The Average Prague Resident Needs to Put By the Salary for 16 Years to Buy a New Apartment
December 17, 2021
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The supply of new buildings is at a record low, while demand is high due to the fact that people want to ensure against inflation.
What happens. A resident of Prague will have to spend the entire salary for 15.9 years to buy a new apartment. This is two years more than the previous year when the indicator was 13.9 years. Over the past five years, apartment prices in the Czech capital have increased by 90% and do not seem to stop, and wages have grown only by 33%. Housing affordability is now at its worst, and the volume of supply of apartments in Prague is tiny.
Demand is driven by tighter credit conditions and higher mortgage rates, as well as a shortage of affordable housing. The only good news is that it is expected that the growth rate of prices for the purchase of apartments will slow down next year.
Context. The study uses an average monthly salary before taxes of €2,000 compared to the average cost of €380,997 for a new apartment in Prague with an area of 70 sq.m. Wages are based on data from the Information System of the Ministry of Labor and Social Affairs of the Czech Republic on Average Income (ISPV), and housing prices are based on a joint analysis conducted by Central Group, Trigema, and Skanska.
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The growth rate of prices for new apartments in Prague has significantly accelerated year-on-year. Prices for the year rose by 20.3%, to a record €5,461 per square meter.
Demand is at a maximum, and supply is at a minimum. Currently, only 2,750 new apartments are available on the Prague market, which is 52% less compared to the same period last year. This is the lowest inventory, says Dušan Kunovský, Founder and Head of Central Group.
Construction permits have been obtained for 5,952 apartments, which is the highest since 2007. Over the past 10 years, permits have been issued for the construction of fewer than three thousand apartments per year, although at least 10,000 apartments are needed to cover current demand.
In the first three quarters, 6,100 apartments were sold in the metropolis, which is 300 more than in the whole of 2020. For the first time in Prague, more than 7,000 new apartments will be sold per year.
Central Group said it expects a slight increase in the supply of new apartments in 2022, but still will not be able to meet demand. Prices will continue to rise, but more moderately – by 5-10% per year.
Quote. "Housing prices reflect a sharp rise in prices for all inputs, construction materials, works, land, and energy. However, the huge difference between the supply of new housing and demand plays a key role in the current crisis," Dušan Kunovský said. "This is due to high household savings and efforts to secure and protect their funds during high inflation, which already exceeds 6% per year."
"The fact that people are trying to get a mortgage on even more favorable terms also plays a role. The Czech National Bank sharply raises interest rates and from April 2022 reintroduces mortgage limits. This will make housing even more unaffordable for some people," he adds.
