In recent years, the issue of housing affordability has become one of the most pressing issues for residents of… the Czech Republic. According to the latest research Deloitte Property Index, the Czech Republic ranks first in Europe in terms of the difficulty of purchasing your own home. We would not say that this was a big surprise, because the cost of real estate in this country continues to systematically rise, leaving citizens with fewer and fewer options for purchase. What are the reasons for this situation and how to deal with it? In this article, we will answer all your questions.
The Czech Real Estate Market 2024
The Czech Republic topped the list of countries with the worst housing affordability. This conclusion can be reached after studying the data from the Deloitte Property Index study, which annually assesses the state of real estate markets in 18 European countries. Today, to purchase an apartment of 70 m² in the Czech Republic, the average resident needs to save 13.3 annual salaries (before taxes). Such disappointing figures put the country in the lowest place in the ranking. Last year, the Czech Republic was in the penultimate line, second only to Slovakia, which gave at least some hope for an improvement in the situation. Now everything has changed, but not in favor of the Czech Republic.
There are several main factors that influenced this situation:
- high real estate prices. The cost per square meter continues to rise, especially in Prague. This makes buying a home unaffordable for many families and young people;
- low incomes compared to housing prices. Although the Czech economy is showing steady growth, changes in income levels have not kept pace with increases in housing costs;
- unavailability of mortgage lending. High interest rates on mortgages also limit opportunities for purchasing housing. Many locals choose the latter between a mortgage and renting because they simply cannot afford to cover regular payments.
While everything is going to hell in the Czech Republic, countries such as Denmark, Norway, Italy and Slovenia demonstrate better housing affordability. Thus, in Denmark, to buy an apartment, you only need about 5 annual salaries, which significantly increases the chances of a happy future in your own square meters.
How to overcome the reasons for poor housing affordability in the Czech Republic
The problem of housing affordability in the Czech Republic is associated with several key factors. However, there are measures that can improve the situation on the real estate market.
- Insufficient number of new buildings. Insufficient number of new residential projects on the market directly affects the affordability of housing. Although the Czech Republic ranks in the middle of the rankings for the number of new properties under construction, this is not enough to meet demand. In countries with a large number of new properties, such as Ireland and Poland, housing prices are growing more slowly, making them more affordable for citizens.
- Complex building regulations and bureaucracy. The process of obtaining building permits in the Czech Republic remains complex and lengthy. This increases the cost of projects and limits the number of new properties on the market. To stimulate the construction of new housing, regulations need to be simplified and permitting periods reduced.
- High mortgage interest rates. The Czech Republic has the fifth highest mortgage interest rates in Europe. This makes buying a home even more expensive. To improve the affordability of housing, it is necessary to consider measures to reduce interest rates or develop more affordable, preferential mortgage programs.
- Infrastructure development. The lack of modern infrastructure in many regions makes it difficult to build new properties outside of large cities such as Prague. Stimulating infrastructure development could reduce the burden on the capital and make regional housing more affordable.
- Rental housing as an alternative. The Deloitte study also focuses on the rental housing market. London turned out to be the most expensive city to rent in Europe, where the average rent is €33.8/m². This means that for an apartment of 70 m² in London you will have to pay around 60,000 CZK/month. At the same time, rent in Prague also remains quite expensive, especially in the central areas of the city. However, compared to cities such as Dublin, Paris and Barcelona, rents in Prague seem more affordable. Prague ranked 24th among 60 European cities in terms of rental costs.
Since we're talking about renting, it's worth going into more detail.
Advantages of renting as a way to combat poor housing affordability
Yes, renting won't make you self-sufficient, but it does have some advantages over buying your own houses:
- relative affordability compared to buying. Renting can be a temporary solution for those who are not ready or cannot afford to buy a property;
- flexibility. Tenants can change housing as their needs change, which is especially convenient for young professionals or students.
However, renting also has its disadvantages that should not be forgotten:
- limited tenant rights. Property owners can increase rent or terminate the contract before the end of the term;
- lack of long-term stability. The tenant does not have ownership of the property, and, as a result, their financial investment does not contribute to the creation of a long-term asset.
Renting will temporarily relieve you of problems, but will not change the global situation. The Czech Republic continues to face the problem of low housing affordability, which is exacerbated by rising property prices, low incomes and limited availability of mortgage lending. To improve the situation, it is necessary not only to develop the new-build market and simplify building regulations, but also to provide affordable mortgage programs for citizens. At the same time, renting remains an important alternative for those who are not ready to buy real estate.
Resolving the problem of housing affordability requires a comprehensive approach, including both economic measures and reforms at the level of public policy. It is important that the government and developers actively cooperate to create affordable housing that will meet the needs of modern Czechs and foreign investors.