We need a more robust approach to bills-included student rents

The notion of wrapping utilities into a tenancy agreement had previously been a matter of practicality for purpose-built student accommodation (PBSA) providers, whose tenants would share communal areas. Prior to 2018, most letting agents and landlords marketing houses in multiple occupation (HMOs) stuck to tried-and-tested rental agreements, with tenants contractually responsible for their utilities. However, some trailblazing property managers recognised the hassle that utilities caused students so seized an opportunity to differentiate themselves.

By grouping gas, electricity, water and broadband into an all-inclusive rent payment, these entrepreneurial property managers moved away from just marketing properties and instead started selling convenience to students. As a result, a healthy margin was on offer for those property managers who could implement the administrative rigour needed to stay afloat of the torrent of bills that accompanied a large student portfolio. But juggling the payments and paperwork while also serving as the customer support line for issues like broadband outages is no mean feat,. prompting many property managers who sat watching from the sidelines to question where the incentive was. Why bother managing utilities in-house when you can sell tenant data to an industry of cold-callers? Even without selling data, there was plenty to be made from tenancy fees levied against tenants, so managing bills seemed like nothing short of folly.

This perspective started to crack when GDPR rolled out in May 2018, with the realisation that tenants’ data was no longer a pot of gold. A year later, and the Tenant Fees Act gutted many property managers’ revenue models as lucrative agent fees were outlawed. Suddenly, utilities were seen by many in the business as one of the last bastions of a previously economically attractive industry.

The wholesale shift towards bundled rent offerings that ensued saw some property managers hunting the lowest energy tariffs. But the recent demise of sought-after discount tariffs offered by fledgling utilities companies or variable-only tariffs, like those offered by Bulb, have now left those property managers grappling with rapidly rising energy costs and no recourse to demand greater compensation from their tenants.

In defence of those offering bills-inclusive rents, the unprecedented hike in wholesale gas prices has been nothing short of a black-swan event. The resulting administration of no fewer than 25 utility companies is testament to the extraordinary unravelling of the UK’s energy security.

If the collateral damage from the energy crisis can be contained, there is a future for this business model. But for those engaging in bills-inclusive rents, a more considered approach that can better weather volatility in wholesale energy prices is required.

The lowest-risk approach, but the approach that probably offers the best long-term expected return, looks more like an integrated referral model. This approach effectively washes a property manager’s hands entirely of risk while still allowing them to benefit from the commissions that utility companies are willing to pay. If the tenant is introduced to an all-inclusive utility package at the point they are signing the tenancy agreement, the contextually relevant placement will underpin a strong conversion rate. For the segment of the property management community averse to taking on unnecessary risk, this strategy shouldn’t be dismissed out of hand.

It is expected that pressure on those exposed to the energy crisis is set to increase before any signs of abating. But looking further ahead, the lessons learned from this crisis will hopefully result in a more robust and considered approach to bills-included rents and possibly spur on further innovation in a sector that has deftly navigated numerous challenges in recent years.

Tom Walker is director at StuRents