Although supply and demand issues are predominant, the presence of multiple cooperative housing associations urges the government to intensify its efforts to regulate real estate prices in the Czech Republic.
Based on data compiled by various non-profit housing organizations, Prague seems to be experiencing an unprecedented real estate crisis, offering the most unaffordable properties in Europe. The analysis of this data revealed that Prague residents need to earn an average of 25 Czech annual net salaries to buy a 75-square-metre flat in Prague, which therefore has the highest price tag in Europe.
The study goes on to highlight a 50% increase in flat prices over the past five years. At the same time, nominal wages increased by 21%, but real wages fell by 15%, as the inflationary phenomenon. Rising prices have made it more difficult to find properties to buy, leading to a significant drop in homeownership rates over the last 10 years.
The year 2024 will be a particularly critical one, as the fall in rates that began at the end of 2023 will stimulate interest in buying real estate, which will lead to an increase in asking prices of about 5%. Alarming statistics from the study also indicate that more than 40% of the income of almost a quarter of Prague households is spent on housing costs. The director of the social housing platform, Barbara Birova, emphasized the disproportionate impact on vulnerable groups, including around 160,000 Prague residents, who are therefore at risk of housing instability because they are unable to pay their mortgage or rent.
According to the Deloitte Real index, in the last quarter of 2023, 1 square meter in Prague was sold for 121,700 crowns on average. This is three times higher than that required to purchase one square meter in the cheapest region of the Czech Republic, Ústí nad Labem. Thus, according to Deloitte, 14 Czech gross annual salaries are needed to buy a 42-square-metre property in Prague. Considering this, the Czech Republic is the second most expensive country in Europe to buy property, according to the results of the research. The two cheapest European countries for buying a property are Belgium and Norway, which require less than five gross annual salaries. At the city level, Prague is the third most expensive metropolis in Europe, after Bratislava and Amsterdam.
While property ownership remains a financial challenge, the rental housing market in the Czech Republic presents a more favourable scenario. Indeed, Prague offers an average monthly rent of CZK 345 per square meter, ranking 23rd out of 66 cities surveyed in terms of affordability of rents. This is therefore the favorable aspect that contrasts with the inaccessibility of buying a house, given the high mortgage rates.
The main problem is that the high price of real estate pushes those interested in owning property away from Prague. The lack of flats in the Capital has in fact led to an increase in prices, which will rise by tens of percentage points over the next decade. The lack of supply is counterbalanced by an excessive demand, which makes residential real estate a real luxury good, not accessible to all. This will therefore push a large part of Prague’s residents to leave its borders.
Due to the inflationary environment in which we live, apartment prices will inevitably continue to rise, but the problem is the pace of this growth. Analyzing the trend over the last 30 years, it is evident that apartment prices in Prague have doubled in each decade.
The indications provided by the study urge politicians to make the expansion of Prague’s public housing stock, currently limited to 5%, a priority. Furthermore, the analysis suggests measures such as progressive taxation of large property owners to counter increases caused by speculation. Finally, it calls for the regulation of rent increases, which should be based on initiatives already promoted in other European countries, such as Sweden.
In conclusion, an in-depth analysis of the real estate situation in Prague reveals an unprecedented crisis, with property prices having reached unaffordable levels for many citizens. Finally, it is crucial to recognize that a decisive role in resolving the housing crisis in the long term can only be played by a significant increase in supply.
Sources: https://www.seznamzpravy.cz/clanek/ekonomika-byznys-reality-drahota-vyzene-zajemce-o-vlastni-bydleni-z-prahy-rika-sef-finepu-248808; https://www.expats.cz/czech-news/article/study-shows-that-prague-has-europe-s-least-affordable-housing; https://www.expats.cz/czech-news/article/prague-is-the-third-most-expensive-city-in-europe-to-purchase-property.
