As more student flats looks set to plummet

CARDIFF’S skyline is changing.

The Welsh capital is currently enjoying a boom in high-rise building developments, but one type in particular has proved controversial.

It seems the appetite of developers to construct “luxury” student accommodation is insatiable.

Certain areas of Cardiff have been inundated with applications to build student flats.

If you stand on the junction of City Road and Newport Road there are eight separate developments under construction or newly opened, adding 2,964 student beds.

The issue has raised concerns over demand, the need for so many student beds and the suitability of such developments.

But it has also raised questions over why building student accommodation is such an attractive proposition. The answer lies within the finances. Apart from potentially changing communities in which they are constructed, they also can have a negative impact on the taxpayer’s coffers.

This is because the businesses that run these large blocks of flats are exempt from business rates.

According to the slick marketing of developers these Purpose Built Student Accommodation (PBSA) blocks give students the chance to enjoy the “latest experience in urban student living” which “redefines student accommodation as you know it. It’s not just somewhere to live, it’s a lifestyle”.

At prices of £260 per week (£1,040 per month) you would certainly expect something spectacular.

Despite these businesses turning over astronomical amounts of money, Cardiff ’s tallest building, the Bridge Street Exchange, which will hold 477 students if full, will not be required to pay any business rates.

The reason for this is because the flats are classed as “domestic dwellings” and therefore fall under the council tax bracket.

However, as they are student dwellings they are also exempt from council tax.

According to the Welsh Government, the local taxation system works on the basis of whether or not a property is used, or intended to be used, as someone’s home.

If so, it falls within the council tax system – this includes owneroccupied, privately-rented and social housing.

If not, it is classed as non-domestic and falls within the non-domestic rates system.

Non-domestic property includes property owned or occupied by businesses, public bodies and non-profit making organisations.

Hotels fall within the non-domestic rates system. They are not classed as residential because they mainly provide temporary, overnight accommodation, with additional charged-for services, rather than being someone’s home.

A Welsh Government spokesperson said: “Most accommodation is liable for council tax and not non-domestic rates.

“Student accommodation however, is exempt from council tax.

“Accommodation, which is not used solely as student dwellings or includes additional facilities, such as retail outlets, may be liable for non-domestic rates. If properties are liable for nondomestic rates, valuations are carried out by the independent Valuation Office Agency.” Technically yes. If they were to open a bar or shop they would be eligible for business rates on that particular element of the business.

They could also have to pay it if they temporarily let the rooms out of term time.

A Valuation Office Agency (VOA) spokesperson said: “The decision on whether Purpose-Built Student Accommodation pay business rates or council tax will depend on the particular facts, both in terms of the contractual arrangements with the students and the physical characteristics of the properties.

“In some circumstances PBSA will pay business rates for part of the building.

“Where a property is used as living accommodation, as the majority of PBSA are, they will be subject to council tax.

“Billing is a matter for local authorities.”

In terms of lost revenue it is hard to quantify exactly as business rates do vary; however, a recent example in Cardiff shows how even a relatively small development can see a drop in income for the exchequer.

Business owners on Maindy Road in the Cathays area of Cardiff have recently found that they will have to leave their units at the North Road end of the street to make way for a sixstorey building comprising of 143 student flats.

The three commercial units contain a gym (a recent tenant), a windows supplier and a motor repair garage that has been at he site for 40 years.

According to Jason Lewis, 51, who runs the Autocraft garage with his son, this will mean taxpayers lose out to the tune of £20,000 a year in business rates.

He said: “We pay about £6,500 a year in business rates and so do the others next door.

“So that is about £20,000 a year that the taxpayer won’t be getting.

“All of the taxes these businesses pay will be gone.”

Clearly there are other ways this money could potentially be recouped.

More students paying for products in the local area and former terraced student houses opening up for nonstudent tenants who pay council tax.

However, this is a relatively small development and the question of lost tax revenue from the giant accommodation suppliers is worth asking.

Despite the PBSA being a relatively knew phenomenon, especially on the current scale, there are no plans to change the current structure.

A Welsh Government spokesperson said: “There are currently no plans to change this system, however the application of non-domestic rates is under constant review by the Welsh Government.”

An idea was floated in Liverpool to consider new rules to allow councils to levy business rates on the owners of halls of residents and student landlords. This however did not make it off the ground.

It can be argued that to introduce business rates on PBSA could set a dangerous precedent whereby anyone renting a room in their house could be liable to pay business rates.

Douglas Haig is the vice-chairman and director for Wales of the Residential Landlord Association.

He says it would have a detriment impact on those on the lowest incomes.

He said: “Ultimately we have a system of council tax that has a hierarchy of responsibility for payment as it stands.

“The vast majority of tenants in the private rented sector are not students and there is no justification as to why they should be treated differently to owner occupiers.

“In the situation where the property is a house in multiple occupation where the residents are not students the landlord often collects the council tax on behalf of the council which provides a better security of income for the local authority.

“Shifting away from council tax to business rates would ultimately harm those with the lowest incomes which includes students in standard housing and purpose built student accommodation, as well as those that have some sort of council tax benefit as the landlord would not be able to claim these, so would have to charge that on top of the rents, when the resident would not normally have had to pay them.”