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Prague's Housing Dilemma: Bridging the Gap in a City Struggling for Shelter

Nina Fortikova | The Wilberforce Society

Edited by Jessica Alder

 

Background 

The housing crisis in Prague is marked by a severe shortage of affordable housing. Low rate of new developments, increased tourism, and economic growth have fuelled a surge in demand, driving real estate prices to unprecedented levels. This surge has significantly outpaced the construction of new housing units, resulting in a stark imbalance between supply and demand. 


Factors including Airbnb's type of rentals and lack of government partnerships with the private sector are at the forefront of the issue. However, the key problem that continues to be properly addressed is the long complex permit process and with it, problematic construction laws that restrict planning permissions in Prague and nearby suburban areas. 

As the lack of effective legislation is at the heart of the problem and consecutive policymakers fail to address it, the current debate in the policy-making sphere revolves around attempting to deal with other, less significant factors. These arise as a result of market failure, rather than tackling the issue in its core by considering supply and demand dynamics.

 

Additionally, bureaucratic hurdles and a shortage of available land for construction have impeded the development of new housing projects. Population growth has not been matched by a proportionate increase in housing supply, perpetuating the crisis. This led to a situation where the average salary earner would need to save for 20 years, putting away 20% of their earnings, to generate enough cash to purchase a 2-room apartment in Prague (Lux 2021).

 

One key issue that regulation in recent years has attempted to address is mass tourism. Prague’s rising popularity as a tourist destination has increased the demand for short-term rentals, reducing the availability of long-term housing for residents. Landlords opt for short-term residents, from which they can derive higher rents. The consequence of this is a property market that favours short-term rentals and real estate investment, leading to inflated property prices, converging towards those in Western Europe. Many residents are forced to live in overcrowded or inadequate housing as a consequence, contributing to social inequities and diminishing quality of life. The Czech population has a historical bias towards owner occupancy in housing which accounts for the preference of almost 80% of the population (Czech National Bank, ARAD Database).


Housing Market Dynamics  

The influx of short-term rentals, particularly through platforms like Airbnb, has reshaped housing dynamics, reducing available long-term housing options for residents. However, simultaneous advancements in new residential developments and urban revitalization projects indicate that there are countervailing policies to resolve the issue of housing scarcity. 

 

Foreign investment has also significantly influenced the market's growth, impacting property values and altering the city's real estate profile. Government regulations and interventions have attempted to navigate the complex situation between limiting short-term rentals and preserving the tourism sector (which contributes to over 5% of the city’s GDP and over 8% of employment (ČSÚ, 2008)).

 

At the same time, the political landscape also intertwines with the housing market's dynamics. The political climate in Prague has been engaged with addressing the lack of housing, as new developments and construction face scrutiny and regulation. This has been a focal point in the discourse, shaping approaches towards urban development and housing policy. Existing literature reflects the level of significance of the construction legislation influencing Prague's housing market, encompassing regulatory frameworks such as permit policies (Lux et al). Current trends continue to highlight the imbalance between supply and demand, exacerbating the shortage of affordable housing and widening socio-economic disparities. This poses considerable challenges for Prague's inhabitants.

 

Predictions and forecasts suggest a continued upward trend in housing prices, making it increasingly unaffordable for many residents, particularly the younger demographic and middle-income families. Although the affordability of owning an apartment in Prague is one of the lowest in Europe, with an average 60-sqm apartment costing around 15 yearly average salaries, the difference in apartment prices (as of 2020) between Prague (EUR 3,600/sqm) and selected western European cities, such as Munich (EUR 8,700/sqm), Copenhagen (EUR 6,700/sqm), Paris (EUR 12,900/sqm), London (EUR 8,000/sqm) or Frankfurt (EUR 7,700/sqm), is still quite significant (Linhart, Hana and Marek 2021).


Policy recommendations

Several potential solutions and policy recommendations can be considered. Firstly, there is a pressing need for an increase in the construction of affordable housing units. Collaborations between the government, private developers, and non-profit organisations could facilitate the construction of more affordable housing projects. Policymakers could draw inspiration from projects in other EU capitals such as Vienna, where more than 4,000 housing units are undergoing construction as of 2023 (Heral, 2023). The collaboration between private developers and the municipality of Vienna has been a successful example of government-regulated affordable housing programs. Implementing incentives such as tax breaks or subsidies for developers focusing on affordable housing could stimulate this sector in other European cities such as Prague.

 

Another viable solution lies in the redevelopment of underutilised spaces within the city.

Repurposing vacant buildings or revitalising brownfield sites into residential areas could

significantly expand the housing inventory. This is however struggling to happen as the

permitting process in Prague is one of the longest in Europe, and the supply of empty plots

for development is low (Mazacek and Panos, 2023). Furthermore, encouraging mixed-use

developments that combine residential and commercial spaces not only maximise land

utilisation but also foster vibrant communities.

 

Policy recommendations should also revolve around regulatory changes to streamline the approval process for new housing projects. Simplifying bureaucratic hurdles and expediting

permits for construction would encourage developers to invest in the housing market more

readily. Additionally, introducing zoning reforms that allow for higher density in certain areas while maintaining architectural aesthetics could optimise land usage and accommodate a larger population.

 

Fostering public-private partnerships and encouraging innovation in construction techniques, such as modular or sustainable housing, could help alleviate the housing shortage in Prague while promoting environmentally friendly practices. By focusing on increasing the supply of affordable housing through collaboration, regulatory reforms, and innovative construction methods, Prague can aim to mitigate its housing crisis and ensure a more sustainable and equitable future for its residents.

 

Moreover, the issue of homelessness has become increasingly prominent in many EU capitals including Prague. High rents, coupled with insufficient social housing and support systems, have pushed vulnerable populations onto the streets. This not only poses a humanitarian crisis but also reflects the systemic failure to provide adequate support and housing for those in need. Policy responses to the housing crisis in EU capitals have varied. Some cities have implemented rent controls or subsidies to alleviate the burden on renters, while others have focused on increasing social housing stocks. However, these measures often face challenges such as resistance from real estate stakeholders or insufficient funding, limiting their effectiveness.

 

A reevaluation of urban planning policies is crucial. Encouraging mixed-use

developments, promoting sustainable and efficient land use, and revitalising underutilised

spaces within the cities can contribute to a more balanced housing market. Collaboration between governments, private sector entities, and community stakeholders is essential to tackle the housing crisis effectively. Engaging in dialogue, fostering innovative housing solutions, and prioritising the needs of local communities are crucial steps toward creating more affordable housing systems and tackling the root cause of the housing crisis. 



References       

ČSÚ (2008) Podíl cestovního Ruchu na české ekonomice, Podíl cestovního ruchu na české ekonomice | ČSÚ. Available at: https://www.czso.cz/csu/czso/podil_cestovniho_ruchu_na_ceske_ekonomice (Accessed: 17 January 2024).                                                                                                                                                     

Czech National Bank, Database ARAD, 1-year Pribor interest rate, retriever on November 30, 2021, from https://www.cnb.cz/cnb/STAT.ARADY_PKG.STROM_DRILL?p_strid=AAA&p_lang=C                            Czech Statistical Office, Population Census 2011, Commuting to Work or School, retrieved November 23, 2023, from https://vdb.czso.cz/vdbvo2/faces/en/index.jsf?page=statistiky#katalog=30782             Czech Statistical Office, Revenues, Costs and Living standard of households in Prague, retrieved October 20, 2023, from https://www.czso.cz/csu/xa/prijmy-xa           

 

Heral, P. (2023) Czechia: Key concepts in the New Building Act with relevance for the permitting process, bnt attorneys in CEE. Available at: https://bnt.eu/legal-news/czechia-key-concepts-in-the-new-building-act-with-relevance-for-the-permitting-process/ (Accessed: 17 January 2024).

 

Mazacek, D. and Panos, J. (2021) ‘Key determinants of new residential real estate prices in Prague’, FACULTY OF FINANCE AND ACCOUNTING [Preprint].

Linhart, M., Hana P., Marek, D. (2021) “Property Index – Overview of European Residential Markets.” Prague: Deloitte Lux, Martin. "Impact of Weak Substitution between Owning and Renting a Dwelling On Housing Market." Journal of Housing and the Built Environment 35, no. 1 (2020): 1-25.

 

Lux, M. (2020) „Simulating Trends in Housing Wealth Inequality in Post-socialist Czech Society.“ Housing Studies 27, pp. 1-21.

                                   

                       

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