Subsidies for Public Dormitories. Can Legislation Affect the Profitability of Private Dormitories?

According to the authors of the bill to amend the Act on Social Forms of Housing Development and certain other laws, the change regarding non-repayable financial support for the creation or modernization of rooms to meet the housing needs of students and PhD students is intended to increase the supply of places in student houses, which is highly insufficient. “Despite many market fears, these changes should not, however, adversely affect the market for private dormitories, which is currently developing dynamically” – comment Jan Pruski and Bartłomiej Zatoński, lawyers from the Real Estate Law team at Wolf Theiss.

The bill to amend the Act on Social Forms of Housing Development and certain other laws, prepared by the Ministry of Development and Technology, was submitted to the Legal Commission of the Government Legislation Centre on August 12th. One of its assumptions is to broaden the possibility of granting non-repayable financial support for the creation or modernization of rooms to meet students and PhD students’ housing needs. Currently, the social and municipal construction program assumes such funding for the purpose of increasing municipal housing resources for low-income individuals, including those at risk of social exclusion. The authors of the bill intend this change to increase the supply of places in student houses, which is highly insufficient. Suffice to say, in the academic year 2022/23, the number of students was 1.22 million, and public dormitories offer only 115.3 thousand places.

The development of the market for private dormitories in Poland

The existing deficit of places in university dormitories combined with increasing rental rates for independent apartments in the largest academic centers creates market space for investments in private dormitories. More and more entities are deciding to meet this demand and place their resources in private student houses. Recent weeks have seen the announcement by the joint venture of Signal Capital Partners, Griffin Capital Partners, and Echo Investments of the StudentSpace project – a collection of modern dormitories, the first of which are to be built in Krakow. In the coming year, StudentSpace is also to appear in the capital. In the coming years, close to 5 thousand places for students are to be created as part of this project.

Private dormitories – a remedy for the lack of student places?

Overall, it is estimated that the value of private dormitories in 2022 was 11.5 million euros, 50% more than the year before. However, the number of places in private buildings of this type – about 14 thousand beds – is just a drop in the ocean of needs. The largest availability of places in private student houses can be found in Krakow, Wrocław, and Łódź. Warsaw, despite being the largest academic center in Poland (over 20% of all students), is not in the top three.

“Several factors argue for predicting further growth in investment in private dormitories in Poland. First and foremost, it is the gap between demand and supply, rising rental rates in student cities, and good financial results of operators of private dormitories boasting almost full occupancy for the academic year 2024/25. Non-economic aspects also play a significant role – public dormitories often have their glory days behind them, require renovations and modernization. Private dormitories are attractive facilities – modern, thoughtful, combining the opportunity for student integration with living comfort. What’s more, the number of foreign students in Poland is growing, which is the target group for the private dormitory market. However, there are some concerns whether the proposed amendment will reverse the positive trend for operators of private student houses” – comments Bartłomiej Zatoński, Associate from the Real Estate Law team at Wolf Theiss.

Will the enactment of the law and an increase in places in public dormitories affect the demand for private dormitories?

From the data presented in the report presenting the results of a study on the housing situation of students in Poland in 2023, prepared by the Amron Center, it is clear that about 48% of all students live in rented property or a public university dormitory. The rest live with family or friends, or own their property. Assuming that almost half of the students – about 600 thousand – are interested in a place in a dormitory or a private rental, providing so many places by universities in public student houses would undoubtedly be a process lasting years, requiring huge financial outlays, and certainly difficult or even impossible to implement. Nevertheless, the government has repeatedly declared its intention to increase the number of places in dormitories, as evidenced by the draft law. A separate issue is whether public funding for the development of dormitories will lead to a radical increase in their standard. It seems that the solution to the problem of the shortage of places in public dormitories will rather be the modernization of those that already require a thorough renovation and the construction of new ones with a significantly lower standard than is offered in private dormitories. This measure would ensure as many places as possible for students with a lesser budget, while allowing for the coexistence of private and public dormitories and not directly affecting investors putting their resources in private student houses. Their offer will be primarily aimed at students expecting a higher standard, additional amenities, and with a larger budget, who would not be interested in a place in a public dormitory anyway.

“Public dormitories should not compete with private dormitories due to their different nature. On one hand, public dormitories are to provide as many places as possible in an acceptable, and at the same time quite minimalistic, standard. On the other hand, private dormitories provide a much higher standard, often offer additional amenities for their residents, and above all, their rent is several times higher. The price difference between public and private dormitories is usually filled by apartments rented from individuals with a often lower standard and price than private dormitories. It is the owners of such apartments who are realistically exposed to a possible lack of tenants in case of the enactment of the proposed law. It seems, therefore, that investors interested in building new private dormitories, which are still few in Poland, will still have the opportunity to invest profitably in this real estate sector ” – summarizes Jan Pruski, Associate from the Real Estate Law team at Wolf Theiss.