Room upgrades at a premium

January 17, 2003

Are private firms the saviours of dilapidated student digs? Helen Hague opens our student special by looking at changes in UK provision.

Students raised on Changing Rooms and other makeover shows will not relish starting life at university in tiny study bedrooms, where the paper is peeling off the walls, there are no phone sockets and the nearest bathroom is 50 yards down the corridor.

University deans and marketing departments are all too aware that tatty rooms are a big turn-off for potential student recruits. The increasingly competitive market for students, twinned with the government's drive to get more people to go to university, is fuelling a boom in student accommodation development and in major renovations of shoddy student blocks.

Expansion in the sector is putting the infrastructure of cash-strapped universities under pressure, and many institutions are looking to the private sector to refurbish existing student accommodation and provide more new places to house the growing student population.

The government is encouraging universities and colleges to explore linking up with commercial organisations through private finance initiatives.

On November 18 2000, chancellor Gordon Brown told the Private Finance Annual Conference: "I hope bankers and their credit committees get the sense of security they intuitively search forI in the very real continuous flow of business opportunities that schools, hospitals, prisons, roads and government accommodation projects offer for the long term. These are core services that government, whether local or central, is statutorily duty bound to provide, and for which demand is virtually insatiable. Where else can you get a long-term business opportunity like that?"

The thinking goes like this. By allowing commercial concerns to manage some of the risks and receive some of the rewards for providing and running student accommodation services, universities will be able to secure the best value for their money, the best deal for students and an end to peeling wallpaper.

Student accommodation is the PFI boom area in higher education, and the companies Unite and Jarvis have emerged as major players. The Higher Education Funding Council for England has supported a number of institutions keen to explore PFI and public-private partnership projects through its pathfinder programme, set up in 1995 to help universities negotiate private finance deals. Hefce foots up to half the bill for professional costs until a contract is signed. About 30 projects have been supported at a cost of £4.5 million.

But not all pathfinder projects result in deals and contracts. Last year, Unite was unable to agree final terms with the University of Sheffield for a 30-year contract to provide wide-ranging accommodation services - from catering and cleaning to information technology and portering - across the university's 5,500-bed residential estate.

The level of risk associated with maintaining old less-profitable bed stock would, the company decided, be "unacceptable against agreed returns". De Montfort University and the Institute of Education are the latest institutions to embark on a pathfinder project to boost student accommodation.

But there are unlikely to be any more, says Tim Russell of Hefce's Private Finance Unit. "Pathfinder projects are selected to show us something new. Student residential accommodation and private sector involvement with it is now well established, and it is highly unlikely we would take on any more pathfinders in this field."

Hefce does not keep a database of PFI deals - though other institutions can learn from the experience of pathfinders. Funding student residential accommodation is outside the council's traditional teaching and research remit. But, as Russell is quick to note, how students are housed "obviously has a significant impact on the financial health of the institution".

Unite has more than 14,000 student bed places across the UK - with 11,000 more scheduled for development - and more than 98 per cent of its rooms were occupied at the start of the academic year. Building a critical mass in target towns is a key element of its strategy. Nicholas Porter, Unite's founder and chief executive, speaks of the growing shortage of quality, affordable accommodation with the zeal of a man with a mission. "Unite is committed to destroying the perception that affordable accommodation has to be poor quality and to stamping out the need for many students to start their academic life in the unacceptable conditions offered by many private landlords." The message is clear - partnering with the private sector will help universities deliver better services for students.

But there are many dissenting voices. Jean Shaoul, at the University of Manchester's School of Accounting and Finance, has studied PFI extensively in other sectors. "My general concerns are that because private finance is much more expensive than public finance, this must lead to rent increases for students, under conditions where the cost of degrees is becoming a major issue."

She argues that universities could find themselves locked into long-term contracts of up to 30 years while "conditions may change in ways that the contract cannot manage". She gives the example: "What happens if tuition fees, loans or changes in the universities attractiveness in terms of research assessment exercise ratings affect student numbers or [the number of] those who can afford to go away to university or to stay in halls? Such factors would hurt campus-based universities in particular."

Technological upgrades - telephone and internet access in student rooms is now commonplace - will also be needed. But, Shaoul argues: "Under PFI, universities will be locked into deals with the private sector that may not upgrade facilities, thereby affecting potential demand for university places or leading them to charge very high prices."

PFI projects that deliver just IT services tend to have very short contracts: today's cutting-edge technology can soon become outmoded.

For private companies, striking a deal with a university is all about weighing risk and reward. It is hardly surprising that the private sector is more willing to take on the risk associated with providing accommodation in big cities than in small towns or on university campuses. There will always be takers for beds in, say, London.

Universities have explored radical ways to raise finance and restructure debt. Keele, the first postwar university, is using securitised loans to maintain and repair its student housing stock. With private-sector partners, it has set up a company, Owengate Keele, that will purchase the rental income payable by Keele students for 30 years. This company has issued bonds secured against rental income to raise finance for new accommodation and refurbishments - and to repay loans on existing accommodation. The university keeps ownership and control of the buildings.

When the deal was finalised in late 1999, Keele's finance director said it opened "new opportunities for the way in which higher education in the UK is financed". But it has not spawned followers.

At Keele, the student union supported the financial restructuring deal, and it is consulted over annual rent setting. But student unions often feel excluded from deals made with private companies. Last year, students in Bristol ran a campaign that helped see off a private sector link-up. In spring, the National Union of Students conference is expected to back moves for a national campaign opposing the spread of PFIs, including a lobby of Parliament.

At the same time, the NUS is pushing for best practice in PFIs and for student input into how services are delivered. Unite, which is releasing a MORI poll on student living next week, will in a few weeks meet NUS vice-president Verity Coyle and student representatives from higher education institutions in Liverpool to discuss a charter of good practice, including consulting union reps in halls on issues such as quality delivery. Jarvis has also extended an invitation to the union.

"We have got expertise about the market - what students want and need. We can have a dialogue," Coyle says. The NUS argues that companies and universities intent on embracing PFI must be able to demonstrate that their proposals will benefit students, not just the university's director of finance and the company's shareholders.

After all, flashy computer links and shiny en suite facilities will look pretty lacklustre, ten, 20 or 30 years down the line.

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