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Addressing the room rent subsidy

This was the second Bursars' report, dated 2/7/98.

The Resources and Charges working group of the Bursars' Committee first met in May 1996 to determine the extent to which the rents charged to junior members included an element of subsidy. Its interim report, Junior Members' Accommodation Charges, was submitted to the Bursars' Committee in January 1997, and subsequently received wide circulation amoung senior members of the university.

Junior Members' Accommodation Charges examined in detail three methods of determining economic rent for colleges. These were: i) by comparing college rents with those charged at other universities; ii) by comparing them with open market rents in Cambridge; iii) by comparing them with the colleges' cost of providing and maintaining student accommodation. The report concluded that the economic cost for college accommodation was in a range 45% to 60% above the then prevailing undergraduate rent of £36.40 per week. In other words, to eliminate the subsidy colleges should have been charging rents of between £53 and £58 per week in 1996/97. The executive summary of Junior Members' Accommodation Charges is attached to this paper as Schedule 1.

The Bursars' Committee accepted the conclusions of Junior Members' Accommodation Charges. In further discussions it endorsed the view, spelled out in the Report of the Royal Commission on the Universities of Oxford and Cambridge in 1922, that colleges have a duty not to subsidise junior members' accommodation from public money or from their endowment. There was no basis for arguing that Cambridge undergraduates, who receive the same grants as students at other universities and whose studies are supported by a higher level of public funding, also have an entitlement to subsidised accommodation. On the contrary, the continuance of accommodation subsidies gave a hostage to critics of the Oxbridge system and seriously weakened the university's case in arguing with government for the maintenance of the college fee.

The Bursars' Committee noted a further conclusion of the working group's report that the subsidy was already being reduced by the action of colleges in raising rents by rates greater than inflation. It agreed to continue monitoring the position and postponed any decision on coordinated action until more information was known about the future of the college fee. In May 1998, as details of the college fee settlement became clearer, it invited the working group to reconvene and advise if further steps should now be taken to coordinate rent policy between colleges towards the elimination of the subsidy.

The working group has met on six occasions since May 1998. It submitted a further interim report to the Bursar's Committee on 2 July 1998, and offers the present paper as its final report.

Subsidy Update

The working group has carefully reviewed the three approaches to economic rent used in its earlier paper and confirms its belief that they offer the best objective guide for colleges in setting junior members' rents. Recent information on local market rents and rents charged at other universities (see the Sunday Times table attached as schedule 2) remain consistent with, and fully confirm, the earlier conclusions on the size of the subsidy. The working group has not reworked its estimate of the cost to colleges of providing student accommodation. This involved a detailed exercise for all colleges and the short interval since it was undertaken does not justify repetition. The earlier figures have therefore been adjusted for inflation. Updating the earlier information to October 1998 values, the working group believes the current range of economic rents for college accommodation to be £56.60 to £62.50 per week.

In measuring the current level of subsidy against these economic rents, account has to be taken of the change that has taken place in college rents themselves since January 1997. They have continued to rise at rates well above inflation: in 1998/99 the average college rent is £42.40 per week, a rise of 17% over two years. The level of rent subsidy has therefore reduced from 45%-60% in 1996/97 to 33%-47% in 1998/99.

The working group believes that action to eliminate this subsidy over an agreed period should now be addressed. Its recommendations for doing so are set out in the next section. It is conscious, however, that one of the principal reasons for the subsidy's emergence in earlier years was the lack of accurate, up-to-date figures of the type used by the working party in calculating economic rent. The provision of such data has undoubtedly changed attitudes in Cambridge since the working party began its enquiry. Its first recommendation therefore is that a permanent sub-committee of the Bursars' Committee should be established to maintain such information in future.

Recommendations for Eliminating the Subsidy

At their meeting on 2 July 1998, Bursars agreed that elimination of the subsidy should be accomplished over a period of years, continuing the recent practice of above-inflation increases, and that individual colleges should remain free to implement their own rent policies within the general guidelines approved by the Bursars' Committee. The working party endorses this approach and has framed its recommendations accordingly.

The working party has had to take a view on the appropriate period over which the transition to economic rents should take place. It has sought to be pragmatic, believing, the subsidy should be eliminated over the shortest period compatible with securing acceptance for the increases needed to achieve this transition. Having regard to the level of real rent increases for the past two years, it considers it both realistic and achievable to recommend that subsidies should be eliminated within 6 years, i.e., over the academic years 1999/2000 through 2004/2005. This timescale means typically that no generation of undergraduates will be asked to bear more than half of the adjustment required to bring rents to economic levels, while those already in residence will not face increases greater, on average, than they have recently experienced. The working group believes this to be a fair sharing of the adjustment pain. It is aware that hardship may be occasioned in individual cases, and believes colleges should be alert to this. As with the implementation of rent policies, it will be for colleges to decide for themselves whether and in what ways their existing hardship arrangements need adaptation as the rent adjustment proceeds.

Inflation is a complicating factor in presenting future adjustments where the rate of inflation is unknown. The following illustration is therefore presented in terms of real change. Inflation is excluded, but it is assumed that it will be added to college rent increases over the 6 years at the rate prevailing each year, thereby preserving the integrity of the real increases.

The average college rent in 1998/99 is £42.6 (paragraph 7) and the targeted economic rent lies in a range £56.60 to £62.50 (paragraph 6). The rate of real increase per year needed to raise the average rent to £56.50 over 6 years is 4.8%, and that needed to raise it to £62.50 is 6.6%.