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Lux M., P. Sunega, T. Kostelecký, D. Čermák, P. Košinár 2004

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

Prague: Institute of Sociology, Academy of Sciences of the Czech Republic.

Compared to the last year's study, the publication Housing Standards 2003/2004: Housing Policy in the Czech Republic - More Efficiently and More Effective concentrates on identifying optimal housing policy instruments for the Czech environment. As was the case last year, the publication is formally divided into an analytical part and a module part. Chapters in the analytical part provide a detailed look at the issue at hand and take the nature of a scientific text. The module part provides basic statistical information on the development of the economy and the housing market in the Czech Republic and is accompanied with a brief commentary.

In the first chapter of the analytical part the authors attempt to answer the question whether there is a housing shortage in the Czech Republic. In the introduction to the first chapter it is explained that an answer to this question depends largely on how housing shortage is defined and which approach is used to conceptualise housing needs. Using the spatial approach, the authors analyse the number of dwellings available using various indicators over time and in comparison with other European countries. The comparison is not limited only to gross indicators for the whole Czech Republic but various housing indicators are also examined in individual regions of the Czech Republic. Housing shortage is related not only to unavailability but also to inaffordability of housing and therefore the relationship between the number of dwellings per 1,000 inhabitants and the price level on the real estate market in individual regions of the Czech Republic was taken into account. The spatial approach is one of several alternatives that can be used to answer the question whether there is housing shortage in the Czech Republic; attention is also paid to the market-oriented approach. Based on the performed analyses, the authors conclude that in general, there is no housing shortage in the Czech Republic; with respect to housing stock availability indicators the situation in the Czech Republic is comparable to several Western European countries. Nevertheless, the Czech Republic significantly lags behind Western European countries when assessing the quality of the existing housing stock. The claim that there is no housing shortage in the Czech Republic cannot be used as a generalisation because the situation differs regionally. Local housing markets are strongly influenced by the housing policy of previous governments (especially mass construction of prefab blocks of dwellings in the 1970s and 1980s) and therefore the discrepancy between the geographic diversification of the housing stock and the situation on the labour market poses a serious problem.

The second chapter concentrates on a general assessment of selected housing policy instruments. The chapter is intended to provide a theoretical background for the solution of one of the main dilemmas of the Czech housing policy, namely the relationship between the continued privatisation of municipal housing stock on the one hand and the continued rent control on the other. In the chapter the authors present a comparison of various systems of rent control, and their pros and cons. The authors concentrate mostly on comparing the first-generation rent control system, which still survives in the Czech Republic, and second-generation rent control systems, which are applied in developed countries of the EU. The pros and cons of a housing policy based on the privatisation of municipal housing stock are compared with a housing policy giving priority to a shift from first-generation rent control to second-generation rent control. To be concrete, second-generation rent control systems in Germany and Switzerland are described and, again, their pros and cons are assessed in view of providing recommendations for the Czech housing policy. The authors tend to recommend preserving the thus-far relatively important rental housing in the Czech Republic through a shift from first-generation rent control to second-generation rent control, thereby slowing down of the process of privatisation of municipal rental housing. The second portion of this chapter concentrates on comparing two main forms of public support intended to increase financial affordability of rental housing used in most developed countries - social housing and a housing allowance. Based on the results of empirical studies, pros and cons of both these forms of support are assessed, and it is claimed that efficient housing policy should combine reasonably both of these instruments.

The third chapter is closely related to the previous one; here authors formulate concrete recommendations for the Czech housing policy. They attempt to answer the following questions: what form should second-generation rent control take in the Czech Republic, what form should social housing take (which entities should be allowed to operate social housing, how should the construction of social dwellings be funded, how should social dwellings be allocated, how should rent be set in these social dwellings etc.), and what system of a housing allowance would be most appropriate for the Czech environment.

In chapter four the authors attempt, using a relatively complex model, estimate the annual limits of rent increments in the Czech Republic. They start from the presupposition that rent deregulation does not bring about only an increase of public budget incomes (higher income from collected rent) but can also lead to considerable costs. Such costs can include, for example, the costs of subsidised rental housing construction, growing costs of housing allowance payments, some costs of rental housing residualisation (e.g., the loss of rent from vacant dwellings) and costs following from the old-age pension and social benefit adjustments. The total amount of public costs, which also included - in addition to the above-mentioned ones - fictitious operating subsidies to municipalities to balance the difference between the cost rent and actually paid rent, changes depending on the speed of rent deregulation. Up to a certain point, total public costs fall with an increasing rent; at that point they start growing or remain at an approximately stable level. The goal of the chapter was to determine at which rent level total public costs would be the lowest. Such a point could be considered to be the limit of the maximum annual rent growth justifiable from the point of view of economic efficiency.

The last chapter five of the analytical part is dedicated to simulations of the equilibrium market rent level in the Czech Republic and to an assessment of the financial and social impact of introducing social housing and a housing allowance. The main goal of this chapter is to determine, using a complex simulation model, an equilibrium market rent that would probably establish itself in Prague after rent deregulation. Economic theory says that if rent is controlled, the rent level in the unregulated rental housing sector is higher than it would be if there was no regulation. The simulation of the equilibrium market rent in Prague was conducted using three different approaches:

• "shock" rent deregulation to an equilibrium market level and subsequent application of housing policy instruments to increase the financial affordability of housing (social housing and a housing allowance);
• determination of a minimum rent required by private investors in the sector of rental housing;
• gradual rent deregulation to an equilibrium market level with a concurrent application of social housing and a housing allowance provided that households optimise their housing consumption through housing exchanges.

The module part of the study is structured as in the last year. The first chapter provides a basic overview of the macro-economic development in the Czech Republic in the last year, including a summary of applied state housing support programmes in 2004. Chapter two provides readers with ten maps characterising the availability of housing and housing construction in counties of the Czech Republic. Chapter three briefly summarises demographic development trends in the Czech Republic and provides conclusions of the latest demographic projections concerning the number of households. Chapter four expands the time lines and provides a basic overview of the recipients of the existing housing allowance according to the size and income of a household. Chapter five compares the share of necessary consumer expenditures (expenditures for food and beverages, housing and clothing) in the total consumer expenditures for variously defined groups of households. Chapters six and seven provide information about the development of the two most popular financial products used to buy homes in the Czech Republic - construction savings plans and mortgage credits.

Excerpt from the publication