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

3. Selected housing policy instruments in the Czech environment

3.1 Second-generation rent control system in the Czech environment

If rental housing is to present a true long-term alternative to owner-occupied housing, it would have to change significantly. This concerns especially the rent. A shift from the first-generation rent control system to one of the second-generation rent control systems is absolutely crucial in this respect. The authors believe that the main inspiring elements should be sought where large rental housing sectors have been preserved, especially in Switzerland and Germany. Rent control systems in these two countries are described in great detail in the study.

In view of the concrete conditions in the Czech Republic (slow and in many respects inefficient courts; most private rental dwellings were acquired in restitution of property confiscated by the former regime but without any information about the amount of the original investments into their acquisition etc.), it appears that an introduction of a local adequate rent system would be far more viable. There is no arbiter in society that could reliably determine the amount of justified return or a normative amount of the original investment; potential expert reports could significantly differ from each other and courts - without any experience in this respect - would probably, at least at the beginning, be unable to adjudge such disputes in a reliable manner.

The existence of rent mirrors (they function in the German model) can provide tenants with a clear picture of the actual amount of locally adequate rent and significantly reduce the information asymmetry discernible in the Swiss system where only the landlord can know certain details of the cost calculations and the justifiability of rent increases.

Although a local adequate rent is probably the most suitable model of a second-generation rent control system for the Czech Republic, a certain degree of control of landlords' return could serve as a formal security against owners striving only for the highest possible short-term profit and as a relatively transparent guarantee for tenants that not an insignificant portion of the collected rent will be used to cover the costs immediately related to their housing.

A second-generation rent control system can be introduced in the Czech Republic at a time when the scissors between the market and regulated rent practically close, i.e., it will be necessary to introduce variously long interim periods in various regions before such a system is introduced. During the interim period only the cap of regulated rent would be relatively quickly increased in a process similar to the today's state determined limits. A fast rent increase in the interim period could, however, mean a disproportionate reduction in financial affordability of housing for many households. Therefore, already during the interim period social housing and a housing allowance should be prepared and introduced in the Czech Republic.