The lengthy permission of new buildings has been hampering the development of the entire country for several years. Czechia now feels the most about residential construction, but also in the area of transport and technical infrastructure. Prague and other large cities are facing a significant housing crisis due to the slow permission. The new building law, which is necessary despite its shortcomings, will help to improve the situation. At the same time, it is necessary to systematically address the lack of local government funds.
Despite some shortcomings, the new building law approved last year contains many positive measures to speed up and simplify permits. It is therefore not necessary to change it completely, but only to adjust it in some controversial parts. It is essential to strengthen the role of cities and municipalities in the field of spatial planning. Above all, however, it is necessary to ensure that the postponement of the effectiveness of the Building Act is as short as possible. Otherwise, the availability of housing will not improve in the foreseeable future.
Living in Prague is the worst available in Central Europe
Faster and easier permitting is, after all, in the great economic interest of the state. For example, almost 130,000 new flats with a total value of CZK 1.2 trillion are currently being prepared in Prague. If everyone gets the green light from the state, they will bring over CZK 155 billion in VAT to the state treasury.
Prague is one of the most dynamically growing agglomerations. However, as the analysis of the largest residential builder Central Group shows, it is also the metropolis with the worst available apartments in Central Europe: the inhabitants of Prague would have been earning an average, seventy-meter new apartment for almost 16 years if they had no additional expenses. In the last 10 years, only about 2,900 flats in apartment buildings have passed through the permitting network in Prague every year. Last year, the authorities allowed a record number of flats (5,952 according to the latest statistics for January to October), which is still not enough. In order to improve the availability of housing, it is necessary to permit at least 10,000 flats a year.
The cities and towns where they are built need to get more money from the state
“A new building law can significantly help speeding up permits. But even the best building law is not enough to support new construction and improve the availability of housing if the cities and municipalities where it is being built do not receive more money from the state for public infrastructure, “says Michaela Tomášková, CEO of Central Group.
The current budget allocation (RUD) is very unfair for local governments. There are two solutions – either a complex and politically very sensitive change of the RUD, or a simple and fair adjustment of the system of taxes and fees on the so-called 10 + 5 Principle.
The 10 + 5 principle means that the VAT on new flats would be reduced from 15% to 10% and the remaining 5% would be obtained in the form of a local tax by the cities and municipalities where these flats are being built. The public budget would not lose a penny with this minor adjustment to the tax and fee system, but its contribution to supporting new construction and improving housing affordability would be enormous. Cities and municipalities would thus have a fair share of the money for the necessary public investment.
“Municipalities today have no greater motivation to develop and support new construction. They need funding for this, especially for technical infrastructure outside construction and public facilities for new residents. However, due to the budgetary determination of taxes, municipalities do not receive almost any money in connection with new construction, “comments Michaela Tomášková. “The 10 + 5 principle makes sense that the same amount is paid, but municipalities get a fairer share of it,” he adds.
Cities and towns know best where to invest
Cities and municipalities are the best public finance managers and also know best where to invest money. Local fees collected from new flats could then be earmarked for investments in the necessary public infrastructure, or for investments in the acquisition or modification of local governments’ own housing stock.
“In Prague, for example, the state now earns an average of over one million crowns from each new apartment for 15% VAT. If a third of this amount (ie approximately CZK 350,000) went directly to the capital in the form of a local fee, this would already be a significant impetus for the city budget for the possibility of financing much-needed new schools and other public infrastructure. The metropolis and individual city districts could thus significantly support the new private construction and see it as an opportunity for its prosperity, ”adds Tomášková.
Source: Central Group
