And to whom do you subsidize the rent?

Regulated rent - help for the socially weaker, or just subsidies for the chosen ones? Step by step, let's take a look at what today's regulated rent causes.

Selected regulated rents in the Czech Republic

Let's look at the picture above. I'm from Prague, I've lived here my whole life. A few years ago, I lived with my older sister and mother in Spořilov in Prague 4. The apartment was 55 m ^ 2. An equally large regulated apartment in Prague's Vinohrady costs about CZK 5. Our apartment in Spořilov - in a much less lucrative location - cost unregulated CZK 300.

How is it possible? We already know why an apartment in such a lucrative location as Vinohrady in Prague costs so little - it is regulated. But why is an apartment in Prague's Spořilov so much more?

Standard market situation - rents
Figure 1: Standard market situation - rents. The X axis is quantity, the Y axis is price

In an ideal world full of good and nice people, which… Well good, now seriously: in the standard situation on the market is a certain supply of apartments and a certain demand for apartments. So we have Mrs. Michael, a single mother with two children, looking for a cheap apartment. She doesn't have to be big enough to afford it. It has its personal demand for apartments that meet a certain offer of apartments. She finds an apartment, pays for it. At that moment, the supply corresponded to her personal demand.

Like Mrs. Michaela, many other people are also looking for flats, each of them has "their" demand for flats, each of them suits a different offer of flats. It creates all these individual offers and demands market supply and demand, which we can see in Figure 1.

But then something happens - the state decides to regulate the rental price, sets the maximum rent. It starts period of rent regulation. What will the situation look like afterwards?

Figure 2: the state set the maximum rental price, rent regulation began. The X axis is quantity, the Y axis price

The price ceiling is shown in Figure 2 by a yellow line. As we can see, the price cap is below the market price (which is where green supply and red demand intersect). If we look at the X-axis, which represents the quantity, we find that there is a gap between the quantity offered and the quantity demanded. Less is offered of flats for rent than how many are requested - there is a shortage of apartments on the market.

So here we have Mr. Alfons, the owner of a house in town. It has two options: either rent the space in the house as apartments, or rent it as office space. What will he choose?

The location is quite lucrative. The city is developing, growing, new companies are coming here to invest. Many people from the area who are looking for are also moving here housing. The price of rents thus grows, the higher price causes the growth of profits for homeowners and so more and more houses and flats are built…

Mr. Alfons might decide to rent a house for living on the standard market (Figure 1) - the premises are close to the center, probably the leaders of companies located in the center would move here. Mr. Alfons would certainly earned. However, as we have stated, the state (or the city, it does not matter) has set a maximum price for rent, so it is regulated. Mr. Alfons finds that the maximum price is too low, he would earn more in the standard market. And so the spaces leases on a standard, unregulated office market.

Likewise, developers who would otherwise build new apartments suddenly find that the regulated price is too low. It is not worthwhile to build apartments, so it is simply not built.

And Mrs. Michael? Because there are few flats, it is hard to find. Because they are cheap, no one even wants to move anywhere. Can you get an apartment? Not found.

Figure 3 - X axis is quantity, Y axis is price

The lack of flats and the need to commute to work from elsewhere (from places where there are flats) undermines the development of the city. Investors are not building new offices, people are not increasing, new jobs are not being created. The situation is the same throughout the state.

There is relatively much pressure on the government. Many people want to do something about the lack of flats. So the government will do: abolish the regulation of rent for new apartments. He will leave it on the old one.

Of course, we can say that now the problem will be over. New flats will fill a gap in the market, flats will be just right, the regulation of old flats does not harm anyone. Or not?

Let's look at Figure 3, which indicates the situation when the state cancels the regulation. There are no new flats, they are still just the old ones, regulated. At this price, people are looking for a certain number of apartments. However, this quantity will be built only if the price is much higher - if the price is at such a level, when it would interrupt the green offer. But this is not the case - so far they are only regulated byty!

We have three young people here after school - Sasha, Petr and Ondřej. Each of them wants to leave their parents and live. Each of them so looking for an apartment for himself, because flats are cheap (regulated).

Michael's single mother, who did not find the apartment above, lives with her grandmother in her apartment. After the prices of new flats are released, Michaela decides to move from her grandmother to her own, because there will finally be new flats! And apartments are cheap (regulated), why wouldn't she?

The requested number of flats is huge.

Figure 4. The X axis is quantity, the Y axis is price

In this situation, the quantity demanded is of flats one that corresponds to the price shown by the dark blue line. It the required number of flats will be built, but at a much higher than possible market price. We must realize that the problem is not included. The price corresponds to reality - people demand a certain number of apartments that are worth building for a certain price. The problem is in the quantity demanded, which is greater than the real possibilities of people who, in a standard situation, would demand a smaller number of flats, the price of which would also be lower, in the real possibilities of people.

Let's ask ourselves a question: so why is the number of flats in demand so large? The answer is simple: because there is a significant part of the flats that is still regulated.

Saša, Petr and Ondřej are looking for an apartment each. Michaela wants to move away from her grandmother. Everyone wants an apartment.

Developers are building, Mr. Alfons will start offering expensive apartments in the center. Construction mania starts, boom - after all, everyone wants an apartment, everyone is willing to pay for it!

So a quantity will stand of flats, which is in demand, but at a price that few are willing to accept. A very interesting hybrid will emerge on the housing market: a surplus and a shortage of flats that will not be disrupted.

Figure 5. The X axis is quantity, the Y axis is price.

At the price shown by the dark blue line, only the offered quantity can be effectively offered, which is shown by a purple line on the graph. All byty moreover, they are redundant in this price, almost no one will rent / buy them for this price.

The required amount will be constantly high as long as there is a large group of regulated flats. Expensive surplus flats will therefore continue to be built. However, a large part of them are "bad investments", so they will be converted into offices, for example, or no one will ever buy / rent them, they will just drown their money.

For example, in Prague we can find several new apartment complexes with hundreds of flats, where about 20 of them are sold after a few years.

Regulation as a subsidy

Those who accept the higher price of unregulated flats thus de facto pay the reduced price of rented regulated flats in the increased rental price. It is a form of redistribution, it is a subsidywhich causes an unhealthy boom in construction, the growth of bad investments (small investments).

It is also good to note that as regulated rents grow, so do the problems of construction companies and developers. In the last few years, the growth of regulated rents has been offset by many investments in infrastructure, but as the current crisis has struck and how savings need to be made, the true strength of the construction bubble caused by regulated rents is emerging.

The monstrosity of this subsidy is all the higher if we notice the person who lives in regulated rents. Often the socially weaker subsidize housing for example, Czech legislators - deputies or senators. Regulated rents, even in the form that exists here, are certainly not fair, they are not beneficial, they are not positive. It is a tool of monstrous redistribution, a tool for creating bubbles, a tool for liquidating the economy, a tool that throws money out the window.

The longer the deregulation, the worse the result. Let's deregulate as soon as we can. The damage is already too high today.

Do you live in unregulated? So to whom do you subsidize the rent?

blog.idnes.cz

0 comments

  1. None: the price of anything has the right to determine only and to whom it "belongs" - whether it is an apartment, car, book or apple.
    Sure, it can set it too high - but in that case, no one forces a potential buyer or tenant to give the money for it, and in an undeformed market, the commodity owner eventually realizes that he gets nothing at such a price and goes down the price.
    Regulation of the real estate market is really distorting and I look forward to it ending.

    And I say that as a person whose family has lived on the brink of poverty for over 10 years, we moved 6 times and for some time I "lived" in a sleeping bag in the office, because we didn't all fit into my grandmother's block of flats. It works even without the thieving appropriation of foreign property (apartments), we know?

  2. As for regulated flats, the owners do not keep them at all, even if it is required by law, the rent they collect here is a net profit for them, so there can be no question of any subsidies to the regulated ones !!! Only the owners are trying to count the tenants with market rents against those with regulated… and unfortunately they succeeded.
    He just wants to use common sense, and especially the tenants have to stick together so that the owners do not knock them off the skin. Tenants determine the rental price and not modern moneylenders.

  3. I would be quite interested if Elisabeth owned some flats (she had them built for her money), whether she rented at market prices or for regulated ones (and would she pay for the maintenance of the flats on her own and would not want to get back the invested money?). In my opinion, any regulation and subsidy is ugh

  4. I have non-residential buildings in the house (fortunately). In one there is a game room, where the simpler regulated one spends the surplus of his free funds, which he does not have to rent - renting the game room returns them to me. The second one is home to mortgage brokers - another of the regulated ones helps their child repay the mortgage - even here their "discount" returns to me from renting a non-residential building. Maybe instead of a game room, there could be a library, instead of dealers, for example, a barrier-free apartment (when the offspring stops caring for them on their old knees). 60 years of living in the house has really been a sign - of course there is no elevator, car garages, windows are easy to pull, heating costs are incomparable with new buildings. Fortunately, there are not enough vacant apartments in the place, so I already rent two apartments for a normal rent - originally 6 times higher than regulated.

  5. Again, others who do not know that in Europe it is normal to regulate rent prices. The owner of the vibec has no option but to raise the rent.

    Regulated flats in the Czech Republic are in a state of fragility, such they could not get to the free market at all, ie in the west.

    A person who has not been on a regulated basis does not subsidize anyone. That's bullshit. NAPROSTA¨.

  6. OSMD opinion on the "end" of rent deregulation

    1. Termination of the effectiveness of the "deregulation" Act No. 107/2006 Coll. to 1.12.2010 resp. 31.12.2012 does not mean the end of rent deregulation. Actual economic and legal regulation will continue in the area of ​​rental housing. At the same time, economic regulation, especially in smaller towns and municipalities, reaches such a size that the rent in these places has not approached the market rent, and is also below the level of simple reproduction costs, ie approximately CZK 60 / m2. This means that homeowners will have to continue to subsidize the operation of their homes from other income.

  7. The price would be issued in the same way as for offers and demands for sale and purchase in a similar chart, where the x-axis would be the stock of goods (eg apartments of similar quality in a similar place, etc.) and the y-axis the total demand (demand to buy goods and demand). after holding the farm). When acting freely with speculation, they call the same price on both charts. This is even more difficult for planners, they will never be able to find a harmony of common interests.

  8. I don't want to spoil the nice tables, but at the end of the summer (I guess that in connection with the January increase in rent) there were apartments for rent, which the regulated tenants left and offered the owners of the house for interesting prices. They can also be rented in Vinohrady, 75 m2 for CZK 7500 + fees. Minor repairs appropriately, but not necessary. It depends on how you want to live. And today you have flats that are badly rented even at low prices, such a bright, barren… fair ni So the market price will get even below the regulated one. The "pay someone's rent or live on your own?" Also applies to those who are regulated. The exceptions are, of course, those who hope for continued privatization. The vision of an apartment for half the market price, that's a nice reason to stay…

  9. I am looking for property owners who do not increase their tenants' rent.

    I am looking for my final postgraduate work in the field of art
    those landlords who provide housing to their tenants and
    they charge the absolute minimum as rent. This is, for example, a situation where
    the lessee owns a lease agreement for an indefinite period with a regulated lease
    and the landlord has not increased the rent for the last three years under deregulation.
    I will be very grateful for your contact, if it is you who gives
    prefer solidarity with their tenants over earnings or disagree
    with housing market reform. Any reason is interesting for my research.
    I also ask tenants to contact me if their home rents
    keeps low. Please write to my postal address: Isabela Grosse,
    Na Kampě 512/11, Prague 1, postal code: 118 00, or call tel.
    number: 776776508. I will be grateful for any suggestion.

    Thank you,
    Isabela Grosse

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