Ripple Effects of Covid-19 Set to Cause Trouble for Student Housing

 With the increase of positive Covid-19 cases across the country at many higher education institutions, colleges are once again sending students home for another round of remote learning. This is leaving a lot of landlords and major financial institutions who are invested heavily in student housing, uncertain about the future. 

Even though leasing remained steady throughout the initial outbreak in March, investors are now facing obstacles yet again with the fresh resurgence of cases. This puts property owners up against more risk that they will have a vacant property or students will stop paying rent given they are taking classes online. This increased level of risk is reflected by the percentage of delinquent non government-backed bonds that are secured by student housing. As of July 1, delinquencies were reported at 13.7%, which is the highest percentage seen since 2005.

With the sector already facing pressure from overbuilding, the pandemic was the last straw for many investors. American Campus Communities Inc., a publicly traded student housing REIT, has seen its share drop more than half between the end of February and the end of March. Even though their share price has recovered, it is still down more than 20% for the year which represents the market's overwhelming doubts in regards to student housing. However, not all student housing providers are suffering. Campus Apartments has stated that their occupancy rates are hovering around 90% and that even though income has slightly decreased at some properties, it has remained steady or increased at others. 

This resiliency is what first attracted investors to the student housing sector and led them to think of it as a recession proof investment. However, in the new day and age of Covid-19, it is proving that the health concerns presented by the pandmeic are debunking the student housing sector as recession proof.

Throughout the past couple months, we have seen many things we do on an everyday basis, change due to the new world that Covid-19 has left us with. You can no longer leave your house without a mask in hand, online shopping has become a necessity rather than a convenience, kids of all ages are now being educated virtually and we can no longer shake hands with people we meet. Some of these changes are only temporary until we can get back on our feet, however there are some things that will come out of this pandemic that will turn into permanent solutions. 

One of these permanent solutions will be how our education system operates, more specifically, universities. When classes throughout the country were abruptly stopped last March, many professors had to hastily convert their class into an online format, which led to a lower standard of educating. Colleges recognized this deficiency and over the summer have invested a significant amount of money into making sure their staff, students and technological abilities are able to efficiently instruct classes online.

Throughout the next couple of years, as Covid-19 becomes a distant thought, universities are not going to just throw away all of the time and money they invested into online learning. They are going to begin to offer more online instruction in order to realize a return in their investment. This revolution of higher education will lead to more students choosing to take classes online rather than in person, which will result in a increase of vacancy for student housing and this is just the beginning. 

One might think that if they are unable to rent to students, then they can just rent to the regular tenant base of that city. Well that is not always the case, most of student housing is specifically adapted to fit the life of students and are able to demand above market rents because of it. If they were to switch their target market, they would have to substantially lower their rent in order to attract the local tenants, which would have drastic impacts on the cap rates of the sector. This reduces the options for those who are invested in student housing and only leaves them with the option to ride out the storm. 

There is no doubt that student housing can be a good investment but it is undeniable that there will be some tough years ahead and much uncertainty in regards to its future investment potential.