The State of the Rent System in the Czech Republic - Part II

26-03-2002

In last week's Talking Point I examined some of the peculiarities of the rent system in the Czech Republic, a situation that is certainly not ideal. Listeners may recall that the partial continuation of rent control in the Czech Republic's housing market has created a paradoxical rift between tenants in the country. Tenants in search of new leases today are left with little choice but to pay much higher rents on an open market than long-term tenants who continue to enjoy similar, often identical apartments for as little as a third, even a quarter, of the price. The reason? The Czech Republic's lawmakers, afraid of the social upheaval full liberalization might bring, have shied away from finding a permanent long-term solution to the problems of the housing sector. Despite the fact that Czech Constitutional Court ruled the system of rent control discriminatory two years ago, parliament was unable to come up with a solution. The court gave the country's legislators till January 2002 to come up with a replacement, but the proposed bill was struck down for offering little in the way of reform. The housing system to date continues to tolerate the paradox that some, often very well off, households continue to live under low, controlled rent, while newer households starting out must struggle to find a reasonable lease. It is an ideal environment for a black market to flourish. The roots of the problem, according to public Ombudsman Otakar Motejl, are ones that historically lie with the former Communist regime:

"You've got to take into consideration the fact that for forty years the housing system was against all common sense. It was based on the principle of chance, and the fact is the socialist 'non-entrepreneurial' real estate system is difficult to reform overnight."

Under the Communists it was extremely difficult to obtain apartments. When you were lucky to be granted one, location and building, or apartment type were not a factor. In this way the social demographics were distorted: most apartments were ruled relatively equal in value. Today many families continue to live relatively cheaply in areas that would be considered upscale - and unaffordable - neighborhoods. It is no surprise that the government has been reluctant to fully open the Pandora's box of housing reform: it fears social consequences that would be enormous: countless households no longer able to afford their rents, having to settle for moving out of high-brow neighborhoods into less attractive apartment buildings. Apartment buildings that many observers say are not even currently available. Social Democrat MP Stanislav Krecek:

"I agree that if you live on Wenceslas Square you can't pay 500 crowns a month but first you have to decide what to do with people who can't afford it; you can't just throw them out on the street ..."

Certainly no one is suggesting such an extreme, at least no one with any sense of social responsibility, although it is feared that some unscrupulous property owners - some landlords - would do so if they could. But many owners themselves are victims of an absurd situation. Many have their hands tied as far as their own property goes, because their buildings are full of tenants who pay low controlled rent. If you're wondering just how that is possible, it is once again the result of Communist policy: the Communists confiscated property after 1948 and moved in tenants as they saw fit. In 1991, former owners got their property back - but they also got the tenants.

So clearly, it is not an easy situation where housing is concerned. On the one hand are the tenants, on the other, the owners, both caught in a social dilemma that is likely to be more and more politicized. What about solutions? With the Czech Republic in an election year, and it is now an absolute necessity that new legislation set the rules for the housing sector. What measure the legislation will be regulated or deregulated depends on who dominates the elections. Two parties out of five in the Czech parliament that may play a future role are the currently governing Social Democrats and the opposition Freedom Union-DEU. They both have strong opinions about the issue, very differing ones in fact.

Social Democrat MP Stanislav Krecek has long defended the rights of tenants and is part of a public watchdog group on tenants' rights. He says the Social Democrats would welcome a law based on a German model, which would set rental rates that would mirror individual towns based on definite criteria such as area, locality, and building type, with a minimum and maximum level of rent. But property owners, in spite of Mr Krecek's promise of fair rent; aren't likely to be pleased with the MP's general view of the housing business:

"Doing business by renting apartments with the aim of making a profit is largely a thing of the past - the first part of the last century. Nowadays that sort of thing isn't even practiced in the West anymore...to have a place to live is understood as a social right, and if someone has a social right to something, than it must be provided regardless of whether he can afford it or not. Unfortunately owners, who are trapped in the 1940s when they first lost their property, have this idea it will be only a market thing, that only those who will be able to pay, will be able to live there. But that doesn't represent current social rights, which include the right to a place to live."

This type of thinking will no doubt shock many property owners, even those who are used to Mr Krecek's statements in the media - although it may placate some tenants who fear deregulation. The fact is, such rhetoric does not diffuse the situation, but only polarizes it in an Us vs. Them stereotype of tenants versus landlords. Without explicitly saying so, it pigeonholes landlords as moneygrubbers with little social conscience. Why does no one ever bring up the fact that landlords carry responsibility not only for maintaining and renovating property, forget about profit. Libor Dellin of the Association for Property Owners says, "Without a chance to make a profit, nobody is going to do business in this area". It seems the only way out is to sell one's property and get out, a recommendation repeated acidly by some Communist MPs.

Perhaps the Social Democrats, at least as they are represented by Mr Krecek, have tenants' interests in mind, rather than the owners, perhaps it just seems that way according to Mr Krecek's style. But, at the end of the day shouldn't a new bill encompass everyone's rights? And doesn't common sense dictate the existence of legislative barriers that would prevent gross abuses on either side, covering both tenants and landlords?

In last week's program Freedom Union leader Hana Marvanova expressed her view that social support and compensation were the social responsibility of the state in the solving of the housing problem, that could not be left on landlords' shoulders. Compared to the Social Democrats it seems in some ways that the Freedom Union have a plan on how to deal with the housing problem addressing the concerns of both sides.

"Above all we think it is important to eliminate certain deformations in the housing market, we want to open up the market, and one of the things which needs to be implemented is a balancing out of rent in general - that is unavoidable. On the other hand, for that to take place we first need to create a system, a law on financial support to help families who would find themselves in situations where it would be impossible for them to pay - concretely families who would be allotting 15 percent or more out of their monthly income for rent. Those families would get the benefits of the programme. Only once such legislation were in place, could the question of rents be addressed...In terms of a law on rents we believe that the rents should be determined by the market, but in the case of extreme discrepancies a regulation law must be implemented so that rents are determined by the localities in which apartments are found. Were a landlord and tenant incapable of coming to a mutual agreement, the ground rules would already be laid out by law for reference by the court".

Mrs. Marvanova believes that lifting rent regulation will stabilise the rents at an appropriate level and bring the housing black market to an end, making all tenants equal and at the same time giving landlords full control over their property as in any civilised country.

26-03-2002