Local Development Ministry projects annual rise in regulated rents by almost 20 percent

Rents on around 750,000 flats in the Czech Republic are still regulated by the state. But following years of restitution and privatisation, many apartment buildings are now owned by private landlords who say they cannot cover maintenance costs. A law was approved this year aimed at gradually adjusting rents to their market values. The plan was to increase rents by just over 14 percent a year over the next four years. Until Tuesday that is, when the Local Development Ministry said new figures on market values mean rents will have to rise by just over 19 percent a year. Dita Asiedu spoke to economic analyst Jan Sykora about this thorny issue.

Jan Sykora
"I think it has to be said that the government has the responsibility to provide a social net to the needy. There should be a targeted social subsidy to those people who cannot afford the rent, such as young families and some of the elderly. It is not fair that apartment owners are subsidising those who are living in their apartments."

But what is going to happen to those grandmothers and grandfathers who really cannot afford the rent increase and for whom 1,500 crowns a month is already too high. Will they be forced to move?

"If someone is living in a 200 square metre apartment downtown and is paying subsidised rent he will have to start paying market rent. This is because these are the apartments that are the most sought. So, we might see a situation where they will have to move to areas with smaller apartments where they can afford such rent. This is the rational, pragmatic, side that makes sense. But the sad part is for the individuals. If somebody has been living in an apartment for 30 years and now is expected to move, it is a very emotional and hard thing."

What about those who can afford it but will have to use a much higher share of their salaries to pay for rent. Living standards would decrease...

"Ultimately we have to be in a situation where all rents are free and deregulated. Then we will actually be surprised to find that there is a large amount of empty apartments right now that people are holding on to because rents are way too low. Secondly, every apartment owner will want to have a tenant. So, ultimately when the rents are liberalised the market rents will come down from current levels."

But when can we expect that to happen?

"I think we will be surprised. With the rulings in Strasbourg we will see that the court of law will liberalise the situation much faster than any politician realises. But also another big benefit of a liberalised rental market is the fact that we will start seeing much higher mobility in the labour force. This will help this country to be more competitive and once it is more competitive and producing more the overall wealth standards will increase. So, more and more people will not only afford rent but they will also buy their own apartments and houses."