Bureaucracy to blame for rise in Prague house prices, claims study

Czech economic research institute CETA (Centrum ekonomických a tržních analýz) published a study focused on the residential housing market in Prague on Friday, which claims that bureaucratic hurdles, coupled with high demand, are primarily responsible for the current low availability of housing in the capital. It also claims that Airbnb flats, which have been the centre of focus for many councillors, are not to blame.

Photo: Klára StejskalováPhoto: Klára Stejskalová Eurostat data shows that house prices have been on a steady rise across Europe since the fourth quarter of 2015. The Czech housing market is at the forefront of this trend. Its property prices ranked as the fastest growing in Europe last year, according to figures from a Financial Stability Report issued by the Czech National Bank in June 2017.

In its analysis of the Prague housing market, published at a press conference on Friday, Czech economic research institute, CETA, claims this is mainly due to the authorization procedures blocking the construction of developer projects that are standing in the way of 40,000 new flats being built.

CETA calculated that every dismissal of 1000 building permits leads to a direct rise in the speed of house price growth by 1.18 percent.

The increase in property investment for Airbnb purposes, which is much talked about in the public sphere, is dismissed as a serious cause behind the price rise by CETA Director of Research, Aleš Rod.

“Our analysis shows that Airbnb is overestimated. The core of price booming is based on a combination of net immigration to Prague, a very low amount of flats being built in Prague and macroeconomic indicators characteristic of economic growth, such as high wages, low interest rates and mortgages.”

Mr. Rod sees the easing of the legal process in securing building permits as the best approach in slowing the price rise.

“Prague, as the sixth wealthiest region in Europe, cannot do without construction of new flats. Efficient development of empty spaces and brown fields is the best way to stabilise the market.”

The study says that brown field development has to be accompanied by infrastructure investment; otherwise these could be the subject of price bubbles.

Looking into the immediate future, Mr. Rod, does not believe much is likely to change and that investors could take advantage of this fact.

“Considering the blocked municipal legislation in Prague, which is expected to be blocked until 2022, we do not expect any significant improvement within 5 years. The price rise is therefore likely to follow the same trend as it has in the past two years.”