Housing costs and affordability in Czechoslovakia : the opportunity for private home building

The popular view is that the quality of those buildings was inadequate from the start and that, with severely deficient maintenance, most of them have deteriorated rapidly. The government allocation system which denied families free choice as to where they could live also contributed to dissatisfaction with housing conditions. Perhaps even more important was that the system frustrated the strong desires of many city dwellers (the most rapidly growing component of the population) to own their own homes. Czechoslovakia does have a large number of owner-occupied single family homes, but most are in rural areas. Such homes make up only 12.5% of the housing stock in Prague and 10.4% in Bratislava, compared to, for example, 58% on average in the cities of the United States. At any rate, popular resentment against the panel buildings -- as symbols of the rigidity of the old regime -- remains strong. The new governments (at the federal level as well as in both republics) have announced their intention to create a market-oriented housing system that would produce freedom of choice and a broader array of housing options. An argument has been made of late, however, that would seem to threaten this vision: namely, that housing costs are so high -- particularly for single-family homes -- that new private sector options will not be affordable to enough of the population to warrant policies promoting them. The conclusion they seem to imply is that the old communal housing approach (and panel apartments) will have to be relied upon again. This report shows that this argument is invalid -- to the extent that it artificially constrains choices for policy makers, it is a dangerous myth. The report finds the following. (1) While the majority of urban households could not afford to buy a new house of their own today without large subsidies, the number that have sufficient income to do so (even after the major price increases of 1991) is significant. (2) Competitive private builders will find it profitable to provide housing for this group and, with appropriate facilitating actions by governments, it is likely that they will introduce efficiencies that will substantially further reduce the cost of new housing in relation to incomes as they do so. If this occurs, the number able to afford a new house should expand markedly. (3) The production of new urban homes for large numbers in the middle and higher income groups will significantly relieve pressures in the existing housing stock -- perhaps doing more than anything else possible at this point to allow lower income families to improve their own housing conditions. (Author abstract)