Bubble or real growth?

Apartments will not be: when will the social catastrophe break out?

The problem of inaccessible housing and the lack of flats is the topic of municipal elections. Building social housing, however, rent regulation and other ideas will not solve the situation, perhaps worsen it, bring new social problems and, most importantly, there is no indication that the housing situation should improve significantly.

Zimbabwe, Congo or Rwanda, Papua New Guinea, Iraq, Lebanon or Trinidad and Tobago. What do these countries have in common with the Czech Republic?

The duration of the construction procedure.                                                                  

The growth of prices of flats and rents is in the Czech Republic and especially in Prague higher than in the rest of the EU. The government has dealt with "social housing", and the last few ministers have promised to simplify construction procedures. How did it end up?

"We will simplify construction management" - source: Facebook
"We will simplify construction management" - source: Facebook

Apartments become more expensive (not only) official…

The fact that projects from the years are currently being implemented 2011 2015 is the result of the former. The building authorities are not even able to meet the legal deadlines set for them, and there is no risk of punishment for officials for delays.

The new housing project is also approved more than 5 years. Older projects are thus bought out from the period of cheap mortgages.

… But also a banker…

The period of low interest rates, of course, led to cheap mortgageswhich was gladly taken by a large number of people. Apartment prices thanks artificially supported demand grew.

Bureaucratic delays however, did not allow developers to respond to demand - apartment prices they grow all the more, which has led to more interest in rental housing - and thus a rocketing increase in rents. It's not uncommon rentwhich used to be for the whole apartment is now for roommate / room.

The CNB responded tightening mortgage rules and lifts interest rates - seeks to curb the "overheating market"; combined with the continuing bureaucratic burden of construction, however, the only thing they will achieve is that "Preserves" the growth of housing prices and their high price.

There will be no new flats, housing and rent prices will continue to rise, fewer people will be able to afford a mortgage. The problem with housing with this yet deepens more. However, another social problem is deepening. The problem of malinvestment.

… And interest groups…

And what does it look like before the municipal elections? Some politicians want "watch out for developers"In order not to build another tower in the gap next to the block of flats (= flats that are not and are now missing), the second part wants to solve"social housing".

If the first group, which defends the feeling of "old settlers", that they have the right to preserve their surroundings and who feel that they can decide on someone else's property, wins, the apartments will not always - they will still become more expensive, rents will continue to rise and the housing problem will get worse. There may be the displacement of centers, a reduction in "economic performance" in the area, the emergence of ghettos and the associated increase in other social problems.

But if the second group wins, we get the same in pale blue.

… No one solves the real causes…

State subsidized municipal / city / social flats will have several effects:

  • Creates an environment of clientelism. Who guards the municipal property? The fewer apartments and the higher the rents and prices of real estate, the greater the motivation to corruption and abuse of power in housing management decisions.
    What may seem like a harmless idea today may degenerate into in a few years corruption problem, while the larger the city and the more anonymous the municipality, the greater the problem and at the same time the motivation for corruption - in big cities, prices are rising the fastest. The place needed is given to people connected to the power line, it will not help the socially needy.
  • It will create unfair competition for private developers and landlords - each market has its own segments - and who would focus on the segment of housing for lower-income groups of people, when this part of the market is saturated by the state from "real" money, when they do not have to look at costs? Prices for apartments in private projects will be even higherbecause they will not be targeted to what is needed.
    Gradually with the preserved bureaucratic burden and lower availability of mortgages from the owner-occupied housing market the middle and upper middle class will disappear. Where will they live if they are not entitled to "municipal flats"?
  • Deteriorating housing affordability - while a private developer builds due to market prices to the future and thus takes on the risks of the investment, the state / municipalities build for the past - because the "loss" is not held by anyone personally (the "municipality / state" will suffer, not the private individual), their estimates for future investment will generally not be good and there will be no motive for cost-effectiveness - there will be either too many municipal flats (politicians will arrange “housing for all“- the more expensive the apartments on the private market, the better this program sounds), and thus artificially reduce the price of apartments to others who have taken apartments expensive mortgages and they will repay the value of the apartment, which will no longer be real; or too little - but no one will build more apartments, because the municipality will be unfair competition, mortgages will be expensive and bureaucratic burden high. He will pay for it middle class in the area.
  • It will support the creation of ghettos and socially excluded areas - after all, it is very easy to build a political program to "evict" uncomfortable citizens away from "decent Czechs" to municipal housing; with more property of the municipality comes more power in the hands of representatives and who guarantees that the municipality will always lead "your right person"?

And solutions will unleash social disaster.

When someone finally does what is needed: deregulates the construction of housing, speeds up construction proceedings and thus "release" the plug for the construction of apartments, a new problem will come: the price of already built apartments will fall. It doesn't have to be nominal, it's just real.

What will people with expensive mortgages do after the fixation is completed, if they do not have to repay new high installments and the sale of the apartment will not even pay the original mortgage?

 And hasn't it happened somewhere?