According to the Housing Affordability Index (CG-Index) released today, housing affordability in Prague has deteriorated again. The average new 70 m² apartment in the capital now requires 15.4 annual wages, the highest of any surrounding metropolis. Prague is also the least affordable in the region in terms of rents. Therefore, the current policy of the government and the Ministry of Regional Development to support the construction of affordable rental housing for cities and municipalities is very positive. However, according to analyses, in order to improve the situation in the Czech Republic, it is necessary to build at least 25,000 new public rental flats per year in the long term, which is beyond the capacity of public budgets. The solution discussed is to involve the private sector in the municipal construction of affordable rental housing. The emerging DESIGN & BUILD programme could help to do this.
Insufficient supply and rapidly increasing demand have brought a renewed rise in the price of new housing, which has resulted in a deterioration in housing affordability. As the Housing Affordability Index (CG-Index) published today shows, it currently takes 15.4 annual wages to buy a new 70 m² apartment in Prague, which is 6 monthly wages more than at the end of Q3 last year. Housing affordability in Prague has long been the worst of all surrounding metropolises. Housing prices here have been rising much faster than wages for a long time. For example, since the beginning of 2015, apartment prices have increased by 147%, but wages have only increased by 62%. According to a recently published IPR analysis, Prague is also the least affordable metropolis in the region in terms of rents.
Housing Affordability Index (CG-Index)
An indicator of how much annual average gross wages are needed to buy an average 70m apartment in Prague. The current average gross monthly wage in the metropolis is CZK 57,817, the price of an average new 70-metre flat in Prague is CZK 10,685,072. The index works with data from the Information System on Average Earnings (ISPV) of the Ministry of Labour and Social Affairs and is based on prices resulting from a joint analysis of Central Group, Trigema and Skanska. It shows much more accurately than other statistics the situation related directly to Prague, where the income and housing situation is completely different than in the rest of the country.
New government and MMR policy to support the construction of affordable housing
It is positive that the Government and the Ministry of Regional Development (MMR) are aware of the seriousness of the situation and want to address it. As a result, a number of new programmes and measures were announced this May. These include the allocation of eight billion crowns for investment in the construction of affordable rental housing, the provision of more than two hundred state-owned plots of land which the government will transfer to municipalities and cities free of charge, advice from the State Fund for Investment Promotion (SFPI) and support for project preparation of housing projects.
The state cannot solve the housing affordability crisis without the help of the private sector.
Expert analyses show that if the public administration wants to influence the affordability of housing in the Czech Republic, then it is necessary to create at least 25,000 new public rental flats every year. And for this it is necessary to spend at least CZK 100 billion every year in the long term. This is completely beyond the capacity of public budgets, and it is clear that even the above-mentioned programmes to support public housing construction will not be sufficient to resolve the situation.
“We perceive the efforts of the Government and the Ministry of the Interior to address the situation very positively. However, the financial possibilities of public budgets are very limited and the aforementioned programmes cannot solve the crisis of housing affordability. Hundreds of billions of crowns will have to be spent on this and it is therefore absolutely necessary to involve the private sector and private finance in public construction,” says Dušan Kunovský, founder and head of Central Group.
The solution could be a design & build system with a combination of grant and loan financing.
The solution could be affordable rental apartments for cities and municipalities created through the DESIGN & BUILD system with a combination of subsidy and loan financing. Discussions are already underway on this practical, comprehensive programme, which includes advice, building preparation, implementation and financing. The programme foresees the involvement of the state administration, developers as project guarantors and co-financing by banks and other private entities.
The major advantage of this programme is that it can quickly and on a large scale kick-start the preparation of the construction of much-needed affordable rental housing in this parliamentary term, without the need to change legislation. Using the developers’ extensive know-how and optimised flexible project types, the design, preparation and delivery of buildings would be significantly accelerated and made cheaper. It is also a very efficient and transparent system that allows local authorities to obtain the best conditions and prices on the market with a clearly guaranteed result. The programme also envisages state authorisation of legal procedures and documents, which would bring considerable speed and simplification of processes for cities and municipalities.
Source: Central Group analysis, May 2024
