings for individuals with four-year college degrees was 40% higher than those with only a high school diploma. The BLS further noted that the unemployment rate for those with a college degree in 2022 was 2.2%, versus 4.0% for those with a high school diploma only.³

According to the National Center for Education Statistics, the post-secondary education market isn’t one-size-fits-all. Enrollment tends to be most stable at public four-year universities.

Public two-year schools tend to have far more volatility in enrollment followed by private four-year schools and finally private two-year institutions. Over 74% of U.S. college enrollment is at public two and four-year colleges and universities. This is largely due to the affordability factor in choosing where to further one’s education.

According to data gathered by the Education Data Initiative, the average annual tuition at a public four-year school is less than a fourth of that of a private four-year school ($9,678 vs $38,768).⁴

This data is for in-state enrollees and excludes food and housing. The lifetime earning advantage is not the only factor that drives the decision for many to attain post-secondary higher learning. Societal pressures and the “rite of passage” argument also play a role.

Regardless of the factor, there is clearly more stability in enrollment at universities with a return-on-investment (ROI) advantage. The ROI variable ultimately guides most undergraduates when determining where to attend college, with the understanding that, to remain competitive and maximize lifetime earnings, one needs a college degree. For this reason, management is bullish on Power Five and FCS athletic conference schools with enrollment above 15,000 students that appear on the US News & World Report Top 200 Schools list.

Student Housing Supply

Student Housing Property Conversion to Conventional Multifamily

Figure 3 — Yardi Matrix

According to a 2023 article published by Newsweek, data from two different reports showed that between 20-43% of US students have faced housing insecurity on average, with over 200,000 students reporting homelessness.⁵

This is due, in part, to supply/demand imbalances in extremely tight inner-city markets such as University of California at Berkley and a lack of on-campus housing. A lack of on-campus options at many schools has forced more students into the off-campus purpose-built, conventional and shadow market. This market has been strained in recent years by low interest rates and loosening borrowing standards.

Most universities do not have the ability to invest in adequate housing infrastructure or keep up with the demand for on campus housing.

The future points to a continued tight market for renters. While some of this can be attributed to enrollment growth at top tier schools with national name recognition, housing conversions are also playing a role (Figure 3).

Conversions from student housing to conventional multifamily continue amidst the tighter housing supply environment, rising interest rates, and inflationary pressure on raw materials and labor making new construction of supply more difficult than conversions.

Inflation Protection Potential

The student housing category is colloquially known as having potential for inflation protection. This is due to long-term trends in university enrollment and the economic benefits of a college education.

From 1955 to 2015, enrollment at postsecondary institutions grew from 2.4 million students to 19.1 million.⁶ During the Great Recession, enrollment increased from 17.2 million students to 20.4 million.⁶ According to a recent study by Coursera, a bachelor’s degree is worth $2.43 million (median) over a lifetime, or 58% greater than those with only a high school diploma.⁷

The student housing category is unique in that it marries the familiarity of the multifamily asset class with economic centers (universities) that date back, in some cases, over 200 years.

Unlike their conventional multifamily peers, student housing properties generally don’t have to contend with changing demographics and business center shifts.

Crew believes that universities in business today will be in business well into the foreseeable future. Investors in the category lean heavily on proximity to campus, age of the product, amenities mix and, most importantly (according to most students), quality of Wi-Fi for competitive advantage. Factoring these considerations in to any model, operators look to the historical stability of university enrollment as a guide for the future stability in recessions and inflationary periods, especially at high ROI four-year public universities.

Future Trends

Management believes students will continue to push for purpose-built, campus-adjacent properties that offer lower-density options (i.e., bed/bath parity) at the higher-end while universities struggle with the important issues of housing and food security. Finally, the team expects the continued proliferation of 12-month leases and parental guarantees to make the student housing category attractive to institutional investors.

Learn About Investing Opportunities

Citations

Yardi Matrix – National Student Housing Report, January, 2024 (Jan 2024):
https://www.yardimatrix.com/publications/download/file/5051-MatrixStudentHousingNationalReport-January2024
Berkadia – 2023 Berkadia Student Housing Market Report (Feb 2023) https://base.berkadia.com/wp-content/uploads/2023/02/Berkadia-2023-Student-Housing-Market-Report.pdf
Bureau of Labor Statistics — Employment Projections (Sep 2023): https://www.bls.gov/emp/chart-unemployment-earnings-education.htm
Education Data Initiative — Average Cost of College & Tuition (Sep 2023): https://educationdata.org/average-cost-of-college
Newsweek — The student Housing Supply Crisis in America (Apr 2023): https://www.newsweek.com/student-housing-supply-crisis-america-1795711
US Census Bureau — Postsecondary Enrollment Before, During, and Since the Great Recession (Apr 2018): https://www.census.gov/content/dam/census/library/publications/2018/demo/p20-580.pdf
Coursera — Is a Bachelor’s Degree Worth It? (Nov 2023): https://www.coursera.org/articles/is-a-bachelors-worth-it

Yardi 200 Total Sales

Price Per Bed (2000-2022)

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Student Housing Market Overview