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Freeing up some space

Push to accelerate end of rent control could stabilize housing investments

By Michael Heitmann
Staff Writer, The Prague Post
April 9th, 2008 issue

CEH's Jiří Pácal says that many people who benefit from rent control are not in need of assistance.
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Bonus bucks for the affluent or social assistance to those in dire need? Few issues are as controversial as rent control. After sitting dormant for several years, the Civic Democrats (ODS) are stirring the rent-control pot again, pitching a plan to immediately end the practice.
Under current law, rent control is gradually being phased out, set to expire by 2010. According to the new plan, which the ODS is set to share with its partners in the governing coalition, landlords and tenants would try to reach a voluntary agreement based on the average rent charged in the local area.
If the two sides are too far apart to reach a settlement, the dispute would go to court. A victorious landlord would then be able to charge the court-set higher rent retroactively from the time the case was filed.
“This would encroach on the lives of tens of thousands of people, often those most in need,” Jiří Paroubek, the chairman of the opposition Social Democrats told journalists March 29. Communist leader Vojtěch Filip called the bill “asocial,” saying the same day that the changes would only help foreign speculators.
While fireworks from the opposition benches are expected, the ODS has received some friendly fire from its partners in the coalition as well, with one Christian Democratic MP, Tomáš Kvapil, saying there is no reason to open up old wounds and put the hard-fought compromise solution, adopted in 2005, in doubt.
Many real estate developers would like to see the abolishment of rent control sooner rather than later. Many of those who benefit from it currently are not truly in need of assistance, said Jiří Pácal, board member of the Association for Real Estate Market Development (ARTN) and managing director of Central European Holding (CEH).
“If rent control advocates are really concerned about social problems, then why don’t they care about the pensioner in the country or the young family with children, who have to pay a lot more than those who enjoy the benefits of tenancy rent control,” he said.
Just look at the residents in one of CEH’s apartment buildings: “We have had a banker, a television director, a mayor, a Member of Parliament, a sports coach and the director of an arms manufacturer in rent-controlled apartments,” Pácal said.
Closing the gap
The difference between state-controlled and free-market rent is already closing. The latest data revealed by the Czech Statistical Office shows that controlled rents rose 29 percent in the past year, with market prices rising only 1.4 percent. About 800,000 flats are under rent control, with approximately 420,000 owned by private landlords or commercial investors.
With the country already so close to the agreed abolition of rent control, it is unrealistic to try and push further changes through, said Ondřej Diblík of the Lexxus real estate firm.
“Although rent control is unhealthy and unnatural for the market climate, it took a long time for the current legislation to be adopted,” he said. The remaining two years represent a relatively short time span, and it is a transition period that is absolutely necessary, he said.
Immediate deregulation might not have any impact on the market in the short range, but could create uncertainty in long-term contracts and create some chaos, according to Diblík.
“It would cause enormous dissatisfaction in the population, and this might even have political repercussions,” he said.
Pácal disagreed with this vision of chaos. By freeing up a significant number of flats, ending rent control will do away with the black market and create a more competitive and stable housing market, he said.
For most residents of Prague, last rites for rent control might be good news, as an increased number of flats will be available that were previously out of reach.
Take the district of Vinohrady, which has actually seen its rent prices decline due to “the increasing number of unregulated tenancies on the market,” Pácal said. “In 1997, Vinohrady was almost exclusively inhabited by foreigners, but rent has fallen to half what it was before, and now mostly Czechs live there.”

Michael Heitmann can be reached at mheitmann@praguepost.com


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