UK property is one of the most popular investment opportunities, offering tangible assets that investors can control, unlike the stock market. This increasing popularity is driven by strong market performance, with a surge in new developments meeting the rising demand for housing. One of the first steps in property investment is deciding which type of property suits your needs and understanding the pros and cons of each option to make the best decision for you.
At Yield Investing, we specialise in social housing and supported living properties. In this investment guide, we’ll explore the investment potential of student accommodation and social housing, breaking down the differences and benefits of each type. Whether you’re new to the market or a property investor with a substantial portfolio, making the right choice for you will get the most out of your financial goals.
Investing in Student Accommodation vs Social Housing: At a Glance
Factors to Consider | Student Accommodation | Social Housing |
Property Types | Purpose-built units or converted houses | Various housing types |
Typical Yield | Gross yield 8-9% | Gross yield 8-9% |
Demand | Strong in university cities | Long waitlists with high demand, consistent nationwide |
Initial Cost | Often lower entry point | Higher initial costs |
Financing | Usually cash-only purchases, mortgages only available on converted properties | Usually cash-only purchases |
Management | Can be self-managed or managed by student accommodation companies/ letting agents | Can be self-managed or outsourced to housing associations |
Tenant Turnover | Annual or term-based contracts | Low turnover, long-term leases |
Location Dependency | Highly dependent on proximity to universities | More flexible |
Capital Appreciation | Limited potential | Potential for long-term growth |
Risk Level | Moderate to high (market fluctuations, developer risks) | Lower (government funded) |
Seasonality | Potential void periods during holidays (if lease is based on term times) | Year-round occupancy |
Target Tenants | Students only | Social housing demographics are diverse, often vulnerable populations |
Resale Market | Smaller, limited to cash investors | Broader market appeal |
Maintenance Costs | Can be high due to frequent tenant changes | Lower as they are covered by the housing provider |
Tax Implications | Subject to various taxes (Stamp Duty, Capital Gains Tax, Income Tax) | Subject to various taxes (Stamp Duty, Capital Gains Tax, Income Tax) |
Social Impact | Limited | High positive impact on communities |
Student Accommodation
The UK has a large student population that continues to grow. In 2022, there were a record 767,000 applicants for university places across the UK, with around 560,000 of these applications accepted. Notably, the number of postgraduates from non-EU countries reached 59% in 2021/22, marking a 10% increase from previous years. This rise in international students has made purpose-built student accommodation (PBSA) an increasingly attractive option in the buy-to-let market.
Student property investment consists of homes converted into houses of multiple occupancy (HMOs) or PBSAs. Some of the best places to invest in student property include Manchester, Reading, Durham, Swansea and Portsmouth. These locations have a high concentration of universities and colleges, ensuring a solid demand for student housing.
However, investors will need to be aware that the student property market is different now than it was in the last twenty years. With higher tuition fees, student numbers are likely to be lower in the future.
Pros | Cons |
Potential higher and longer assured returns of 8-10% for up to 5 years or more | Management costs can be expensive |
Fully managed by a student management company, including letting, management and maintenance | There is no finance available for student accommodation projects, so investors need to have the capital to invest |
High demand in university cities due to the shortage of residential accommodation | Reduced capital appreciation based on market and type of project |
Contractually agreed with a rental income and return on investment | Resale market is smaller, as you will only be able to sell to a cash investor |
Facilities are of a high standard and in prime locations, often seen as the best option due to bills included, social areas, security and leisure facilities | If the property developer goes bust, the contract will be void and will not receive the funds |
Higher Yields
One of the biggest advantages of student accommodation investment is that these properties generate a higher yield. Student accommodation across the UK can deliver a gross yield of around 8-9%, compared to standard buy-to-let properties, at around 4.5-5.5%. This means that the monthly return on investment will be higher.
Lower Entry Price
Student accommodation often provides a more affordable entry point for investors than traditional residential or commercial properties. This is mainly because student units are typically smaller than standard apartments, resulting in lower initial purchase prices.
For example, while a city centre one-bedroom apartment might cost over £150,000, a student property could be available for around £70,000. This lower price point, combined with the potential for higher rental income per room, can lead to more attractive yields for investors.
The combination of lower entry costs and higher potential returns means that investors may see a quicker return through rental income in the student market. However, while the initial costs may be lower, investors should still carefully consider other factors like management fees and maintenance costs when calculating their overall returns.
Less Frequent Void Periods
There is a huge demand for privately owned student accommodation in the UK, which means void periods are less likely to occur. The demand for student accommodation is much higher than the supply, with approximately 1.4 students competing for every purpose-built student bed. This high demand results in fewer vacancies for purpose-built student accommodation.
However, investors need to consider that if properties are let by academic term rather than a yearly basis, they may be empty over the summer break. This potential for seasonal void periods should be factored into investment decisions to ensure a realistic assessment of rental income.
Social Housing
In the UK, over 112,000 households are currently experiencing homelessness, highlighting a pressing social need for housing. Investing in social housing not only offers the potential for financial returns but also allows investors to contribute positively to society by helping to provide safe and secure homes for those in need.
For those seeking a stable investment, social housing can be a better option compared to student accommodation or private residential properties. It typically offers less stress and can yield attractive returns. With government-backed contracts, social housing investments can provide reliable income streams, often yielding around 8% or more.
Social housing primarily focuses on providing affordable housing for low-income families and individuals. This sector is crucial in addressing the housing crisis in the UK so that vulnerable populations have access to safe and secure homes. Supported living properties also cater to those who need specialised care, further expanding the scope of social housing investments.
Pros | Cons |
Secure return on investment as funded by the UK government, so resilient to any changes in the economy | The UK government policy for the social housing rental industry is reviewed and updated regularly, so you have to keep up to date with any changes |
High need and demand with a reliable stream of long-term leases | Considerable initial tax implications |
An ethical investment that provides housing to vulnerable people and families that positively impacts the local community | Limited choice of location as social housing investments are often restricted to specific areas |
Low tenant turnover compared to other property investments | Choosing a location that has a high yield and is attractive for both the tenant and the investor, e.g. near schools, employment opportunities and amenities |
Great way to expand your portfolio or get into property investing | Potential changes in government funding which can affect rental income |
Social housing developments are required to meet specific standards, so are already energy-efficient and sustainable, without refurbishment | Stigmatisation of social housing can affect the perceived value and desirability of the investment |
Hands-Off Investing
Investing in social housing offers the opportunity to earn a passive income, similar to other investment options discussed earlier. However, it stands out as a more hands-off approach, eliminating many of the headaches associated with investing in private property or student accommodation.
With social housing, investors can be secure in the knowledge that housing associations handle tenant contracts and the income is backed by the government. This type of investment is entirely hands-free, meaning there is no need to worry about finding tenants, chasing rent payments, or managing and maintaining the property, as all these aspects are taken care of by the housing association.
The housing association linked to the property pays 100% of the rent directly to the investors, ensuring a stress-free rental income. This arrangement allows investors to enjoy a consistent and reliable income stream without the usual concerns of property management.
Long-Term Investment Opportunities
Leases for social housing investments typically range up to 25 years, providing a predictable income stream over a long period. This stability allows investors to enjoy consistent cash flow without the frequent turnover associated with traditional rental properties.
Reduced Level of Risk
Social housing investments offer a lower risk profile than other investment property types. They provide long-term rental income with significantly reduced tenant turnover, resulting in greater stability for investors.
When investing through a reputable company, social housing properties are typically supplied fully renovated to meet required standards and are already leased. This means cash flow is immediate, with income generated from day one of the investment. This setup minimises many of the common risks associated with property investment, like renovation costs, finding tenants, and initial void periods.
No Extra Costs
With social housing investments, there are no hidden costs to worry about. Once the property is purchased, investors can relax, knowing that the rental income generated is entirely theirs. All property maintenance and repairs are managed by the housing association, meaning no additional outgoings are required. This transparency allows investors to enjoy a hassle-free income stream without unexpected expenses.
Which is a Better Investment: Student Property vs Social Housing
If you decide to invest in private residential property like student housing, you choose to be a hands-on investor and landlord, which some people may prefer to avoid. Depending on the specific investment avenue, investing in student accommodation carries the risk of high tenant turnover and potentially unpredictable rental income.
Investing in social or supported housing not only helps address a national crisis within the UK but also offers a high yield on your investment with a hands-off approach and no further outgoings.
Property Investments with Yield Investing
The UK property market offers diverse opportunities for investors at all levels of experience. Choosing the right property investment requires a clear understanding of your goals and research to consider factors like market trends, rental yields, and potential for property value appreciation.
Yield Investing is here to guide you through your investment journey, offering expert advice and access to promising investment opportunities. The potential for long-term growth and financial security in the UK property market is within your reach. If you are ready to start investing in UK property, contact Yield Investing today for personalised advice about investment opportunities.