How to stop the growth of real estate prices?

So this question is asked by almost every politician and every political party, especially before the elections. It was also recently asked to us by an editor from a real estate portal. She wanted answers as concisely as possible, so here it is:

If in the market economy an inflationary spiral has already started towards regular higher values ​​and this has just happened (you can find the reasons in the article of our blog Why is the price of real estate rising or…), the growth of real estate prices can no longer be stopped. This growth has always been naturally halted in the past in cases of global economic crisis and / or global military conflict.

Today, it is only possible to slow down the growth of real estate prices in the Czech Republic.

The main roles should be played by the Government of the Czech Republic, municipalities and the CNB.

The CNB's main instrument is raising the discount rate, which is the amount of interest at which commercial banks borrow money from the CNB. This results in higher interest rates on mortgages. But interest on loans from commercial banks is their main source of income. If the increase in the discount rate is too high, it could jeopardize the business of commercial banks and then the entire banking system. So nothing drastic can be expected from the CNB, and an increase in the discount rate will only slightly slow down the growth of real estate prices, which no one will even notice.

Some world cities are trying to address the availability of housing for young people by additional taxation of vacant (unoccupied) apartments of investors (owners). It tries to motivate them to sell their real estate and increase the offer on the real estate market and thus reduce real estate prices. For additional taxation, the city is building new apartments for young people. Where these apartments are really vacant without tenants, it even works. Something like this is being heard before the elections and by some of our politicians.

However, these vacant flats are not available in the Czech Republic. There are tenants in them. In the case of additional taxation, the landlord will pass on these increased costs to the tenant. Therefore, the price of housing will increase again. The tenant who will be entitled to a state housing allowance will transfer this increase back to the state. Those tenants who will not be entitled to state support will start thinking about their own housing. And again, the demand for real estate will increase and the price of real estate will increase again. And also as a by-product, it will increase headline inflation and, again, increase investor demand to buy more real estate. So this possible government decision could have relatively opposite devastating effects.

The government and municipalities should really become the largest developer in the Czech Republic. They should devise a housing support system and be required to implement an annual minimum number of housing constructions. The main problem is the source of funding, when unexpected expenses were incurred during the covid period, which indebted us for several more generations. Here it would be possible to use PPP projects (Public Private Partnership), public-private partnerships and to address large development companies to cooperate. If this type of cooperation in the construction of new flats were successful, it could ultimately affect the growth of real estate prices. At the same time, the supply and availability of housing for young people would increase.

The government can immediately take a few small steps that can slow down the growth of real estate prices. If you read our article "Why real estate prices are rising or why you can't trust online estimates", you will understand that the mass sale of information from the Cadastral Office of the Czech Republic on realized (sold) real estate helps to increase real estate prices faster. The government should PROHIBIT this mass sale of information from the office it manages!

Today, this information serves almost all real estate brokers in the Czech Republic. Almost every real estate agency buys them through other IT companies. They are all real estate appraisers. Unfortunately, in the Trade Licensing Act, only a trade in valuing real estate is a tied trade. It is not clearly stated that estimates of real estate prices fall under this tied trade. The government should therefore make a change, clearly INCLUDE ESTIMATES OF THE PRICE OF REAL ESTATE UNDER THIS TIED TRADE, and order all Trade Licensing Offices to strictly control and sanction for unauthorized business in this illegal tied trade.

Our real estate agency is one of the few own tied trades in real estate valuation. Therefore, in order not to be perceived as other real estate agencies (ie as "real estate price appraisers"), we put a slogan on the front page of our website:

"We don't guess - we appreciate"

13. 9. 2021