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Let our flats be!

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Poor pensioners who worried about their higher and higher rents can now breath a sigh of relief. The government took a neutral stance on the parliament-proposed plan to slow down rent deregulation, which in practice means that MPs will pass it. But ministers do not deserve much applause for their social feeling. In fact, their sluggishness means failure. A failure for people who wanted to move for work, a failure for house owners, but also for the tenants themselves who will have to deal with the problem again sometime in the future. And we’ll probably witness an epilogue at the court in Strasbourg. House owners suing the Czech Republic now have another argument why to demand dozens of billions in compensation for lost profits.

One day it might perhaps be a good question on entrance exams at universities of economics: In which sphere did the market still not work 20 years after the Velvet Revolution? The correct answer is – in the rented housing sector. The Czech housing open-air museum is inhabited by two types of beings. Th group of old residents who for some reason got the flats in the past and now pay low rents. The second group, let’s call them the non-locals, do not have that piece of paper and paying rents therefore costs them much more. The gap between the two groups has been narrowing in recent years as rents have grown gradually, but the are locals still much better off than the non-locals. We don’t know exactly why the locals retained their privilege for so long, but what we do know is that it has an unfavourable effect on the entire market. The only alternative to rented flats is to buy flats sold at high prices, which prevents people from travelling for work. Housing expenses would swallow a major part of the pay they could hope to get in a city. So no surprise they prefer stay at home on social allowances. Different prices make investors uncertain, so they don’t know whether it pays off to build rented flats or not and so do not build any at all. And landlords? They are supposed to pay the repairs on their houses, but regulated rents fail to generate enough money for that. As a result, flats are falling into disrepair.

We are now approaching the breaking point. The delayed and slow deregulation has not set the market in motion. Property owners want the rent liberalisation process to speed up to allow, so that they can get back some of the money they invested in their property. They say rents would increase for a short time, people would not be able to afford to hold two or three flats and would release them onto the market. Bigger supply would then reduce the prices again. Those who wouldn’t be able to pay rent in a big flat in the city centre would be able to move to a smaller flat on the outskirts. Such an idea, of course, makes tenants’ hair stand on end. And they are calling for exactly the opposite: for not accelerating the deregulation, and for slowing it down. Politicians pay more attention to the latter group and have promised something in this respect. It’s likely that there will be a sufficient coalition of part of the government and left-wing parties in the parliament to push through a slower pace of deregulation. One can understand tenants’ fear that they will be unable to pay bills or find a smaller flat and end up on the street. What is harder to understand is the politicians’ stance because their decision, in fact, forces landlords to deal with the social problem instead of the state. This is criticised not only by the house owners, but also by the Constitutional Court. The court has repeatedly stated clearly that the owners have the right to a profit from their property and that it’s up to the state to carry the social burden. However, a fast deregulation is a type of a decision that Humphrey Appleby from the TV series Yes, Minister calls “courageous”. This means a decision that will lose you the election. No wonder politicians from all parties have always tried to find ways to cop out of the Constitutional Court verdict. Incumbent Minister for Regional Development Cyril Svoboda, a Christian Democratic MP for Prague (which has the biggest number of regulated flats), admits the fact with disarming frankness: He says he does not want to be the one to force voters out of their homes.

The Czech audience was offered two official explanations. First – there is a lack of social housing. If the minister is right, why has none of the previous cabinets supported the construction of such flats? And why have they allowed town halls to sell available flats instead of keeping them for the poor? The second argument is that social allowances for housing would burden the state budget. But isn’t it a bigger burden to pay unemployment benefits to people from regions who don’t search for job in cities due to high rents? These questions remain unanswered. It seems that nothing special will happen when rent deregulation slows down. The pressure on the housing market will persist, and landlords will continue practicing involuntary charity. Let’s see what Strasbourg says.

Translated with permission by the Prague Daily Monitor.

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