The student housing market has been a consistent stream of revenue for U.S. investors, with students across the country enrolling in universities at a healthy rate over the past several decades. However, with many universities implementing remote learning strategies, student housing demand has declined slightly throughout the course of the COVID-19 pandemic, a report from the National Multifamily Housing Council showed. The report, titled “The Future of Student Housing Demand,” showed that while declining over the past couple of years, investment opportunities will still be vast in the long term, with continued growth projected in the sector.
“As the millennial generation gets older, the college‐aged population (18‐24) has declined, putting downward pressure on enrollment growth. We expect the number of 18 to 24 year‐olds enrolled in postsecondary education to decline slightly in 2020. Yet, over a longer time horizon—from 2020 to 2031—we estimate that enrollment in post‐secondary schools will increase annually by 1.1 percent on average,” authors Paige Mueller and Jeff Havsy stated in the report.
According to the NMHC, enrollment in public four-year universities is the highest among undergraduates, with growth projections of 1.1 million students by the year 2031. This is two-thirds of the total projected enrollment growth. Another 24 percent, or approximately 400,000 students, is also expected to come from graduate programs during the same timeframe.
In total, the student housing market across the U.S. is expected to expand to 9.2 million beds by 2031, as opposed to its current 8.5 million beds. This is an average annual increase of 0.8 percent. According to the NMHC, 448,000 beds are expected to come from undergraduate student enrollment at public four-year universities, with an additional 112,000 beds projected to be added as graduate housing. At private universities, however, more beds are expected to be added to graduate housing, or approximately 96,000 beds. Public two‐year universities also have seen a fair amount of growth and are anticipated to add 79,000 beds through 2031.
Currently, the state of California is seeing the largest bulk of student housing demand, accounting for more than 3.6 million, or approximately 12 percent, of the nation’s 18 to 24 year-old population. In total, the West Coast, including California, as well as Washington and Oregon, make up for 4.79 million, or 16 percent, of the total 18 to 24 year-old population.
However, when looking at growth projection, Texas is expected to see the highest college-aged population increase through 2031, according to the report. The state is predicted to increase its numbers by 101,196 people, with Nevada and Washington following closely behind, at 27,996 college-aged people and 14,762 college-aged people, respectively.
In addition, the report found that different types of rooms may be needed in the future to accommodate students in the aftermath of the COVID-19 pandemic. The report suggests students are more likely to go for healthier buildings fitted with single room-occupancies and private bathroom options. Universities currently dealing with reduced revenues due to the pandemic are also likely to pursue public‐private housing programs in an effort to improve building quality and bring in more students.
“There are other reasons to be bullish about institutional student housing operators,” Mark Obrinsky, NMHC Chief Economist, said. “COVID-19 highlighted the need for healthier buildings, which larger institutional owners may be better positioned to provide. The better bed-bath parity in institutional student housing is already in demand as universities de-densify on-campus housing. Finally, universities suffering from reduced revenues due to the 2020 recession may pursue more public-private housing programs.”
While looking at student enrollment numbers, the report also analyzes labor statistics, which show jobs are likely to continue requiring a college education in the long-term, furthering the need for student housing. Since 2010, the report shows that job growth across the U.S. has largely been created by jobs that require a bachelor’s degree or higher. According to the NMHC, job growth for those with a bachelor’s degree has increased by approximately 20,000 over the past ten years while high school degree-holding jobs have remained relatively flat.
In addition, jobs that require a bachelor’s degree or higher were shown to fare slightly better in times of economic stress. During 2020, at the height of the COVID-19 pandemic, unemployment rates for people with a bachelor’s degree or higher peaked at 8.4 percent, while unemployment for jobs requiring only a high school diploma increased to 21.2 percent.
“This may benefit sophisticated student housing investors who can analyze university business models and market demographics as growth of the college-aged population slows. Importantly, this research identifies the characteristics of high-growth universities to help inform investment decisions,” Obrinsky said.