Back in September, we delved into Cambridge university's ambitious attempt to build a small town, pretty much from scratch.
The project, which aimed to ease housing affordability in the city by providing new stock, ran into cost overruns in 2015 and an internal inquiry was launched.
Today, Oxford has announced a scheme with some similarities. As with Cambridge, it is planning to build thousands of homes, including subsidised properties for its own staff.
The difference is that Oxford has partnered with Legal & General, the insurance firm that manages £1tn of assets. The latter will provide the money; Oxford will provide the land.
The plan has echoes of a Manchester project we covered at some length this month. In both cases, the partnership revolves around university-owned land. This is a blueprint informed by a US trend where universities work with the private sector.
The logic is simple: universities bring people in to study, and their graduates then work in companies that pay commercial rents to a joint venture which the university, completing the circle, has an equity stake in. To complete the circle even further, the companies might draw on research from the university.
Even further, the graduates might also live in accommodation the university owns, paying rents to their alma mater.
This is all part of a wider move towards concentrated urban real estate with proximity to higher education. But for L&G, an important part of the context is also the bond market.
Recall that, just two days ago, Austria began movements towards its second 100-year bond in the space of two years. The last one is trading at just over 1 per cent, while the German 10-year hit record lows this week.
Alphaville spoke to Nigel Wilson, L&G's chief executive, this morning, who pointed to the conditions in markets.
“If I said 'please give me £100,000 and I’ll give you back £95,000' . . . that’s what’s happening at a global level,” he said.
“We manage over a trillion pounds, and the UK has this unique asset called long term liabilities in DB pension schemes,” he added. “It’s much better if we can create long term assets that really helps the economy rather than buying a whole load of gilts”.
This all amounts to a rotation from fixed income in bond markets to an attempt at fixed income in rental markets.
People in the industry expect more of these deals. Saul Western, a partner at Bidwells, the property consultancy, says that “investors increasingly understand that universities are set for a boom as they provide a great location for tech companies”. He adds that such companies drive up population, leading to a need for more housing. Bidwells notes a sharp rise in Oxford house prices over recent years.
Housing is already a deeply politicised issue in the UK, partly because of clustering in urban centres. The politics here are doubly complex, because the commercial flows into higher education must be balanced against the fact that this is a highly unionised sector, as the pension strikes of 2018 demonstrated.
Whatever happens with the scheme, it seems likely that some of its most strident critics will be working or studying at the university.
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