Rents in School Submarkets Decline as Schooling Strikes On-line

New Group Enters Student Housing Fray

The home rental market is weakening across all segments of the market, from market price to affordable housing, and student housing is no exception. New research from Zillow shows that Apartment rents in the university sub-markets have fallen by 0.5% year-on-year since August. This is the first time that rents in college areas have fallen since 2017. This was the first year Zillow began collecting data. In addition, there is now a 3.4% gap between higher education rents and non-higher education rents. This is the sharpest decrease compared to the market rents since 2017.

Online education has fueled the decline in housing rents and housing demand in university cities. According to The Chronicle of Higher Education and Davidson College, 44% of colleges and universities are entirely online, and only 27% of schools run classes primarily in person. The Zillow report suggests that online education is hindering demand in areas where at least 20% of the rental population are students. In comparison, rents actually rose 2.6% in areas with a lower proportion of students.

The decline in rental prices is even more pronounced in more expansive markets. Boston, where Northeastern University is located at 02115, has seen rents drop 7% since the pandemic began. Berkeley's 94704 zip code, home of the University of California at Berkeley, has rents down 5% since the pandemic began.

Since March, the landlords in the college area have been trying to prepare for lower demand and contain potential vacancies through rent cuts and concessions. In August the rental concession was twice as high as in February. These concessions had a huge impact on landlords. Data shows that student landlords spend half of their income on mortgage payments, property taxes, and insurance. In addition, the concessions were not enough to stabilize rents. The gap between college rents and non-college rents has widened. In May, college rents were 1% below market areas, and by August the gap rose to 3.4%.

Online courses aren't the only factor affecting college rental activity. Unemployment has also weighed on parents' ability to subsidize housing costs for their college-age children. In the spring, 2.7 adults moved back in with parents or other family members, and in the summer months, 2 million adults, ages 18-25, moved home. This corresponds to an increase of 11% compared to 2019. This trend was most significant among the minorities. Nearly 66% of Black, Asian, and Pacific islanders ages 18-25 lived at home in August, a 57% increase from the previous year.

Until recently it became clear that many schools would be introducing online lessons for either the fall semester or the school year, some dormitory operators remained optimistic about occupancy and rent for the fall. Fred Pierce of Pierce Education Properties, for example, expected shutters on campus would help drive demand in nearby apartments. Pierce also believed that shallow university enrollment would help drive demand for college real estate.

Demand could fall further. Universities that have opted for in-person tuition have seen widespread coronavirus outbreaks that have forced some schools to drop out of courses on campus and switch to an online model. This trend could further slow down the demand for apartments in the sub-markets of the universities.


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