Housing Standards 2003/2004:
Housing Policy in the Czech Republic - More Efficiently and More Effective

2. General assessment of selected housing policy instruments

Introduction

The main objectives of this chapter is to provide a general summary of selected pros and cons, practical benefits and negative aspects of various basic instruments or approaches of the housing policy in the area of rental housing, especially the privatisation of rental housing, rent control, social housing and a housing allowance.

2.1 First- and second-generation rent control

Among the negative economic consequences of rent control applied so far in the Czech Republic are especially:

• inefficient dwelling allocation (housing over-consumption);
• creation of an artificial housing shortage;
• distortion of a market rent which exceeds the equilibrium market rent;
• extensive black market, especially with municipal rental housing;
• growing number of vacant dwellings in the rental housing sector;
• lack of funding for modernisation and regeneration of the housing stock.

In addition to the negative economic impact, rent control in the Czech Republic is also socially unjust - low and high income households alike enjoy the advantages of regulated rent (see Housing Standards 2002/03); truly needy households are often completely excluded from having access to the privileged segment of controlled rental housing.

What is the difference between first-generation and second-generation rent control? Lind (2001) states that first-generation rent control can be defined in the three following ways:

• nominal rent freeze;
• such a development of nominal rent that results in a fall of the rent in real terms (after inflation is included);
• such a development of nominal rent which results in a fall of the rent in real terms or when the nominal rent remains far below the market rent level.

"Second-generation rent control is any regulation of the rental market that does not fulfil definition of first-generation rent control. There is no nominal rent freeze, rents do not usually fall in real terms and in the long run there might be no significant difference between actual rents and market rents." (Lind 2001: 43)

The concrete forms of second-generation rent control are more or less liberal in various countries. Generally, it can be said that the main purpose of second-generation rent control - regardless of its concrete form - is to:

• prevent landlords from demanding higher rent than the market rent from existing tenants;
• protect existing tenants against potential sudden shifts in market rent prices due to demand shocks;
• protect tenants again monopoly behaviour of landlords, i.e., protect them against situations when the owner demands higher rent than the market rent because a monopoly position allows such a behaviour;
• prevent social segregation.