The Czech Rental Market

The housing stock of the Czech Republic has not fully recovered from the central planning and state-financed development that started in 1948 in the former Czechoslovakia and lasted until the 1990’s. During this period massive expropriation of residential buildings took place and even the leasing concept was replaced by the figure of the “personal use of flats”. Rent was controlled and artificially set with subsidies from the state budget (Podrazil et al., 2014).

Even after the political changes in the 1990s, which brought the restitution of the housing property, the level of controlled rents reached 80 percent of the rental stock. These low rents were not necessarily in function of the tenant’s income levels, however. It was only in 2011, when legislation changed, that rent control was cancelled and replaced by a non-regulated market. This change was followed by a period of deregulation of the rent, where rent increases were allowed under controlled circumstances (Špalek and Špalkova, 2014).

According to the 2011 “Census of people, houses and dwellings” the overall housing stock in the Czech Republic included 4.756.572 dwellings, out of which 920,405 (22,4% of the permanently occupied dwellings) corresponded to dwellings occupied by tenants. Regional variations are evident across the country. In Prague, for instance, 35% of all households live in rental flats. Therefore the potential impact of improving the rental housing stock is substantial, as acknowledged by the RentalCal project.

The new “Housing Policy Concept for the Czech Republic till 2020” is the key strategy to improve the Czech housing market, including the rental segment, through the State Housing Development Fund (SFRB). The main goals of the SFRB include the support for the construction of new flats (especially rentals), the energy-efficient retrofitting of the existing housing stock (especially large panel buildings) and other infrastructure investments at municipal level. 

1      Policy goals

In 2011 the Czech government approved the “Housing Policy Concept for the Czech Republic till 2020”. This policy relies on the State Housing Development Fund (SFRB) as a very important tool to achieve its goals (MMR, 2014). The concept proposes the following directions on housing:

• A better-balanced rate of support of own housing and rental housing and support for groups of people threatened by social exclusion.
• Extending the offer of dwellings corresponding to the needs of the handicapped
• Reducing energy demands of housing
• State aid for victims of natural disasters in terms of housing
• Improved use of EU funds
• Earnings from the sale of emission credits used to support housing
• Reducing the investment debt through programs supporting reconstructions and modernization of multi-dwelling buildings
• Improving quality of external environment of residential areas by starting up programs to support the regeneration of residential areas

As it can be seen from these guidelines, both the housing rental sector, and the improvement of the energy efficiency modernization in the housing sector are within the priorities.

This new housing concept overrides the previous system which was based mainly on grants and privately-owned housing. The previous system was proven unsustainable, and this became more obvious due to the economic recession. The new approach expects termination of most grant programs of the state housing policy which will be replaced by recoverable credit and guarantee tools. The Ministry of Regional Development who is responsible for the national housing policy is now focused on reducing the energy demands of buildings in the housing sector, which has an impact on three basic targets of the housing policy in the Czech Republic – availability, stability, and quality of housing.

Reduction of energy use is also an important issue, since the households in the Czech Republic account for a quarter of the total final energy consumption. In fact, the Czech Republic has its energy targets aligned to the EU targets of “20-20-20”: reduce greenhouse gas emissions by at least 20% compared to 1990 levels; increase the share of renewable energy in the final energy consumption to 20%, and to achieve a 20% increase in energy efficiency by 2020.

2      National housing stocks

2.1      Housing stock and typology overview

According to the 2011 “Census of people, houses and dwellings” the overall housing stock in the Czech Republic included 4.756.572 dwellings, out of which 920,405 (22,4% of the permanently occupied dwellings) corresponded to dwellings occupied by tenants. Approximately 56% of the Czech households live in their own house or flat, 17.6% of them lived in rental flats. The data demonstrates the increase in the proportion of owner-occupied dwellings housing, especially at the expense of rental housing. Regionally, the smallest proportion of households living in their own house is in Prague, 35% of all households live in rental flats in Prague. The average age of flats is 42.5 years and it is estimated that further 21.6 billion EUR worth of funding is required for repairs. (Podrazil et al., 2014).

Figure 1 shows the dwelling construction and modernization rates according to the Czech Statistical Office (MMR, 2014). As shown in the figure, the construction and modernization rate of dwellings slowed down in the past years to about 25,000 and 10,000 completed units per year in 2013 respectively.

Fig. 1 Housing construction and modernization in the Czech Republic: 1971-2013 (MMR, 2014).

In an effort to represent the overall Czech housing stock, a building typology was developed in the IEE projects TABULA and EPISCOPE.  The building typology matrix shown in Figure 2 represents the typical Czech housing stock according to the construction periods and size categories. It is foreseen that this typology will be slightly adapted within the RentalCal project to represent the rental housing stock.

Fig. 2  Typology of the Czech housing stock (EPISCOPE, 2015)

2.2      Ownership structure

According to the Czech Statistical Office, comparing the results of the 2011 census and the 2001 census, there were major changes in the structure of ownership of the housing stock and in the structure of ownership of the dwelling stock.  In fact, during this period “the number of flats owned by natural persons increased by 150.8%, while the number of rental buildings decreased by 37.3%” (Podrazil et al., 2014).

These changes reflect the sale of council dwellings to private owners and the transfer of cooperative dwellings into private ownership. Figure 3 shows the current distribution of occupied dwellings by legal use of dwellings in the Czech Republic. A more detailed view of the ownership structure is shown in Figure 4. The 2011 Census determined that about 45% of the dwellings are now owned by natural persons, 22% in co-ownership, 11% by housing cooperatives and 9% by the state and municipalities.

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Fig. 3 Occupied dwelling by legal ground for use of dwelling in the Czech Republic in total. Source: Czech Statistical Office, 2011 census

Fig. 4 Occupied dwelling by legal ground for use of dwelling and by type of owner of the house. Source: Czech Statistical Office, 2011 census

3      Energy retrofitting

3.1      Stakeholders

In the Czech Republic the most common manner of holding flats is private ownership and the cooperative ownership. Therefore the main stakeholders in energy-retrofitting projects are natural persons and housing cooperatives while state programs encourage the investments of landlords into their households. As mentioned before, the role of the State on the housing market is not to provide dwellings directly to citizens, but to strive for a situation in which people either by themselves or with State assistance, gain adequate habitation. Additionally, the State and municipalities take a great part in the development of energy-efficient modernization under the directives of the European Union transposed to the Czech legislation.

3.2      Rental markets

In Czech Republic usually rent has two components: the rent itself and utility costs (heating, domestic how water, etc.). Common costs to cover the maintenance and renovation fund of the buildings are responsibility of the landlord, but are usually already included in the rent.

As previously described in the EU project TENLAW, the levels of rent differ widely in the Czech Republic (Podrazil et al., 2014). The basic parameter of rent is the location of the flat, as rents in cities are usually higher than rents in villages. There are also important variations between the capital city (Prague) and other major metropolitan areas (Brno, Ostrava). For example, the rent of a small flat in Prague might be twice the rent of a large flat in other big cities. Given the decreasing interest rates in the last years, the economic availability of flat ownership has increased. However in some places it remains cheaper to rent than to buy.

3.3      Financing and regulatory environment

The development of the new Housing Policy Concept promotes recoverable credits and guarantee tools instead of grants. These recoverable credits provided by the State and municipalities, in some cases in collaboration with banks, have a maturity period depending on the program but it can be up to 30 years, with typical interest rates of the EU reference rate up to 2%+ EU reference rate.

Some of these programs include Panel2013+ (low-interest long-term credits for repairs and modernizations of multi-dwelling buildings), Program 150 (concessional loan for the repair and modernization of apartments and houses), New Green Savings 2013 (construction of family houses with very low energy demands), amongst other programs.

These programs encourage the investments of landlords into their households; however the main benefactor of these improvements would be the tenant. For this reason, rent increases are allowed after major energy-efficiency refurbishments. According to the § 2250 of the law 89/2012 Coll. (Civil Code): the landlord may suggest to the tenants up to 10% increase of the rent in case that energy efficiency measures that were taken would result in permanent saving of energy or water consumption. Consent of 2/3 of the tenants is needed.  If the tenants disagree the landlord may increase the rent up to 3.5% only.

Sources:

ČSÚ - Czech Statistical Office (2011). “Sčítání lidu, domů a bytů 2011” (Český statistický úřad)

J. Špalek and D. Špalkova. (2014) “Impacts of Rent Deregulation Process on Household Behaviour: Lessons from the Czech and Slovak Republics”.

Law No. 89/2012 Coll. (2012) Civil Code – Czech Republic

MMR - Ministry of Regional Development. (2014). “Selected Data on Housing 2013” (Ministerstvo pro místní rozvoj ČR)

Podrazil, P., R. Jadamus, and P. Petr. (2014). “TENLAW: Tenancy Law and Housing Policy in Multi-level Europe”