Lower house approves controversial bill to deregulate rent market

The lower house approved landmark legislation on Tuesday which would phase out the controversial system of regulated rents. The bill, if it is approved by the Senate and signed by the president, would see sharp rent rises in some 700,000 rent-controlled flats.

Photo: Archive of Radio Prague

Sixteen years after the fall of Communism, and the Czech state still controls the amount of rent people pay. The system was introduced when Hitler invaded Czechoslovakia in 1939, and maintained when the Communists came to power. It survived the collapse of Communism in 1989, and today there are some 700,000 flats across the country whose tenants pay far below market prices to live in them.

This has created a dual system in places like Prague. Someone living in the neighbourhood of Vinohrady, a fairly desirable and central neighbourhood, might pay around 10,000 crowns [410 dollars] a month for a non-regulated flat. His neighbour, living in a regulated flat since the 1960s, pays around 3,000 crowns for an identical flat. Even though the building is owned by a private landlord, his rent is controlled by the state.

Under the bill submitted by the Ministry of Regional Development regulated rents will rise by an average of 14.2 percent every year for four years starting in January 2007.

However even though regulated rents will not end in one fell swoop, the bill is nonetheless controversial. Opponents say it will force people out onto the streets, driving the poor out of the city centre and creating ghettos in the suburbs. But supporters say it will end a system whereby people who can afford to pay much more pay almost nothing to live in luxurious flats in desirable, central areas.

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Organisations such as the OECD have also been pressuring the Czech government to reform the rent market for some years, saying it discourages people from moving to look for work.

As for the immediate effect of the bill, if it is approved, real estate companies say in desirable cities like Prague, Karlovy Vary and Hradec Kralove, regulated rents will shoot up, and unregulated rents will fall. But in places where the property market is fairly sluggish, like Most in North Bohemia for example, there's expected to be little if any change in rent prices. So it all depends on the location.