Why investing in student housing is a smart choice.
5 December 2023 - Insights

Why investing in student housing is a smart choice.

With an insufficient supply of housing to meet the constant demand from out-of-town students seeking accommodation, student housing has emerged as one of the hottest investment opportunities right now, promising interesting financial returns for both investors and operators.

The number of students attending universities away from their hometowns is constantly on the rise, , but the housing market in Italy hasn't kept pace with the growing demand for student accommodations.

The surge in short-term rentals, often seen as more lucrative by landlords, is diverting homes from the traditional long-term rental sector. At the same time, with mortgage rates soaring, purchasing a home has become difficult for many, pushing a growing segment of the population to look for rental options. This has led to a spike in the prices of the (limited) houses available for rent, making the search for accommodation especially challenging for students.

The rental crisis has become a central topic in national discussions, emphasizing the pressing demand for affordable housing for university students. In this context, student housing has been attracting strong interest from investors, emerging as a rapidly expanding asset class and one of the premier choices for alternative investments in real estate In fact, last year this niche accounted for 18% of all residential investments in Italy (source: Scenari Immobiliari).

An emerging market with high potential

In the 2021/2022 academic year, Italy’s university population exceeded 1.8 million students, 40% of which study away from their hometowns (source: MUR). Moreover, preliminary data released by Censis for the 2022/2023 academic year suggest a continuing upward trend, with a 2.2% increase in enrollments.

Yet, the current supply of student accommodation in Italy stands at a total of only 40,000 beds in facilities managed by DSU (Right to University Study programs). Such provision is clearly inadequate when compared to the ever-increasing demand.

Milan, Rome, Bologna, and Turin stand out as top destinations due to their renowned universities and rich cultural offerings, attracting students from within Italy and beyond. Yet, in these cities, the gap between housing supply and demand results in students competing for accommodations in an already tight private rental market, driving prices upward. This shows that student housing in Italy is still in its early stages compared to other European countries. However, the silver lining here is the vast growth potential waiting to be explored in this market segment.

Diversification and stable cash flows

Investing in student housing provides an opportunity to diversify one’s portfolio, offering added protection against potential market downturns. This diversification isn't limited to just the type of property, but also its geographical location. Beyond prominent university cities like Milan, Rome, and Bologna, there are lots of educational hubs spread across the nation, from major urban centers to smaller towns, all deserving careful consideration.

It’s also important to emphasize that student housing offers investors a steady cash flow and a significantly lower risk of non-payment. This advantage stands is evident when considering that, unlike many other sectors that face cyclical shifts, the demand in the education sector remains rather stable and predictable, even amid economic or market changes. This consistency ensures high levels of occupancy in the long term, thus making student housing a solid investment choice.

Investing in student housing through the NRRP

An additional incentive for investing in student housing comes from the National Recovery and Resilience Plan (NRRP), which has allocated a total of 960 million euros to encourage investors to develop new accommodations for students The ultimate goal is to bridge the current gap between demand and supply in the university housing market, aiming to add over 60,000 beds in student housing facilities across the country by 2026.

To stimulate investments, the plan offers a tax regime similar to that of social housing. Additionally, it allows for the flexible use of these new residences when they aren't occupied by students.

Student housing

Student housing is one of the main alternative asset classes within the real estate sector. In Italy, this sector is experiencing rapid growth and presents an excellent opportunity for attractive returns thanks to a steadily growing demand.

In our country, the gap between the demand and supply of student accommodations remains substantial. demand and supply of student accommodations remains substantial. Consider that in the academic year 2021/2022, the number of university students surpassed 1.8 million, with almost half of them being non-residents.The existing capacity of approximately 40,000 beds in facilities managed by ‘Right to University Study’ programs can only fulfill a small fraction of the overall demand. As such, it is evident that this sector presents significant opportunities for growth and, subsequently, profitability. As such, it is evident that this sector presents significant opportunities for growth and, subsequently, profitability.

It is also worth noting that student accommodations present an excellent opportunity for geographically diversified capital allocation, as they are rapidly expanding not only in major cities but also in secondary ones.