Catch the Student Housing Wave

On March 31, just days after signing his controversial healthcare legislation, President Obama advanced another piece of his domestic agenda. In what he has called “one of the most significant investments in higher education since the G.I. Bill,” the President signed The Health Care and Education Reconciliation Act of 2010, which includes legislation to revamp the federal student loan program. “We will provide the support necessary for you to complete college and meet a new goal,” President Obama pledged to the American public. “By 2020, America will once again have the highest proportion of college graduates in the world.” The new law will help student borrowers manage their loan debt by capping repayments at 10 percent of their discretionary income, so it will be easier for students to repay loans after graduation.

Students reportedly will also benefit from the elimination of the fees paid to private banks for serving as intermediaries in the loan process. The Pell Grant Program will be extended, and the new law will invest $2 billion in community colleges over the next four years to provide education and career training programs to workers eligible for trade adjustment aid after dislocation in their industries. These measures are designed to make higher education more affordable—whether they’ll create additional opportunities for student housing investors, developers and property managers remains to be seen. But, the picture is already rosy for this multifamily niche. According to the Chronicle of Higher Education, this year will see 18.6 million students enroll in college, up slightly from 18.4 million in 2009. Enrollment is expected to increase to 19.2 million by 2013, and 20 million by 2017. And The New York Times reports that applications to elite private colleges rose again this academic year despite economic constraints on many families.

This month’s cover story, “Catch the Student Housing Wave” (page 20 of the magazine), includes a look at the differences between student and market-rate housing. Some investors see student housing rents as virtually guaranteed by parents, so as demand rises along with enrollment, there is the opportunity for excellent financial returns. On the down side, everyone clears out in the summer and the leasing effort can be daunting to newcomers, but consider that student housing tends to rent at a premium. A four-bedroom apartment with four student residents each paying $500 a month can yield as much as 30 percent more than the apartment norm in that region. Donna Preiss, president, the Preiss Company reports, “In the past three months, we have been 93 percent leased for the fall.” The trend of fewer students living on campus also bodes well for the student housing niche. University of Texas, for example, has an enrollment of about 50,000 but has room for only 6,500 students in campus dorms. And when’s the last time you heard of a student housing community in foreclosure? Fans of the student housing niche say it’s nearly recession-proof… knock on wood.

Diana Mosher