Student accommodation and affordable housing contributions

Purpose built student accommodation is normally a sui generis use, so the affordable housing policy in a local plan does not apply to it directly. Authorities get to a contribution anyway, by converting bedspaces into a dwelling equivalent and then applying the policy to that figure, or in London by requiring a proportion of the beds themselves to be affordable under London Plan Policy H15. Either route can add a seven figure obligation to a scheme that was appraised on a yield basis, so find out which one applies before you price the land.

The argument a developer usually walks into is not whether a contribution is payable. It is how the equivalence was calculated and whether the appraisal supports it.

Why a contribution is sought at all

Student accommodation counts towards housing supply. National guidance on assessing housing need accepts that student bedspaces can be counted against an authority's requirement using a ratio reflecting the number of students who would otherwise occupy general housing, which is how a scheme of 400 beds ends up recorded as a meaningful number of dwellings in the trajectory.

Once the scheme is counted as housing supply, the authority's position is straightforward. Land that has contributed to the housing requirement should contribute to affordable housing as other housing land does. The counterargument, that student accommodation meets a specific need and releases family houses from HMO use, has force but rarely wins outright, and it is more effective as part of a planning balance than as a reason to pay nothing.

There is a second motive on the authority's side. In towns with an Article 4 direction removing the right to convert from C3 to C4, pressure on the general housing stock from student demand is already a live policy issue, and PBSA is the instrument used to relieve it.

Policies that apply a bed to dwelling ratio

Outside London the common mechanism runs in three steps.

1. Convert the proposed bedspaces into a dwelling equivalent using a ratio taken from the authority's evidence base, often derived from average household size in student households locally.
2. Apply the adopted affordable housing percentage to that dwelling equivalent.
3. Convert the resulting number of affordable dwellings into a commuted sum, because affordable units cannot practically be delivered inside a student block.

Every step is contestable. The ratio is the one worth attention, since it is frequently carried forward from an older evidence base and may not reflect the current local picture. Ask for the source document, read how the figure was derived, and compare it with the ratio the same authority uses when counting the scheme towards its supply. Authorities occasionally use one ratio for supply and another for contributions, which is hard to defend.

Nomination agreements and their effect

London Plan Policy H15 ties the affordable student accommodation requirement to nomination agreements with one or more higher education providers. The agreement is the thing that makes the affordability real: without it, the beds are let on the open student market at whatever rent they will fetch.

Nomination agreements matter commercially as well as in policy terms. A block with a long nomination agreement from a large institution carries a different risk profile from a speculative block relying on direct lets, and that difference belongs in the appraisal rather than being treated as a planning formality. Funders will want the agreement. So will the authority.

Expect the obligation to specify the institutions, the proportion of beds, the rent benchmark and how it is indexed, the term, and what happens if the agreement lapses. Negotiate the lapse provisions carefully. A clause that converts the whole block to a payment obligation if an institution withdraws is a serious contingent liability.

Housing need evidence and the student cohort

The evidence question an authority should answer, and often does not, is whether there is unmet student demand at all. Where an authority's own evidence shows a shortfall of bedspaces against enrolment, the scheme has a clear need case and that strengthens the planning balance against the contribution.

Where enrolment is flat or falling and existing stock is running with vacancies, the authority's position tends to shift. It will argue that the site should deliver conventional housing instead, and the contribution discussion becomes an argument about land use rather than about money.

Pull the enrolment data, the authority's student housing evidence base and any published assessment of HMO pressure before you submit. An affordable housing statement that engages with the authority's own evidence, rather than asserting a national trend, is considerably harder to dismiss.

Viability of a contribution on a bed basis

PBSA appraises differently from market housing. Value is capitalised from net operating income rather than realised through unit sales, so the appraisal is sensitive to the rent per bed per week, the number of let weeks, the operating cost ratio and the exit yield. A contribution expressed as a lump sum per dwelling equivalent lands on that appraisal as a straight cost at practical completion.

National viability guidance expects the policy-compliant scheme to be tested, with a benchmark land value based on existing use value plus a premium, and it is explicit that the price actually paid for the land does not justify failing to meet policy. For PBSA that bites hard, because competitive land bidding in university cities has often assumed a lower contribution than policy requires.

Three inputs tend to decide the outcome. The exit yield, which the authority's reviewer will test against comparable investment transactions. The assumed rent, where an optimistic figure increases value and therefore increases the contribution the scheme can bear. And the operating cost ratio, which is specific to the operating model and is often poorly evidenced.

Illustrative example, not a real scheme: a 300 bed block in a city with a policy applying a bed to dwelling ratio and a 25 per cent affordable housing requirement produces a dwelling equivalent in the low hundreds and an affordable requirement of a few dozen dwellings, converted to a commuted sum. Whether the scheme can bear it depends almost entirely on the exit yield assumed, and a 25 basis point movement in that yield changes the residual by more than the whole contribution. That is why the appraisal, not the policy, is where these applications are won and lost.

Put the appraisal in a form the reviewer can audit. The structure set out in viability appraisal submission format saves a round of correspondence, and expect the authority to commission an independent review of the appraisal at your cost. Prepare the viability assessment on the basis that it will be published.

Conditions restricting occupation

Occupation restrictions are what stop a student block becoming market flats by the back door, and they are usually secured by a mix of condition and obligation. Typical terms limit occupation to full-time students enrolled at a named institution or at an institution within a defined distance, prohibit use as general needs housing, and restrict residents from applying for on-street parking permits.

Read the drafting for the long term. A restriction tied to a single named institution is fragile over a 40 year asset life, and a restriction tied to full-time enrolment can complicate summer letting to language schools or conference guests. If summer use is part of the business plan, negotiate it into the obligation at the outset rather than seeking a variation in year three.

But the point to settle first is the equivalence ratio. Everything downstream, including the appraisal, is arithmetic once that number is agreed.

This is general guidance, not legal advice. Check the position with your local planning authority or a qualified professional before relying on it. Viability appraisals should be prepared to the relevant RICS professional standards by a suitably qualified valuer, and professional review is strongly advised.

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