Czech society divided over double standard on housing market

16-02-2004

Would you like to live in a turn-of-the-century building in the centre of Prague, with a marble entrance, high ceilings and double-winged doors? No problem, if you can afford it. The typical monthly rent for a three-bedroom flat in the historic centre is roughly 30,000 crowns (1,000 euros), almost double the average monthly income in the Czech Republic. But, believe it or not, there are many lucky tenants who pay ten times less for the same apartment in the same location, whatever their economic status.

"There are two levels of rents in the Czech Republic; regulated rents and free market rents and there is a big difference between these two levels. The free market rents are several times higher than regulated rents and this system does not reflect any social needs of people."

Tomas Nenicka, of the movement for rent deregulation, does not belong to the lucky third of Czech households protected by rent regulation - a measure meant to prevent excessive prices. But as some say this relic of state-controlled economy only creates distortion and a double standard on the housing market. On the one hand, there are people whose monthly salary is nearly swallowed by their rent, and on the other, there are millionaires living in council flats for a fraction of their monthly income. We are not talking only about attractive residential areas. With the exception of high-unemployment regions, the discrepancy between state-controlled and free-market rents exists everywhere in this country.

"It varies according to the location of the apartment but if you are trying to find an apartment on the market you have to count with 10-15 thousand monthly for the rent. And regulated prices for a similar apartment could be between 2,000 and 3,000 Czech crowns or even less. It depends on the size of the apartment."

The coalition government reached a difficult compromise last week on an amendment to the law on rents. It proposes a ten-percent yearly increase in regulated rents in the next three years.

"We have accepted this maximum compromise only because the situation has not changed at all for two years, and because it is untenable and completely unjust to artificially keep the rents at a regulated level and not even take inflation into account."

Says Local Development Minister Pavel Nemec of the liberal Freedom Union. Although some Social Democrat MPs objected that the 10-percent yearly growth rate was too fast, the original agreement is going to be submitted to the lower house this week. Social Democrat Finance Minister Bohuslav Sobotka.

"I would of course prefer if the government proposal were passed but I respect the coalition agreement here in the lower house. I think it is still socially tolerable for people with low income who partially live in regulated tenement flats."

The owners of apartment buildings say this increase in rents will merely cover inflation and the expected rise in VAT on construction works. The tenants who are paying free-market prices aren't impressed by the government proposal either. Their spokesman Tomas Nenicka.

"If the difference between free-market prices and regulated prices is several hundred percent, then the agreement freezes the difference and the current system for an additional three years. That doesn't solve anything."

Tomas Nenicka, photo: CTKTomas Nenicka, photo: CTK Tomas Nenicka speaks on behalf of almost 2,000 signatories of a petition calling for the levelling out of apartment rental prices. They suggest a different solution.

"Complete deregulation. I think it would be useful to say after how many years both levels should become the same. From that agreement it would be easier to find mechanisms how to get there. From our perspective two-three years is enough because we have already lived 14 years in such disadvantage. At this stage we are trying to communicate this problem to our society because the discussion is still limited to owners of houses and a small part of tenants who live in regulated-rent apartments. After a broader discussion there will be a much higher pressure on our politicians to change our law."

Tenants paying free-market rents and landlords say they are not placing their hopes in the current coalition government - in which the left-of-centre senior Social Democrats and the two smaller right-of-centre partners differ so sharply on this issue that their discussion nearly ended in a deadlock. Instead they are looking for help to the senior opposition Civic Democrats. Senator Miroslav Skaloud of the Civic Democrats says he is putting together a new piece of legislation on rents.

"I think that this does not solve anything. This only solves problems within the coalition. I think that four necessary steps have to be made for the creation of a flat market. They are legal deregulation, price deregulation, contributions to tenants and the protection of tenants."

The controversial bill proposing a 10-percent annual increase in regulated rents should be discussed in the lower house this week. While the left-of-centre parties in the chamber think it's too severe, the liberal and conservative parties say it's too meek. The vocal minority of regulated tenement holders are protesting and the rest of tenants and the landlords are raising their voices against the bill too. But that's not the end of the story. Some legislators and several other social groups argue that the Constitutional Court has ruled in the past that rent regulation in the current form is unconstitutional. Senator Miroslav Skaloud.

"I think that the government will continue in their anti-constitutional position because it is without punishment. We can wait for the next election, for example. We have not enough members of parliament to push through our concepts at the present time. But I think it is just a question of one year, I suppose."

If the matter gets to the Constitutional Court again, the status quo will be maintained. In the meantime social tension might grow in this legal limbo. Some experts argue that everybody is losing on the current situation. The owners of apartment buildings - be they local councils or private owners are subsidising tenants who often don't need it, and those who do, should be taken care of directly by the state. Tomas Nenicka of the movement for rent-deregulation says that what this country needs first is a broader social debate.

"It very much depends on the support of people, on the fact how common people, not just regulated tenants will start to think about this problem and start to count how much they are losing because of this system."

16-02-2004