HOUSING OUT OF REACH: PRAGUE FACE RISING PRICES AND TOUGHER MORTGAGES

Buying a home in the Czech Republic has become an increasingly difficult goal for many citizens, especially in Prague. Rising mortgage rates, escalating property prices, and a shortage of affordable options are making it harder than ever for people to own a home. The country has recently dropped in international affordability rankings, reflecting the depth of the crisis.

Czech Republic: Among Europe’s Least Affordable

According to Deloitte’s Property Index, the Czech Republic remains one of the least affordable countries in Europe when it comes to housing. To buy a standard 70-square-meter apartment, a person needs 13.3 years of gross salary—the same as last year. This figure places the Czech Republic near the bottom of the rankings, tied with Slovakia and surpassed only by major urban centres like Amsterdam and Prague. The capital city of Prague is now the second most expensive city in Europe for homebuyers. Residents must save up to 13.5 years of income to afford an average-sized apartment. In contrast, in wealthier nations like Denmark and Norway, a comparable flat costs less than five annual salaries. This stark contrast underscores the increasing inaccessibility of home ownership in Czech urban areas. Young people are bearing the brunt of this crisis. Sociologist Martin Lux from the Institute of Sociology at the Academy of Sciences explains that many young adults are forced to live with their parents or remain in rental accommodation. “Without intergenerational assistance, only a third could afford their own housing,” Lux stated, emphasising the growing role of family wealth in achieving home ownership.

Renting on the Rise—and Getting Pricier

With buying out of reach, renting has become the only viable option for many. Currently, about a quarter of the Czech population lives in rental housing, up from just 20% in previous years. However, increased demand has led to higher rents. In the second quarter, the average rent reached CZK 305 per square meter. This means that renting a 70-square-meter flat now costs CZK 21,350 per month—an 8.5% rise from last year. Major cities are feeling the effects, not only in terms of population pressure but also workforce shortages. Unaffordable housing is driving potential workers away. To tackle this, Prague has announced plans to build thousands of municipal rental apartments with preferential rents. These efforts aim to retain essential workers and ease the housing burden, though experts agree they are just one piece of the puzzle.

The Need for Faster Construction

According to Miroslav Linhart, a senior partner at Deloitte, the key to solving the housing crisis lies in increasing the housing supply. He advocates for quicker construction through streamlined building regulations and a more efficient permit process. While a new construction law has been introduced to address these issues, complications in its digital implementation have already raised concerns about delays. Despite high demand, the pace of housing development is slowing. The Czech Statistical Office reported that 17,230 flats were started in the first half of the year—a 5% decline compared to the same period last year. This reduction poses a serious challenge to meeting the growing demand for housing and improving affordability in the long term.

Mortgage Accessibility Remains a Barrier

Expensive mortgages are another major barrier for homebuyers. As interest rates remain high, many potential homeowners are either unable or unwilling to take on long-term debt. Linhart emphasises the importance of affordable housing projects and notes that private developers are currently only marginally involved in this area, leaving a gap in the market. Earlier forecasts by the Czech National Bank predicted improved housing affordability due to rising wages. However, strong demand for home ownership has pushed prices higher than expected. In the first quarter of the year, the average apartment price climbed to CZK 99,300 per square meter, meaning a standard 70-square-meter flat now costs nearly seven million crowns. This marks a 4% price increase in just three months, almost reaching the CNB’s forecasted annual growth of 5%.

Conclusion: A Crisis With No Quick Fix

The Czech Republic’s housing crisis shows no signs of easing. With high mortgage rates, slow construction, and surging prices, many people, especially younger generations, are finding it nearly impossible to buy a home. Without bold reforms, including support for affordable housing and improved building regulations, the dream of owning a home will remain out of reach for much of the population.

Sources: https://praguemorning.cz/