The Russia-Ukraine conflict could make housing even more expensive in Czechia

“War inflation” has been an inevitability in the Czech Republic ever since Russian tanks started rolling into Ukraine on February 24. The full economic impact of the invasion is yet to become clear, but the Czech real estate and rental market already looks set to become more expensive.

The costs of developments are spiking as a result of huge increases in oil and gas prices, which has led to significant headaches throughout global construction supply chains. This is expected to result in higher house prices, while the rental market also faces a squeeze due to increased public demand.

Real estate agencies are reporting several times more applicants for living space in Prague than a year ago, with most of the new applicants coming from Ukraine. Higher demand for rents is also being seen in the regions too. Czechs now make up a minority of those looking for rental apartments.

While the Czech people and the authorities have shown great solidarity with Ukrainians displaced by the invasion of their home country, the rapid increase in housing demand is already leading to some unwelcome tensions, according to real estate professionals.

“The offer of flats in Prague is almost exhausted and prices are rising. Only a few offers for flats are still available with us, in which the owners explicitly reject foreigners,” said Artem Egorov Pozo-Sandoval, Real Estate Manager at Chirsh.

It’s becoming apparent that while providing all possible help to refugees, Czechia also needs to ensure enough housing stock is available for locals in the long term.

“In the Czech Republic, we rent approximately 220,000 flats a year to domestic households. If 250,000 Ukrainian households came to the Czech Republic in 12 months to look for rental housing, demand would double. This is a completely unprecedented situation, especially if we consider that a record number of Czechs are now choosing rents due to higher mortgages,” Hendrik Meyer, Bezrealitky CEO, told Lidovky.cz.

Vladimír Zuzák, the owner of Maxima Reality, meanwhile described how “twenty to thirty people from Ukraine are calling us for each rental property which we have on offer.”

Together with increased public demand, a resumption of tourist demand for short-term rentals is also being seen. Higher interest rates imposed by the Czech National Bank meanwhile mean many who previously considered taking out a mortgage are now looking to rent too.

The most obvious solution to the problem is the construction of more affordable homes for sale and rent. But this is also becoming more difficult as a result of the war in Ukraine. The spiking cost of energy means construction work is more expensive, and so are materials: many of the materials used in modern building work are energy-intensive to manufacture.

If buildings become more expensive to construct as a result of war inflation, they will also become more expensive to buy or rent once complete.

Concerns about inflation in the construction industry are growing throughout Europe, but the scale of inflation in Czechia prior to the Russian invasion of Ukrainian leaves the country particularly vulnerable.

Inflation hit 11.1 percent in February, and that didn’t take into account the subsequent impacts of the war. Economists have predicted that inflation could reach 15 percent over the coming months.

Throughout the economy, the impact of energy price increases is expected to lead to “inflation on top of inflation” as products and services respond to raised overheads with higher prices for customers. But for homeowners and renters, the clearest evidence of spiking energy costs will likely be significantly increased monthly energy bills.