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Landlords hike regulated rents unexpectedly

Demand increases for subsidized housing

By Claire Compton
Staff Writer, The Prague Post
July 23rd, 2008 issue

In an enthusiastic response to rent deregulation efforts launched by 2006 legislation, landlords are raising rents faster than the government anticipated. The spiraling prices — a result of the government’s ongoing efforts to efface communist-era regulation — are forcing out tenants and increasing demand for subsidized housing.
According to a July 18 Regional Development Ministry report, regulated rents are expected to rise 35 percent next year and soar even higher in 2010.
“The most dramatic rise would be in 2010,” said Regional Development Minister Jiří Čunek.  “Some calculations we have available show that, in theory, the increase could reach 44 percent. Even if landlords don’t all use the upper limit, a 40-percent increase is still realistic.”
The pace is significantly faster than anticipated when the government initiated deregulation in 2006. That year, the government passed a law stipulating value-based price caps for regulated housing rents, allowing landlords to gradually raise rents to normal market prices by 2011.
In its initial 2006 calculations, the Regional Development Ministry expected the process to unfold at a rate of 20 percent per year. However, 2008 has already seen an increase of 23 percent.
Nearly 800,000 households live in apartments with regulated rent, according to ministry figures. With rising rents, many of these inhabitants will have to find smaller, more affordable accommodations.  
To meet this demand, Čunek proposes increasing the construction of government-subsidized apartments, shifting the burden of providing affordable housing from landlords to the government. The State Housing Development Fund could provide guarantees for long-term loans to investors and provide incentives for companies building social housing projects, he said.
Despite the steep increase, Czechs continue to pay a smaller percentage of their income for rent compared with other developed countries, said Tomislav Šimeček, chairman of the Landlords’ Association (OSMD). A 1999 survey by the Regional Development Ministry found 6 percent of a family’s disposable income went to rent payments. While deregulation has driven up these figures, Šimeček said the current figures still fell short of the 20-percent average in other developed countries.
Regulation itself, a holdover from the communist era, was deemed unconstitutional by the Constitutional Court in 2000, but the government has yet to adopt legislation to disallow it.
“The [2006 deregulation] legislation is not ideal either, since it does not allow leases to be terminated when the landlord and tenant have not agreed on a rental price,” said Šimeček.
Deregulation has been strongly supported by landlords, who claim they are unable to pay even basic expenses with the regulated rent rates. In 2006, OSMD filed a class action suit with the European Court of Human Rights in Strasbourg, France, seeking compensation for the losses suffered due to rent regulation since the fall of communism.
A decision in their favor would entitle each landlord involved to a 340,000 Kč ($23,300) compensation. Although the case is still being decided, the court ruled in favor of Polish landlords on the same issue in 2006.
The OSMD — which has a volatile relationship with the government as a result of such disputes — hopes cooperation will bring an end to regulated rent, and continues to seek restitution. “On the one hand, we want [the government] to pay less, so we advise them on what to do in the future,” Šimeček said. “On the other hand, we want them to pay us back the money they stole from us.”

Claire Compton can be reached at ccompton@praguepost.com


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