An Analysis of Housing Policy Measures Aimed at Supporting Labour Flexibility in the Czech Republic

Recommendations

Based on the above findings and on general findings on how the housing market in the Czech Republic works it is possible to make the following recommendations:

• More exactly monitor the total migration of Czech households and migration of Czech households for employment reasons, wherein the monitoring would not be based just on a person's registered permanent address but also on other databases not generally accessible to the public. The real amount of migration of Czech households is clearly higher and may be much higher than what is revealed in publicly accessible migration statistics.
• Under the current socio-political, cultural, and other circumstances it is possible to provide more effective (when comparing benefits with public costs) support for labour migration among Czech households through less costly public incentives, so-called demand-side subsidies, which is what Czech citizens themselves recommend most - especially incentives like providing unemployed people with more information about housing options in a potential new job location and providing limited interest-free, repayable "bridging" loans to cover the initial housing expenditures at the new job location.
• Given that the employment (labour) bureaus often lack the capacity to engage in additional activities, the provision of information about housing in the potential new job location would require cooperation between municipalities and selected real estate agencies, which, on the basis of an evaluation of their work, could be granted a state licence (there have been discussions for several years about licensing the work of real estate agencies). This kind of cooperation could come in the form of creating a database in which municipalities and selected real estate agencies could list the properties they have for rent or sale (including available rooms in dormitories/residences or flat-sharing vacancies) in various places in the Czech Republic - the database would have to be frequently and regularly updated, and it would have to contain as much compulsory standardised and accurate information about housing offers. Labour-office employees, and people looking for employment, could in this way connect the employment offer with specific housing and housing expenditures in the potential new job location. Under the current "easy" terms of doing business in residential real estate it would be impossible to assume that a comprehensive and reliable, standardised database could be developed without at least some assistance from the state, while the costs of operating the database in the long term could be taken up by the commercial sector.
• Interest-free, bridging loans to cover the initial housing expenditures in the new job location would have to be specially targeted for unemployed people and the provision of such loans (again, through the employment bureaus) would have to be corroborated by the future employer. These loans would be provided only for housing in the rental sector and the maximum sum would be one month's rent and "key money" for occupation of a suitable rental flat in the new job location. The re-payment period would be a maximum of one year. Should employment be terminated before that time, the loan would be repayable immediately from the returned deposit and the employee's income to date. Another possibility is that individual firms or state organisations could receive some kind of tax incentives for this form of subsidy.
• The costly form of subsidy for construction of "company" flats or municipal flats (supply-side subsidies) has under the current circumstances only a limited effect owing to its costliness and the opinions of the public on this form of support, and it could lead to misuse of this form of support.
• Increased labour migration among Czechs could be encouraged through easier mortgage refinancing, or by enabling mortgagers to avoid being "extorted" by the banks with often unjustified penalties for mortgage prepayment. In this regard the state should conducted a more detailed and deeper analysis (audit) of the building savings and loan system and how it operates, if for no other reason than simply the fact that it is disproportionately subsidised from public resources. Building-savings loans can be re-paid at any time without penalty, thanks to a legal amendment, though, even despite the high state premium in the savings stage, the interest rates on loan are higher than the rates for comparable loans from mortgage providers. The legislation governing the building-savings system and how it works should also be subjected to detailed analysis, as should the ties between savings banks and their umbrella banking companies, as it is possible (though not proven) that owing to the existence of financial groups that own both building-savings banks and mortgage providers competitiveness is being deliberately restricted. The effectiveness of putting state premium into a building-savings system is very questionable, especially given the still low ratio of total outstanding housing loans to the volume of deposits in building-savings banks, while the low-interest loans that savings banks provide, and that can be repaid at any time without penalty, ought to be the most appealing credit product for the mobile part of the Czech population that instead of choosing housing in a rental flat opts for housing in a flat or house that they can own themselves.
• The effect of eliminating the property transfer tax, however much the Czech public supports it, is difficult to safely estimate. Although there is little tax logic to this tax requirement (as the tax is paid also at the moment when the real-estate owner experiences a capital loss owing to the decline in housing prices), the housing owners are "held" in the housing they own by reasons other than the need to pay the property transfer tax (many owner-occupiers are not even aware this tax exists), and eliminating this tax would also impact the way the housing market works in other ways that need not necessarily be, from the perspective of the interest of the state, evaluated as positive (greater price volatility, an unstable market).
• Public subsidy in the form of low-interest loans provided for the acquisition of privately owned or cooperative housing is a measure strongly recommended by the public and people willing to re-locate for employment, and it could promote labour migration in the case of a first re-location, but the results of this study clearly showed that this form of support paradoxically can lead in the long term to less labour migration. Owner-occupied housing should be acquired, mainly, by people who already have a stable job and are sufficiently aware of all the risks associated with owning your own housing, including the risk of future job loss. The attempt to motivate very young people to become housing owner-occupiers and take on a large debt at the outset of their career can prove to be short-sighted, especially during period of economic crisis.
• Labour migration could also be significantly encouraged among Czech households by a change in the current socio-political situation, or a change in housing conditions, which means introducing reform measures and taking unpopular steps, which, unlike the majority of the recommendations listed above, will not be accepted uncritically by the public, as the research has shown. In this regard we consider it crucial to eliminate the existing "cages" and "traps", in which many Czech citizens more or less voluntarily live today. The first "cage" is the cheap rental housing available as a result of rent controls (regulation); the second "cage" is the relatively satisfied life that can be secured with social benefits. From the perspective of trying to encourage labour migration, deregulation of rents and a change in the current, inadequate housing allowance to make it a transferable benefit are essential steps. For this reason it would be useful to subject the system of social benefits to thorough reform and attempt to address the poverty trap - i.e. economically active people working, even at a minimum wage, must under all circumstances have a higher net income (even if this means additional benefits for people with very low wages) that they would if they were just receiving social benefits and were unemployed. The interaction of these two "cages" can have serious financial consequences that usually very few people are aware of: an example is one family comprised of two adults (i.e. a two-parent family) and two children aged 7 and 14. If we assume that neither parent is working and neither one is entitled to any more unemployment benefits (as the benefits period has expired). The family's income is made up of social benefits, i.e. the state social support benefit (SSP) and the social assistance benefit. If we also assume that the social assistance benefit only brings the family's income up to the subsistence minimum (in practice it depends on an assessment by the given social insurance bureau determining how high the support provided from the social assistance system will be, with a view to a complex evaluation of the social situation of the group of collectively assessed individuals in the household; i.e. the level of the benefits from the social assistance system can bring the household income to a level below or above the subsistence minimum). The net income of the family from SSP and social assistance benefits would thus correspond to the subsistence minimum, i.e. 12 320 Czk. At the same time we can assume that the family pays regulated rent in the amount of 2,000 CZK, and after deducting that amount the family is left with the sum of 10,320 CZK for the remainder of its family expenditures. However, if economically active members of the family decide to do something about their situation and move to a location where there is higher employment, but where of course they cannot obtain a flat with regulated rent, and if in the new job location they pay rent that corresponds to the market rent of the flat even in the original place of residence, let's say "only" 10,000 CZK, then the total gross monthly income from work at a level of around 22,000 CZK (assuming that they take advantage of the entitlement to joint taxation of spouses) provides the family with 10,315 CZK in net income (including the SSP benefits to which the family would be entitled in this case) for all other family expenditures except rent, thus, the same net income that the family would have had it not moved. However, in this case while it has the same income it also has less time to look after the children or for leisure-time activities, so the necessary gross income from employment that could motivate people to move would have to be increased to 25,000 CZK or even 30,000 CZK. Becoming caught in either of these two "cages", or falling into either of these "traps" can thus have an enormous impact on labour migration, even though we cannot provide an exact estimate of what the impact is as a more detailed study of this part of the Czech population was not the subject of this study.
• Although it was not the subject of this study (or its assignment) to make a detailed analysis of how the labour market or the social benefits systems work, the abuse of social benefits combined with informal employment is in many Czech regions a serious problem and a strategy frequently adopted by people who lose their job. As long as this strategy remains an easy alternative there is clearly no sense in expecting labour migration to increase among that segment of the population.
• Although it was not the subject of this study to analyse state investment incentives, the way state incentives aimed at attracting foreign investment operate should also be reviewed, and when incentives are being set consideration should be given to the low and often culturally rooted willingness of Czech citizens to migrate for employment. A greater effort could be made than is now to draw investment to locations where a labour force exists and less to locations where labour resources are limited. There are already considerable differences in economic performance between regions in the Czech Republic today.