In addition, the situation is complicated for smaller investors by those who want to live on their own. In recent years, they have bought roughly every second apartment in new buildings in order to rent it out – most often for a short time via Internet platforms such as Airbnb. In addition, their properties continued to appreciate due to rising prices.
What you should know about the housing crisis:
Young people are living away from living with their own homes
Within the EU, the Czechia is one of the countries with one of the highest shares of owner-occupied housing. About two thirds of the population live in their apartment or house. The younger generation has the same ambitions, despite the fact that it no longer has money for its own housing.
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Housing crisis: Why are flats and rents so expensive in the Czech Republic? • VIDEO Videohub
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According to a survey by EMA data, more than a third of Czechs are considering buying their own housing. In addition, record low interest rates or higher savings from the covid period contributed to the interest in flats last year. And even though mortgages are no longer so advantageous, interest in them is not declining. Own housing is attractive for Czechs mainly because they consider it more advantageous to pay a mortgage than to rent. In some areas, the rent is even higher than the monthly mortgage payment.
In addition, Czechs like to live where they work, they don’t like to commute. And so they are willing to invest disproportionately more in housing close to work than to waste time on the road. In addition, housing prices are linked to labor needs. Where they hire employees, there are also more expensive apartments, because there is a higher demand for housing.
Mortgage rates are rising
Real estate is becoming more expensive, but people are still taking out mortgages on it. Interest in mortgages was enormous in 2021. For example, in March, according to the Fincentrum Hypoindex, people arranged mortgage loans in the amount of 44.7 billion crowns.
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However, interest may decline due to new regulations of the Czech National Bank, which will be reflected in rents. Gradually, other banks are becoming more expensive mortgages. Mortgage interest rates will thus continue to rise. Banks have no reason to provide mortgages cheaply when there is such interest in them. It can be expected that mortgages will become more expensive and interest in them will gradually cool down.
According to the Institute of Strategic Investment at the University of Economics, there will be an increase in rented people, especially in Prague and Brno. Most Western European cities have undergone the same evolution in the past.
Why prices are still rising
Achieving brand new housing is very costly. The Prague citizen has to earn about an average new apartment for about fourteen years. Prices are high due to the lack of flats and houses and the process of new construction is extremely lengthy.
In the World Bank ranking, which assesses the complexity and length of construction proceedings, the Czech Republic is even 157th out of 190 countries in the world. It is similar to developing countries. In the Czech Republic, the average duration of construction proceedings is about 5.5 years. It is less for family houses, on the contrary, for apartment buildings in larger cities such as Prague, this process takes over ten years.
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In addition, the year with coronavirus brought unexpected price increases. Prefabricated houses became more expensive by almost a fifth. Older flats in Prague by fifteen percent. Cottages in the Giant Mountains are also sold for a quarter more expensive. “Added to this was the fear of impending inflation, and so demand increased enormously,” points out Vladimír Zuzák, director of Maxima Reality.
Because at that time it became even more important for the Czechs to live in their own, there was a jump in real estate prices, especially in Prague and Brno. This surprised many experts who expected the opposite trend during the pandemic.
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In Brno, real estate prices even rose twice as fast as in Prague. According to data from the realitymix.cz website, real estate prices in Prague increased by 2.9 percent from March to May 2021, while in Brno by 6.9 percent.
Just as apartments and houses become more expensive, so does building material. It is possible to build for less, but people are willing to pay high prices for the material, so companies do not become cheaper, says developer Michal Šourek, head of the MS architects studio. Housing prices are thus spiked not only by more expensive construction work and materials, but also by speculators buying apartments on the market.
Investment apartments
In addition, apartments are a very interesting and stable investment, so many people prefer to keep them instead of selling real estate. However, these are not only individuals, but also large investors. According to the real estate agency Lexxus, a quarter of new flats to be built in Prague are being bought by investors who are buying them in non-public pre-sales. The apartments will not even get into public offers. Currently, many experts see the acquisition of real estate for investment as one of the main reasons why housing is not available in the Czech Republic.
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It is these non-public investment offers that allow investors and developers to quickly start new projects and thus reconsider their pricing policy. A typical investor is a movable natural person who buys repeatedly. It is no exception that such an investor buys five or more apartments a year in Prague.
Another problem is that investment flats often remain empty. This blocks flats, which leads to further overheating of the real estate market and rising prices, especially for a person who wants nothing more than housing.
Solving the housing crisis
Despite the housing crisis in the Czech Republic for several years, politicians have not paid much attention to the solution. Nevertheless, some attempts can be recorded.
Purchase of apartments from private individuals
The leadership of cities and municipalities, which more than two years ago in the municipal elections aimed to solve the crisis in the housing market, found a way to expand the housing stock by buying from private individuals through state subsidies. The city pays a tenth of the total amount, the state pays the rest within the subsidy. According to the rules of the subsidy program, the town hall may buy an apartment for a maximum of one million crowns and may not use more than thirteen million crowns in three years.
Of course, buying flats from individuals will not solve the housing crisis and are unusable in cities like Prague with the most expensive flats in the country. Cities and municipalities are increasingly inclined to buy former hostels or abandoned hotels. At the end of 2020, Prague launched a public tender in which people and companies can offer apartment buildings or accommodation facilities. The city wants to convert them into municipal flats.
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Cooperation with investors
Another option for obtaining municipal flats or at least civic amenities is cooperation with investors on new projects. The whole new districts are being prepared by developers in, for example, Prague, Brno, Pilsen, Písek or České Budějovice.
“Cooperation with developers depends on conditions. If a district is built in which there are expensive and inaccessible flats, then it does not make sense, “says Vít Lesák, director of the Platform for Social Housing.
“If, for example, the city provides land and agrees with the developers so that part of the flats will be given to the city, or there is a condition for who the flats are for, then it makes sense,” he adds. However, this has not yet been achieved to a greater extent.
Sociologist Dan Ryšavý from Palacký University in Olomouc sees a number of tools by which the government can provide affordable housing. “It is precisely the state that can set rules and conditions that could at least partially erase the touch of something unstable and unreliable from rental housing,” Ryšavý thinks. “Tax adjustments that would encourage long-term leases at the expense of vacant flats owned by speculators, but require political will and courage,” he said.
Rents are rising as flats rise in price
Rising apartment prices are logically reflected in the amount of rent. In the long run, according to Jan Hrubý, CEO and Vice President of RE / MAX, rents are rising. In the last ten years, rents have risen by about seventy percent. In addition, preferences and options for how people can or want to live are changing. The pandemic and the subsequent economic downturn did not wave at the housing market. Rental housing prices fell only temporarily.
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Rents fell during the pandemic due to the outflow of foreign tourists using the Airbnb service, as well as the absence of students in larger cities. In order to use the space, the owners offered apartments at lower rents. This revived market demand, so rents began to rise again.
Housing crisis abroad
However, not only the Czechia but also other countries are facing a housing crisis. Los Angeles plans to vote on an empty house tax in 2022 due to housing problems. Hong Kong is considering taxing apartment developers to discourage them from accumulating new apartments. Ireland is exploring its possibilities. Barcelona has gone so far as to threaten to seize empty flats from landlords, to whom it would pay half the market price and then rent the flats itself at affordable prices. Paris tripled the tax on the second apartment in 2017.
These steps are intended to discourage people from depositing money in houses and flats instead of living in them. Lawmakers say the trend is depleting housing and worsening the situation for low- and middle-income people who want to rent housing or buy an apartment. They hope that taxes will raise money to finance affordable housing or force homeowners and the rich to offer real estate on the market for rent.
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