Executive summary
Against the backdrop of the COVID-19 pandemic, the Czech national government has taken a number of emergency measures to help maintain people in their homes, for example by introducing a mortgage forbearance, one of the most common support measures across OECD countries, which has helped alleviate immediate challenges in housing affordability. Whilst the full extent of the effects of the COVID-19 crisis on housing affordability remains to be seen, the pandemic has reinforced the urgency of tackling pre-existing housing challenges, such as insufficient housing supply and increased housing insecurity for many households. To alleviate the housing affordability challenge in cities and use housing as a tool to shape a more sustainable and inclusive urban paradigm beyond the COVID-19 crisis, national and local governments in the Czech Republic could implement both direct and indirect policy instruments. Direct policy instruments target housing affordability specifically, for example by providing social housing and allocating housing benefits. Indirect policies can also affect housing supply and housing affordability, for example through building regulations, land use, spatial planning and fiscal instruments. In co-operation with the Ministry of Regional Development of the Czech Republic, the OECD carried out a survey of 1 877 Czech municipalities in August/September 2020 to collect data on the housing market and housing policies at the municipal level – the first of its kind in terms of scale and reach.
Following the post-1989 massive privatisation of the housing stock, including at the municipal level, homeownership has been the main type of housing tenure in the Czech Republic. The transition of the Czech Republic to a market economy since 1989 entailed massive privatisation of the housing stock. Faced with strict rent regulations and a lack of financial and human resources to ensure housing maintenance, municipalities privatised a major part of their housing stock. Homeownership is currently the dominant type of tenure in the Czech Republic (75% of households vs. 43% for the OECD average). The private rental market is relatively limited (18% of households vs. 25% for the OECD average).
Many Czech households are struggling to access affordable housing, especially in cities. House prices in the Czech Republic have soared faster than household disposable income, especially in Czech cities where house prices have often risen at a faster pace than the national average. While the rise in house prices may benefit the large share of Czech homeowners, it has made it even harder for newcomers, especially the young, to get a foot on the housing ladder. With rents also rising and with relatively limited supply, the private rental market offers few alternatives for people struggling to find affordable housing.
Despite the COVID-19 crisis, structural drivers pushing housing demand up in Czech cities are likely to remain. As has been the case in many countries, strong demand for housing in Czech cities has been driven by many factors, including strong economic growth and rising real wages until 2020, favourable lending conditions, changes in household composition, and population ageing. In cities, these factors have been further boosted by faster population growth reflecting migration from rural areas and from abroad. The increase in tourism, driving an intensified use of short-term rental platforms, has also led to a surge in rental prices and a shrinking rental stock for domestic residents.
Czech cities are facing a consistent shortage of housing supply. The high and growing demand for housing in Czech cities has not been met by a sufficient increase in housing supply. Construction activity has not kept up with its pre-2009 levels, and zoning and land use planning do not steer housing development where it is most needed. The shortage of qualified construction workers and the complexity of the building permit process pose further constraints on private sector housing supply.
The housing stock in Czech cities is often old and needs energy efficiency improvements. While building insulation and heating equipment have improved in recent years, building energy efficiency in the Czech Republic remains relatively poor compared with other OECD countries. Increasing dwellings’ energy efficiency would not only improve housing quality but also have a substantial impact on overall housing affordability through reduced energy bills.
Social housing provision does not meet the needs of all low-income and vulnerable households. The social housing stock in the Czech Republic is too small to meet the demand of all low-income and vulnerable households, with municipalities facing obstacles to increasing supply. Additionally, municipalities have complete autonomy in deciding how they use the housing stock they own, define the conditions in which they rent it out, choose the eligibility criteria for social housing or allocate social housing within the eligible population. This can generate inequalities across municipalities and a lack of clarity in the allocation of social housing, which in turn may prevent some households that need it the most from accessing social housing.
Barriers to the housing market leave some vulnerable groups in substandard housing. As private rental accommodations at market prices have become financially inaccessible for many Czech households and availability of municipal social housing is limited, many households have no choice but to turn to housing with substandard conditions, such as the so-called “dormitories”.
The Czech Housing Strategy provides a dedicated national framework for housing affordability policy in the Czech Republic. It focuses on three priorities: i) affordability of adequate housing; ii) stability of the housing market; and iii) quality of housing. However, its implementation is hampered by several factors, including a lack of a clear definition of “social housing”, the multiplicity of actors involved in the housing policy framework and limited financial resources.
Direct policy instruments to support housing affordability exist but have limitations. Several programmes are in place to help specific groups access homeownership. However, supporting homeownership may not be enough to solve the affordability issue for low-income families and can even be counterproductive in some cases by hampering labour mobility. Housing benefits exist but eligible households may not necessarily claim them because they might not be aware of their availability, the administrative process used to allocate the housing allowance is too complicated and recent adjustments to the formula determining the income taken into account to assess eligibility have resulted in more complexity.
Municipalities tend to lack a local housing policy framework and intermunicipal co-ordination on housing policy remains limited. Czech municipalities generally do not have a dedicated housing policy, do not monitor local housing prices or set explicit targets for housing development. In addition, most municipalities do not co-ordinate with each other on housing policies, partly due to the fiscal framework, which leads to competition between municipalities.
Steer housing development toward urban areas where demand for housing is high. In order to increase affordable housing supply where it is most needed and reduce vacant housing in areas where demand is low, housing development needs to target urban areas where housing demand is high.
Provide clear national regulations to guide local planning policies on where housing development should occur or not.
Use local land use planning instruments to encourage private sector construction of affordable housing. Where housing demand is high, the use of developer obligations within local land use planning policies, such as inclusionary zoning, could be broadened.
Ensure compact, transport-oriented development to reduce auxiliary costs of housing in cities. The costs associated with long car commutes can outweigh cheaper housing costs associated with more peripheral locations. Transit-oriented development also contributes to avoiding segregation and facilitates access to public services and economic opportunities.
Manage publicly owned land strategically and use it for the provision of affordable housing where possible. This can be done, for example, through joint development agreements with private developers or not-for-profit housing providers.
Monitor the effectiveness of the national reform of the building permit process. While the current reform of the Building Act is expected to accelerate and streamline permit-granting procedures for the average citizen and the larger investor, the impact of this reform should be monitored to make sure this is the case.
Provide more alternatives to homeownership, including rental housing
Encourage municipalities to scale up rental housing in their planning policies. Considering the social housing shortage and given that rental housing is the only solution for most low-income households and the “squeezed” middle class that do not have access to social housing and are unable to afford homeownership, public policies at all levels of government should encourage the construction and provision of rental housing.
Introduce a national deposit scheme and rent guarantees to support vulnerable households in accessing the private rental market and reduce risks of rent loss for landlords in order to increase housing supply.
Reform housing co-operatives and engage non-governmental actors, by supporting non-profit institutions as housing providers to further promote the co-operative housing sector.
Reinforce the supply of social housing
Increase public investment in social housing. Reducing the shortage of social housing will require greater public investment by national and local governments.
Introduce a national social housing policy framework that guides municipal housing. National guidelines need to steer an equitable distribution of the available social housing stock and give priority to those who need it the most while incentivising municipalities to increase their housing stock.
Remove barriers to access social housing, such as deposit requirements and debt restrictions that prevent the most vulnerable households from accessing social housing, by exploring other options such as a national legal basis allowing municipalities to withhold rent payments from the housing allowance in the event of repeated failure to pay rents.
Ensure that the most vulnerable households have access to adequate housing
Simplify the application process for housing allowances and subsidies.
Strengthen the regulation of dormitories to better protect residents. While national and local governments should ultimately aim at eliminating the need for dormitories, short-term regulations have to strike a balance between increasing the protection of residents and avoiding the closure of dormitories.
Adopt a metropolitan-area approach to housing (including social housing), transport and spatial planning. Developing joint housing, transport and spatial plans at the metropolitan level (i.e. at the functional urban area level) can help overcome the consequences of administrative fragmentation and steer housing development to locations that are well connected to public transport and close to employment centres. The national government should continue to support intermunicipal co-operation and joint service provision, including through financial incentives.
Leverage fiscal and financial instruments more effectively to support housing affordability
Make more use of the power of municipalities to increase property tax rates in order to increase revenues and invest more in housing, while introducing means-tested exemptions to avoid adding to low-income households’ tax burden.
Introduce differentiated property tax and tax breaks to incentivise more efficient land use through higher-density housing development, discourage low-density housing and promote brownfield developments.
Shift to a value-based property tax, and/or introduce other various “value-capture” mechanisms linked to specific public infrastructure projects to allow for a more equitable sharing of the increase in property value between private individuals, businesses and municipalities.
Tap into current and upcoming external sources of financing such as those from the European Union (EU), in particular to encourage a more sustainable and socially responsible housing stock (e.g. EU Renovation Wave and the Affordable Housing Initiative).