Rents in College Submarkets Decline as Education Moves Online

Real Estate

The apartment rental market is softening across market segments, from market-rate to affordable housing, and student housing is no exception. New research from Zillow shows that apartment rents in college submarkets are down .5% year-over-year as of August, the first time that college area rents have decreased since 2017, which was the first year that Zillow began collecting data. In addition, there is now a 3.4% gap between college area rents and non-college area rents, the steepest decline in compared to market-rate areas rents since 2017.

Online education has fueled the decline in apartment rents and apartment demand in college towns. According to The Chronicle of Higher Education and Davidson College, 44% of colleges and universities are operating fully online, and only 27% of schools are operating classes primarily in person. The Zillow report suggest that online education is hampering demand in areas where at least 20% of the rental population are students. By comparison, rents in areas with a lower portion of college students actually saw an increase of 2.6% in rental rates.

The decrease in rental rates is even more significant in more expansive markets. In Boston’s 02115 ZIP code, which is home to Northeastern University, rents have decreased 7% since the start of the pandemic. In Berkeley’s 94704 zip code, home to the University of California, Berkeley, rents have decreased 5% since the start of the pandemic.

Since March, college area landlords have been trying to prepare for reduced demand and curbing potential vacancies with rent reductions and concessions. In August, rent concession was twice as common as in February. These concession have had a huge impact on landlords. Data shows that landlords of college students are spend half of income on mortgage payments, property taxes and insurance. Plus, the concessions haven’t been enough to stabilize rents. The gap between college area rents and non-college area rents has been growing. In May, college area rents were 1% below market areas, and by August, the gap increased to 3.4%.

Online courses aren’t the only factor impacting college-area rental activity. Unemployment has also been a strain on parents’ ability to subsidize housing costs for their college-aged children. In the spring, 2.7 adults moved back in with parents or other family members, and during the summer months, 2 million adults aged 18 to 25 moved home. That is an 11% increase compared to 2019. This trend has been the most significant among minority groups. Nearly 66% of Black, Asian and Pacific Islanders aged 18 to 25 years old were living at home in August, a 57% increase from last year.

Until recently, when it became clear that many schools would be implementing online education, either for the fall semester or the academic year, some student housing operators remained optimistic about occupancy and rent for the fall. Fred Pierce of Pierce Education Properties, for example, expected shuttered on-campus housing would help to drive demand in nearby housing. Pierce also thought that flat university enrollment would help to drive demand at college-area properties.

Demand could continue to decrease. Universities that chose to hold in-person classes have seen widespread outbreaks of the coronavirus, forcing some schools to abandon on-campus courses and transition to an online model. This trend could continue to curb apartment demand in college submarkets.

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