THE DEVELOPMENT OF

RENT PRICES IN PRAGUE

2008-2018
Tia Semerádová

CULS
The development of rent prices

Prices of rent developed on the principles of supply and demand. Many factors influence the market
itself. For the sake of simplicity we will take into consideration following;

The number of habitats, which in Prague is currently 1 315 076. This directly variable influences the
demand on the real estate market.

The number of apartments, in Prague, is currently over 700 thousand. This variable directly reflects
the supply of the real estate market.

Average income, which in Prague is currently 42 297 Kč/month. This variable corresponds to the
customer budget and effects the minimum price.

Average price per m2 is a parameter that is used in statistical tables related to the rent topic..

Price of substitutes, Alternative for paying rent, is buying your own house/flat. If the price of
buildings/flats were not so high, people would not only aim more towards buying their own house
but also the total cost of rent would decrease.

Another factor, which is necessary to mention is the rent control

Rent control is a regulation set by the state that affects how many owners of the property can charge
for the rent. This regulation intends to keep living costs affordable for a lower-income resident.

The rent control itself has been terminated in Prague to the date 31.12.2012 and was replaced by a
new law in 2006 called Unilateral increase in rent. This law is applied to approximately 760.000
apartments, and it allows the renter to increase rent. However, the new rent cannot exceed an
amount set by a law
 Number of habitants in Prague

The number of habitats in Prague is increasing. Except for the years 2010 and 2011, the rate of
people moving into the capital city has been proliferating. The growth is not only caused by higher
birth-rate, but also the growth rate of urbanization. People are moving to Prague with a vision of a
higher salary.

The more people live in Prague; the higher is the demand for accommodation.

Number of habitants in Prague

1,320,000
1,300,000 1,301,135
1,286,554
1,280,000
1,272,732
1,260,000 1,262,507
1,251,726 1,251,075
1,244,762
1,240,000 1,237,9431,243,695
1,220,000
1,200,000
2010 2011 2012 2013 2014 2015 2016 2017 2018

Average income

The average income in Prague has been consistently increasing for the past ten years. In the period
of ten years (from 2008 to 2018) it had grown from 30234 Kč to 42407 Kč. The numeric value of
increase is 12 173Kč, and the percentage value of increase is 40%.

If we compare this data with the Czech Republic data, we see that there is always at least 6 000
difference in the average Salary. The increase in the Czech Republic in total has been from 21632 Kč
to 32479 Kč. The numeric value of the increase is 10 847, and the percentage value of increase is
50%.

Average wages Prague and ČR Average monthly gross wages in

Prague in the 1st quarter of 20xx
40000
45000
30000 40000
35000
20000 30000
25000
10000 20000
15000
0 10000
08 09 10 11 12 13 14 15 16 17 18 19 5000
20 20 20 20 20 20 20 20 20 20 20 20 0
08 09 10 11 12 13 14 15 16 17 18 19
Prague ČR 20 20 20 20 20 20 20 20 20 20 20 20

Figure 1ČSÚ
Index Apartment prices in Prague

The most visible factor in the real estate market in Prague is the sharp rise in their prices. The chart
displays the growth of the index of apartment supply prices on the chart.

It is possible to see that the prices had been decreasing in the years 2009 and 2012, which was a
period of economic crisis. However, after 2012, the prices had been consistently increasing.

From the economic point of view, this is not a significant problem: property owners are satisfied,
those who are interested in demand on the property have the opposite feeling.

161.1

140.0
index (2010 = 100)

123.2
110.5 111.8
101.5 101.8 101.8 105.7
96.2 95.9

Prague

Figure 2ČSÚ

Development of housing situation in Pragu

One of the factors that are causing the prices of accommodation to rise is the limited number of
building permits, which has been decreasing for over ten years.

There was a more significant gap in 2010 and 2011, presumably caused by the economic crises.

Figure 3ČSÚ

Price elasticity of supply of apartments to rent

The demand for apartments is quickly increasing, but it takes a long time for new rentable
apartments to appear on the market.

So, supply in the short term – namely for newly build apartments- is inelastic, which leads to the
prices being determined mainly by demand factors.

The diagram shows that when the demand shifts from D1 to D2, it takes a long time for the supply in
the form of new rentable apartments to come into the market.

Figure 4Inelastic supply

Price of N. of N. of new % % change Elasticity Elasticity

rent citizents apartments Change in of of supply
in price quantity demand
demended
7,35294E-06
111 127 45 10,81 1,57 0,15
0,00000735294
123 129 41 13,82 0,78 0,06
 
140 130 59 15,00 0,77 0,05
 
161 131 55 11,80 0,76 0,06
 
180 132 53      

The calculation of Elasticity od supply shows that the supply is inelastic since the number is smaller
than 1.

Many reasons in the real world cause the inelasticity of supply, via lack of rentable apartments, the
primary key factors being;

 limited capacity
 permit time frame (Length of building permit procedure for smaller buildings is in the Czech
Republic 246 days)
 production time frame

Conclusion
Over the years, the price of an apartment in Prague has been increasing.

The growing demand and inelastic supply caused this. The number of apartments is limited, and the
number of Prague habitants is still increasing, which is causing the customers to compete in setting a
minimum price. The sellers can set the price higher since there is a high chance that they will
successfully sell or rent the apartment to a buyer who is not able to find a better deal. That is also
supported by the fact, that the budget of a buyer is more significant in comparison to other cities, or
to previous years, allowing them to spend a higher amount of money while keeping the percentage
of salary spend on rent (approximately 4O% in Prague).
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