College real estate and housing: Students face challenging market
Carla Yanni can’t decide if the most over-the-top student housing amenity she’s seen is the pet-washing station at a LaSalle University dorm or the lazy river winding through an apartment complex near Arizona State. A professor at Rutgers, Yanni did extensive research on the evolution of how and where students live for her new book, Living on Campus: An Architectural History of the American Dormitory.
These eyebrow-raising features might spark “kids these days” headlines, but they aren’t representative of the average college experience. Instead, Yanni says, they’re best understood as symbols of the forces now shaping college housing. Strained university budgets and increased competition for enrollees have led schools to do everything they can to impress wealthy prospective students.
The race for students’ funds is one of the factors fueling a boom in private, university-focused housing developers over the last few decades—and one of the ways in which the college housing market now reflects the stratified real estate market at large.
“This market has gone from a mom-and-pop operation, widows running boarding houses, that kind of thing, to a handful of corporate real estate developers with an expertise in building and marketing these kind of facilities,” says Yanni.
Axiometrics, a real estate data service, reported $9 billion in transactions in the college housing industry in 2016 alone. At the same time, housing has become a massive expense for students, many already facing heavy debt. As the oversized millennial generation and Gen Z has aged—the 18-to-24-year-old demographic expanded from 27 million in 2000 to roughly 31 million in 2016, per U.S. census data—enrollment has soared for colleges, which are competing for students and funding. Average student debt has climbed from about $11,000 in 1990 to around $35,000 in 2018, and a U.S. Department of Housing and Urban Development report found that “housing costs [are] likely a significant portion” of individual student debt.
Housing prices for students have never been higher. Room and board costs have outpaced inflation, and according to the College Board, the cost of housing at public universities has nearly doubled since the 1980s. Axios recently reported that the cost to build new dorms and accommodations has also skyrocketed, to an average of $92,000 per bed.
It’s easy to point to the pools and fancy apartments as the causes of those rising costs, but experts say they are merely symptoms of bigger forces at play in the college housing market.
The birth of a business
Colleges can build and operate new dorms out of their own general funds, engage in revenue-bond-financed construction, and even pursue public-private partnerships that can cover financing, design, construction, and operations.
Enter private developers, and a network of builders and consultants who aim to provide new on- and off-campus options for colleges without requiring them to take on debt or tap too far into their capital reserves.
This industry, which started in the 1990s and took off after the Great Recession in 2008, came along at a perfect time, according to Jim Costello, an analyst at Real Capital Analytics. Investors saw the need for student housing and realized it could bring higher yields than more traditional sectors of the housing industry. While conventional wisdom suggests student housing has high turnover and operational costs, investors saw an ability to standardize operations and construction and take advantage of a kind of captive market in the predictable influx of students.
A number of sizable companies began to offer investment options for academia. Capstone, based in Birmingham, Alabama, has worked on roughly $4 billion worth of projects over the last three decades, says principal Jeff Jones, partnering with more than 70 institutions across the country. While it’s difficult to generalize about the financial situation of so many different colleges and universities, he says many have competing priorities for their money and debt capacity. Working with Capstone or a similar firm decreases the amount of capital a school has to devote to housing, allowing that institution to “keep their powder dry” for other needs.
Capstone, which recently subdivided into different firms focused on different aspects of student housing, has even moved into master planning, including adding new on- and off-campus housing in and around campuses, and helping school retire or reuse old dorms from the ‘50s and ‘60s that are past their prime.
Scion, a Chicago-based owner, operator, and advisor for schools and student housing, has played a role in over $5 billion worth of project since its founding in 1999, and currently operates 54,000 beds at 81 mostly off-campus communities (more than two-thirds of college students nationwide live off campus, since school housing capacity can’t come close to covering all enrollees).
Brothers and Scion founders Robert and Eric Bronstein saw how the demographic winds were blowing and realized that colleges would look for help upgrading aging housing stock, a task outside their traditional core educational focus.
Investors, consultants, and institutional builders believe the sector will still see high demand, even as the peak of the millennial demographic has passed their college-age years. A potential recession could harm willingness to choose high-cost housing options, but enrollments also often rise during recessions.
The stratification of student housing
Changing attitudes about what and who college is for have helped to fuel demand for student housing, even as college becomes increasingly unaffordable for many of those students.
Early 20th century college administrators saw residence halls, the great concrete-block structures that have become part of college lore, as great levelers, according to Yanni. The University of Wisconsin, for example, sold its dorms as places where “the son of the banker and the farmer’s boy will find fraternity near the crackling fire.” The purpose was to mix members of different economic classes.
The college experience is still in large part about friends, networking, and broadening horizons, but according to Yanni, that’s not as core to college housing as it once was. Instead, student housing is now a reflection of class stratification, rather than an antidote. At Rutgers, where Yanni teaches, the range of housing options spans from roughly $8,000-a-year traditional on-campus dorms to $13,500-a-year off-campus apartments. Add in a significant number of international students attending U.S. colleges—more than a million last year, per the Migration Policy Institute, who often come from wealthy families, pay full-price tuition, pursue advanced degrees in high-earning fields like engineering, information technology, math, and management, and often prefer higher-end, apartment-style living—and it’s clear why there’s a growing market for higher-end student housing.
“It’s not as if we couldn’t always tell who the rich kids were,” Yanni says. “But now, there’s not even an attempt to bring everyone together. The idea of creating a classless utopia is completely absent. It would seem like a ludicrous thing to suggest, in the present moment.”
At the other end of the wealth spectrum, an increasing number of students who enroll in college have significant financial need, according to Sara Goldrick-Rab, a professor at Temple who studies education, especially socioeconomic and racial inequalities in the higher ed system, and founded the Hope Center for College Community and Justice. Recent Pew research found the number of poor students––defined as students whose family income was at or below the poverty line––increased 8 percent between 1996 and 2016. “This was a deliberate choice in public policy,” she says. “We opened the doors, because the return on investment in getting people to college is high. But now, debt is just growing too fast.”
Goldrick-Rab says that “the student housing industry is missing a bit about the client.”
Is this the housing we need? And is it helping?
While the boom in new student housing isn’t letting up, there are questions about whether or not this is the housing today’s students need—a new study suggest students in off-campus apartments don’t perform as well as those in on-campus dorms—and if large-scale, institutional apartments adjacent to campus are driving up nearby rents.
A recent Bloomberg article, “If the Tuition Doesn’t Get You, the Cost of Student Housing Will,”argues that this wave of private off-campus apartment development, targeting areas where students live and, as the author argues, driving out more affordable options, is raising tuition costs in cities such as Austin and Ann Arbor, Michigan.
A spokesperson from Scion says that premise is flawed. New off-campus housing is typically new-built, not resulting from the demolition of older buildings, and the new competition these units bring is healthy for the market, providing more options at more price points.
But this wave of new housing doesn’t address the lack of affordable living options for low-income students. It’s a challenge analogous to providing low-income housing in general; it’s a difficult market to make the numbers work. And many traditional tools for helping provide low-income housing don’t apply to students. For instance, full-time students aren’t eligible for the Low-Income Housing Tax Credit, and housing authorities by law are allowed to de-prioritize full-time students.
“Many of the levers that you pull to create affordable housing and food deliberately write out college students,” says Goldrick-Rab.”For many students who are low income, they would have an easier time finding housing if they dropped out of college.”
The challenge is particularly stark for community colleges, which traditionally have been built to serve commuters and lack on-campus housing options. Currently, about 30 percent of two-year institutions now offer some form of housing, according to data from Scion, and that number is growing.
Recent studies of community colleges in California, where rents are especially high, have driven home the affordability challenges these institutions face. Many students pay out-of-pocket fees—the price for school, including housing and rent, after grants and aid—that rival four-year schools. They also don’t receive nearly as much student aid: The average low-income, full-time community college student received $5,800 in state and federal grant aid in the 2017-18 school year, according to The Institute for College Access and Success, while the average low-income, full-time student at a UC school received $27,500. UC Davis, near Sacramento, costs about $8,000 annually, while community college costs about $19,600. That’s one reason Sacramento reports some of the highest rates of student homelessness in the nation; nearly a quarter of college students in the city reported that they lacked permanent shelter in the past year.
“If you want people to go to community college, they need to help more than this,“ Goldrick-Rab says.
Increasingly, community colleges have sought to address these issues, offering parking lots as safe spaces for students to sleep overnight, and even embarking on their own housing construction (often with institutional players involved––Scion has worked with approximately 20 community colleges nationwide, providing advisory services regarding the feasibility and implementation of campus housing).
While their intentions are good, Goldrick-Rab warns community college administrators to be careful before entering any deals. Without the institutional experience with housing, they often get in over their heads, and they don’t fully consider the ancillary costs of having students living on campus, such as the need for more dining options and late-night hours for libraries and other facilities.
“You need cash flow for all sorts of expenses when you own anything,” she says. “Community colleges don’t have much of that If something goes wrong, whereas a larger school with a decent endowment can always cover costs. They also often get money to build, but not to maintain.”
Goldrick-Rab says that it’s difficult to find good, large-scale example of housing, especially for community colleges, that truly meets the goal of providing affordable options to students in need. She points to Family Scholar Houses, supportive housing in Kentucky and Ohio built for students with families, as one example. But not enough of this type of housing exists to serve all the students who need it.
That’s why Goldrick-Rab believes this election, and subsequent federal policy, is so important. That policy could make college, which is a ladder to opportunity and advancement, more affordable.
“If you have kids in college or going to college, this is the single most important election in your life,” she says. “There’s no bootstrapping here. There’s no way around the fact that unless you have more effort at the federal level, it’s going to be hard. If you want people to go to community college, they need to help more than this.”