Czech Statistical Office (ČSÚ) data on the construction industry: the problem of the Czech construction industry persists, not enough flats are permitted
Expensive mortgages and loans, along with high prices of building materials and labour, are holding back the launch of new housing projects
Construction authorities issued 6,387 building permits in April, down 10.9% year-on-year, according to the Czech Statistical Office. Year-on-year, 24.6% fewer flats were started – to give a concrete idea: only 48 flats in apartment buildings were permitted in Prague in April. This continues a long-term trend in which the construction industry is paralysed by lengthy permitting processes, which in turn is reflected in a lack of construction, a huge excess of demand over supply and rising prices for new flats.
According to Central Group statistics, there are currently around 140,000 flats in the pipeline in Prague, but the long-term average is less than 5,000 per year. According to expert estimates, Prague would need to permit and build at least 10,000 new flats every year to cover its needs. However, it often takes more than 10 years to permit a new apartment in the Czech Republic, and if it were permitted more quickly and in larger volumes, the prices of new apartments could fall by 15 percent.
Construction output in the Czech Republic fell again in April, with the year-on-year decline accelerating to 6.4 per cent. The construction industry is one of the key sectors with a large multiplier effect and housing construction has a major contribution to public budgets. However, the market has long been uncertain due to high prices of building materials, labour shortages, high energy prices and expensive credit. As a result, construction costs are rising significantly and often the timeframe for completion is being extended. Price fluctuations of building materials during the construction of a project are also a problem.
The light at the end of the tunnel could be the new construction law. However, a number of implementing regulations will need to be completed – these need to be simplified first and then digitised. Even then, it will still take at least a few years for its effects to be translated into practice.
For construction to get off the ground, interest rates, which affect both project financing and mortgages, need to fall. Easing the rules on mortgage lending and abolishing the DSTI indicator is the right step, as the CNB’s decision means that mortgage applicants will no longer be required to apply a limit on the amount of debt repayments to net monthly income. A necessary condition is also a reduction in the prices of building supplies, which have increased extremely in the last two years in particular.
Source: Central Group
