Newsletter Q1 UK 2018

Newsletter Q1 2018

Half of typical student budget earmarked for rent

Student grant after tax

5,250

Student loan Scholarships

3,116

8,366

Average job earnings

5,818

Contributions to pension savings

-75

Labour market contribution

-1,147

Tax (37%)

-2,153 2,444 10,810 1,008 11,818 5,556 47.0%

Income after tax

Scholarships and job earnings

Housing subsidy

Disposable income Average rent payment

Housing burden

Sources: DJØF, www.su.dk og Sadolin & Albæk

Student housing as an alternative to traditional residential investments

number of hours alongside his or her studies (Djøf, 2016 – note, see below). We then deduct costs relating to taxes and pension and add a housing subsidy. We have deduced the rent level commanded by standard student housing on the basis of data available from various student halls and student housing complexes. The calculation example returns a housing burden of 47%. Student housing units continue to command monthly rental prices far below the level seen in the alternative housing stock, which helps to support the market and reduces vacancy risk to a minimum. However, the relatively high housing burden limits the possibility of future rental increase. Even students that work just as many job hours as is allowed while still qualifying for a student grant have a housing burden of 35%. Nevertheless, Danish students have some of the lowest debt burdens in Europe, which means that they may increase their purchasing power by taking out bank loans, etc. We believe that an increasing number of students during their studies will make use of such options longer term.

Recent years’ structural housing shortage has fuelled investment activity in the residential market. In particular foreign investors have shown an appetite for the segment, which has caused yield compression and generally higher risk tolerance in the market. The risk tolerance has manifested itself especially in investments being made in the early development phases. However, also alternative residential property such as student housing has become highly popular. making it possible to continually adjust rent levels. This has been an advantage in a market characterised by substantial rent hikes. In addition, the demand profile and the limited competition help to curb vacancy risk, which has been virtually non- existent. Investments in student housing typically yield a return that exceeds the return on traditional residential investments by 50-75 bps. This added return reflects both the limited prospects of rental increases and limited alternative uses, but also the fact that this type of investment requires far more proactive management. In the student housing stock, tenant turnover rates (churn rates) are higher and more predictable,

Note: Djøf is the Danish association for academics in the fields of law, business economics, political and social sciences

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