University Challenge: Dependency, Development and Dirty Deals
Brad Blitz explores how local authorities and universities are chasing profit from ethically questionable property development schemes
Universities have been through many evolutions over the past 900 years. The great centres of divinity and the later medieval bastions of the liberal arts and scientific discovery paved the way for the modern university with the abiding relationship between teaching, research, and public service at their core. That formula is now at risk from contradictory pressures within the university system, and particularly by public-private arrangements over property development.
Although universities have changed shape and grown, scholars tend to agree that universities perform a fundamentally civic function. In his history of the university, John C. Scott argues that from medieval to postmodern times, service has been a constant feature.
Of course, the idea of service has also changed. Whereas American universities ‘elevated the public service mission, or service to the public of the nation-state’, with STEM powerhouses like Stanford growing as a result of its connection to the military-industrial complex, globalisation has internationalised that mission.
Today, the international dimension is visible not only from partnerships with multinational companies, but the recruitment of international students, the hiring of international staff, and the installation of branch campuses, especially in the Gulf and South-East Asia. The UK now bills itself as the leading global provider of higher education. British universities are serving the world’s educational needs and generating more than £95 billion for the UK economy.
In both North America and the UK, the neoliberal university now provides a series of services and products: it manages hotels, private accommodation and gyms, and also sells financial products – all supposedly aimed at students. Yet, these very services and products have started to upset the balance between the university’s educational and social missions.
Much has been written on student debt, especially in the USA, but as University College London (UCL) academics Claire Callender and Geoff Mason argue, debt aversion is also deterring students from lower-class backgrounds in the UK from enrolling in British universities where maintenance loans hardly cover housing costs. A university education has simply become out of reach for many young people.
In addition to fees and expensive housing, there are wider costs associated with higher education that disadvantage students from low-income households. University towns have spawned local economies that thrive on student spending. But there is also a disturbing new trend where some UK universities are operating for-profit businesses not only to feed students' needs but also to feed themselves.
Some universities with few endowments and declining fee income have concluded that they can only survive from property development facilitated through publicly funded deals with local authorities and private investors.
The past 30 years of reforms which encouraged the expansion of institutions and student numbers have transformed the higher education sector, and in turn the towns and cities where universities are located. This trend has given meaning to the notion of ‘studentification’, a term introduced by Prof Darren Smith of Loughborough University to describe the impact that students could have on their surrounding community. For Smith, studentification has contributed to what he calls the gentrification factory.
Yet, there are many places where students have not contributed to gentrification as commonly understood, not least because of the burgeoning costs of higher education and rents. Increasingly, students constitute a transient population which makes a limited investment in the areas they live, unlike long term-residents.
Although Smith’s initial interest was Leeds, the encroachment of students in residential areas fits within a global pattern that has generated social conflict in the USA and Canada and elsewhere. Studentification is particularly burdensome on densely populated cities where universities are concentrated, as one finds in the UK. Not surprisingly, the phenomenon of studentification has been cited by interest groups as a contemporary worry, and has been debated more than 26 times in the UK parliament since 2004, informing the Housing Act 2004, the Sustainable Communities Act 2007, and the Planning Act 2008.
Over the years, serious efforts have been made by the DfES, Universities UK and the National Union of Students to address the barriers to good community relationships between established residents and students in towns and cities, and to promote engagement with local communities, emphasising many positive aspects, such as support for the local economy, cultural and social facilities, and the creation of spin-off companies.
Local authorities in Birmingham, Brighton, Bristol, Leeds, Loughborough, Oxford, and Nottingham have introduced policies and threshold measures to tackle the distribution of student densities across their cities. Yet, the challenge of balancing student and residential demand has been exacerbated by the rapid growth in student numbers, and ambitious plans to accommodate them. The town-gown divide has intensified in traditional university towns, such as St Andrews which this year has had to house students in Dundee. In Bath, residents claimed the city was being 'ruined', and the neighbourhood turned into a ‘shabby student ghetto’. In Durham, students were condemned as ‘insular’ and ‘selfish’. Similar disputes have erupted in Winchester, which acts as a spill-over for Southampton.
However, if studentification may in part be attributed to widening participation, and the lifting of the cap on enrolments, some universities and local authorities have gone further and are stimulating demand, motivated by political and financial incentives that encourage expansion in the student housing market.
For local authorities, the rationale to increase student housing is tied to housing delivery targets, as permitted in the 2018 National Policy Planning Framework. Some councils, such as Islington, have made student accommodation a major plank of their housing policy. But it is not just about meeting targets. There is an overriding financial incentive.
Purpose-built student accommodation (PBSA) is extremely profitable for investors and developers.
Last year, CBRE, the world's largest commercial real estate services and investment firm, recorded a return of 16% on such investment. The rapid increase in purpose-built student accommodation is further evidence of this trend, which according to Savills, attracted more than £4.1 billion in investment last year alone.
Barnet Council, one of the largest property developers in London has been particularly energetic in its promotion of purpose-built student accommodation which it believes will attract enrolments and contribute to the local economy. Even in the depths of the suburbs, it has approved plans to build 1700 units and has also given the green light to the establishment of a London campus for Sheffield Hallam University in the Brent Cross regeneration area.
Yet, the evidence of students’ contribution to the local economy in Barnet requires qualification. While Middlesex University informed parliament that it supported ‘3,800 local jobs [and] invest[s] in over £289m into the Barnet economy every year’, beyond private rents in HMOs, the student economy is in fact dominated by spending on fast-food restaurants, with the principal opportunities for income generation to be found in occasional retail from the Brent Cross shopping centre.
Universities are also getting in on this game. Several are working with local authorities to acquire buildings and land for the creation of ultramodern student halls, and retail and leisure facilities all in aid of delivering ‘the best possible university experience’. That is how the University of Brighton is advertising its new campus which promises to ‘bring Manhattan to Moulsecoomb’, with the erection of five ‘Mithras’ towers ranging from 8 to 18 storeys.
While Brighton has boomed as a student town, other institutions cannot lay claim to growing student numbers as the rationale for their redevelopment plans. Developers and builders Watkin Jones acquired a one-acre site in Stratford for a development aimed at accommodating 394 students and marketed at (among other institutions) Birkeck College, which has long serviced continuing and adult evening education aimed at part-time and non-traditional students. With just 7,610 full-time equivalent students, several staff members questioned why their college sought to acquire large tracts in East London, in addition to buildings in the heart of Bloomsbury, including the former University of London Student’s Union, renamed Student Central. Birkbeck’s foray into East London has since been abandoned.
Other universities that serve commuter populations have partnered with local councils that are seeking to offload buildings and secure long-term rental opportunities in residential family neighbourhoods, even when space is available on campus. Such arrangements bring further benefits including tax relief – university developments may be zero-rated and exempt from VAT. Further, should universities prove unable to house students in the new developments, then buildings could be handed back to the local authority and flipped for other purposes, including meeting housing targets.
Property consultants recognise that investments in purpose-built student housing are not risk-free. The demand for international students and their housing needs is dependent on economic conditions in source countries, exchange rate fluctuations, and political considerations including the very real possibility that China could refuse students permission to study in the UK, as it did in Australia. The international student market is highly volatile – more so than in the pre-pandemic years when most of the published PBSA projections were shared with today’s developers, who appear to be relying on old data.
The nature of these risks is significant. After all, some local authorities have gone bankrupt over ambitious developments that turned sour most notably, Croydon, Slough, Northamptonshire and Thurrock.
Universities recognise that community disapproval may challenge support for their expansion. Nonetheless, some see no alternative to property development schemes. Unable to generate sufficient revenue from student fees in a highly competitive and global market, and with limited income from commercial and other spin-off activities, some lower-ranked institutions are seeking to benefit from purpose-built student accommodation, even at the expense of community relations, and the preservation of historic neighbourhoods.
This appears to be the survival strategy for Middlesex University which lost £23.1 million in 2021/22 (12% of its turnover) and saw its standing fall to 112th place (out of 123 institutions) in the Good University Guide. Although principally catering to local students from Barnet and the neighbouring London boroughs, Middlesex is planning to build extensive student accommodation in the old civic centre of Hendon characterised by listed Georgian buildings and a church founded in 1080, with a Norman font still in use. The scheme proposed by the former Tory council has received backing from the Labour leadership which previously contested such development but has now entered into a 40-year lease with the university to erect new student dorms on land currently occupied by existing halls and solid redbrick administrative units built in the 1980s and 1990s. Together with Capita Plc., the university and local authority are defying the wishes of 100% of residents and are now inviting privately funded investment to deliver what they are calling the Hendon Hub.
The installation of unsympathetic housing units has been criticised by statutory bodies including Historic England. Yet, neither Historic England nor Natural England has much power to demand changes to the designs. One problem is the fact that many large redevelopment plans were approved before the government committed to climate mitigation policies, including decarbonisation. Such policies are now in effect but seem not to have influenced university developers seeking to demolish rather than reuse existing buildings.
In addition to the environmental impact, other ethical concerns emerge when one examines just how universities are prioritising their budgets to support the delivery of new student housing. This is especially sensitive at a time of industrial action across the sector and when there is clear evidence that traditional revenue streams no longer cover the running costs of some lower-ranked institutions.
Both ‘old’ and new universities (post-1992 institutions) have benefitted from the unanticipated positive valuation of pension funds, which means that their payments towards staff pensions will be lower than expected.
While the valuation should be good news for universities, it introduces additional controversy, including the charge that they may have profited not only as some claimed from the increase in bond markets but from the £10 billion invested in fossil fuels, as noted by Friends of the Earth. Although this matter has been made public, many council pension funds have rejected calls for divestment. Hence, post-1992 institutions, whose staff are members of the Local Government Pension Scheme (LGPS), have been advantaged as a result.
This, in addition to Russia's invasion of Ukraine, has boosted investments in fossil fuels, while also prompting many to explore cleaner energy sources. The fact that some universities like Middlesex have been given a lifeline as a result of these investments made by local authorities, should provoke further questions about how they are managing their finances.
Before the pandemic, the former money editor of the Guardian Patrick Collinson asked, ‘when did it become the purpose of education to provide such high “radically steady returns” for investors and private equity groups?’ This question is even more relevant today, as we re-examine the structure of university finance and the nature of public-private partnerships in the higher education sector.
There are ethical dilemmas for universities that still lay claim to a social purpose, such as increasing access to education and benefiting their neighbours and the wider society. Driving up students’ study costs through expensive accommodation and imposing unwelcome property development in residential areas to advantage investors, directly challenge that claim. This all comes at a cost.
Local authorities also have questions to answer, including why they should choose to meet their housing targets through privately funded purpose-built student accommodation, rather than making affordable housing available to residents.
Of course, students need safe, secure and decent accommodation, but the current models are unsustainable. One obvious solution would be to remove student housing from the government’s National Planning Policy Framework and to revisit demand in a holistic manner that recognises the impact that studentification has on those living in university towns. This means putting residents – and students – before investors.