Thousands of rental apartments will be built in Prague under the control of a city development company

Prague has been struggling with housing shortages for many years. This is caused not only by the influx of population and slow, bureaucracy-laden construction, which is not enough to cover the demand for new flats, but also by the long-term use of flats for non-residential purposes. This then leads to a rapid rise in apartment prices, which puts the Czechia in the ranking of housing affordability in Europe to unflattering ranks. Therefore, on June 1, 2020, the management of Prague established the Prague Development Company, which has the task of expanding the housing stock owned by the city.

The active construction of municipal flats offering affordable rental housing for a wide range of people is part of the new Housing Development Strategy approved in April this year. For this purpose, the city plans to actively use the existence of a number of Prague brownfields. According to the Institute for Planning and Development of the Capital City of Prague (IPR), the optimal number of city flats should be 35,000 by 2030, compared to 31,456 in 2019.

Currently, the development company has focused mainly on unused locations in Palmovka and Černý most or on the Nové dvory area in Prague 12, where a new district should be built by 2030 containing between 1,600 and 2,000 new apartments with complete civic amenities and the planned metro line D station. However, it is also possible to find smaller locations in Prague 5, Prague 10 or Prague 14 in its portfolio.

Massive construction shows a significant change in the trend in the field of housing policy. In previous years, municipal flats owned by the city and city districts were rather privatized. This is another of the problems that the current management of Prague has set itself the goal of changing. According to the IPR, approximately 32,000 municipal housing units were privatized in the period from 2011 to 2019 alone. While in March 2019 general dwellings accounted for approximately 5% of the Prague housing stock, in 2011 it was 11%. In terms of one municipal apartment, there are 42 inhabitants in Prague, but in Brno, for example, this number is 13.

Problem investment apartments and short-term rentals

However, the construction and completion of privatizations is not the only plan of the municipality to improve the availability of housing. The city also aimed to solve the problem of a long-term shortage of affordable rental housing through the potential purchase or long-term lease of so-called investment flats. These are held by the owner with the aim of future profit and often lose their residential function.

The use of flats for non-residential purposes and their transformation into hotels, offices or other non-residential premises has been a problem for many decades. According to the IPR, in 1991 there were a total of 17,701 inhabited flats in the territory of Prague 1. Ten years later, however, in 2001 their number dropped to 15,164 and by 2011 even to 12,170.

Currently, the city management plans to focus mainly on apartments rented as part of short-term tourist rentals through various accommodation platforms, such as the world-famous Airbnb service. At the end of June 2020, a few months after the start of the pandemic, a total of 12,565 accommodation units were registered in Prague on the Airbnb portal according to the IPR, of which 9,656 whole flats (approximately 1.6% of the housing stock). Approximately 58% of them were located in the city districts of Prague 1, Prague 2 and Prague 3.

Within Prague 1, flats advertised via Airbnb accounted for almost 20% of the city district's housing stock. According to the IPR, such a significant share of flats intended for short-term, especially tourist rentals, significantly weakens the residential function of the historic city center. During the pandemic, however, due to the outflow of tourists, their total number decreased by 45%. According to information from AirDNA published on the news portal of the Czech Press Office, their number in February this year was 6,216 flats.

The decline in rental prices will be only temporary

The decline in the number of flats intended for short-term rent and thus an increase in competition in the field of rental housing led to a significant decrease in the amount of rent in Prague, in contrast to the purchase prices of flats. If at the beginning of last year, according to Deloitte statistics, the average amount of rent was 330 crowns per square meter, in the first quarter of this year it fell to 287 crowns. However, this decline is likely to be only temporary and will not bring about a change in the availability of housing in the metropolis in the long run.

The municipality plans to motivate the owners of these housing units for long-term leases instead of tourist use. For example, the Lisbon model is at stake, where the city will rent the flats and thus provide the owners with a long-term stable income and coverage of any damages. Subsequently, it will further provide them to end users within affordable or social housing.

Photo: Metroprojekt