Czech housing market 'out of control' as prices leap to new heights

Outrage is growing at the unaffordability of the Czech housing market. New data showing that average prices are among the fastest growing in Europe suggests the Czech Republic’s status as one of the continent’s most unaffordable countries is only likely to get worse.

Official data from the European statistical office Eurostat shows that house prices in the Czech Republic are the third fastest-growing in Europe, behind only Estonia and Denmark. After a recent Deloitte study, which found housing in the Czech Republic to be second-most unaffordable in Europe, this massive recent price growth shows things are only getting worse.

House prices in the Czech Republic had grown by an astonishing 14.5 percent year-on-year in Q2 2021. It is thought the price spike has been driven by limited supply failing to meet high demand driven, in part, by extremely low interest rates for mortgage loans.

“The situation in the Czech Republic is beginning to spiral out of control, and is stopping the middle-classes acquiring owner-occupied housing,” Štěpán Křeček, an analyst at investment company BH Securities. “The only institution in our country fighting this situation is the Czech National Bank, which has raised interest rates in an attempt to reduce interest in mortgage loans.”

The Czech National Bank took economists and the government by surprise with a recent decision to raise the base interest rate by 0.75 percent, the biggest rise seen since the 1990s. The government argued the move would make mortgages more unaffordable; but the bank may have reasoned that reducing demand for mortgages is the only way to halt the seemingly unstoppably rise in Czech house prices.

A study by consulting company Deloitte earlier this year found that house prices in the Czech Republic are the second most unaffordable in Europe. A new 70 sqm flat in the Czech Republic costs, on average, 12.2 times the average gross annual salary. Only Serbia has more unaffordable housing, according to the study.

Chief analyst at ČSOB Petr Dufek noted last month that even if housing prices on the Czech market stayed the same for the rest of the year, they would still be 8.4 percent higher than a year ago. But the new Eurostat data implies that, far from stagnating, prices are in fact spiraling even further away from affordability for most living in the Czech Republic.

As well as record demand, other factors driving up the cost of houses are believed to be slow construction hampered by unwieldy approval processes, and the rising cost of building work due to price increases for raw materials and higher wages for workers.

Czech housing prices are converging with those in richer European countries, but with wages failing to keep up with the increase, the basic human aspiration of owning a home is, for many, becoming more like an impossible dream. With the latest data showing that the situation is becoming worse, not better, it’s clear that something needs to change.