Prague is becoming a city for the rich and for the poor, nothing in between, says developer Pardubický
Housing is the primary response to value changes in society. The first reaction is not to refuse freedom in the form of rent. My classmates were willing to do anything for a mortgage, today’s young people absolutely do not solve it, says Tomáš Pardubický, one of the owners of the domestic development company Finep.
What can be described as luxury in apartments today? If it is not the apartment management itself, when the price per square meter of an average apartment in Prague climbs to one hundred thousand crowns…
If I stick to the classic economic definition, a luxury is a good whose demand grows faster with rising income. From this point of view, all apartments are a luxury, because only with increasing income can one afford to invest in housing. If I were to stick to the original meaning of luxury, which was associated with well-being, something exceptional that benefits a person, a luxury apartment is still the minimum in Prague. A classic middle-class apartment is not exactly a luxury item.
Doesn’t the definition change with respect to location? The luxury apartment was always in the center and the attribute of luxury was the view of the Prague Castle…
When I talk about luxury as something that relaxes, brings a pleasant feeling, I thought about how the perception of luxury changes over time. Paradoxically, by examining numerical statistics, I came to the opinion that it has changed several times in recent decades. From the 1950s, during the 1960s and 1970s, when half of the current apartments in Prague were built during the mass construction of housing estates, the search was on for an answer to how to provide people with heat and hot water. I think it was a reaction to the need for safety, which was represented by the heat and warm water. The reaction in the form of blocks of flats overtook tenements with upstairs toilets and cold water. Then came the revolution and the last modern period, when we had a common purpose, and that was to fulfill the desire for freedom.
This has turned into a certain pathology – the desire for ownership and independence from the decree, for rent. And construction and marketing adapted to it. Unfortunately, it stood up spontaneously, and that caused another allergic reaction, but more on that another time. I am convinced that, from the point of view of the perception of luxury, today society is again looking for a new value, and this is the time. I see it in the generation of people in their fifties, who worked a lot after the revolution and now want time for their family, which has partially eluded them. However, this can be extremely seen in the young generation, who value time for personal development, hobbies and friends so much that they do not intend to compromise with possessions and money. They have clearly defined boundaries.
This is probably not advantageous for you as a developer. These people don’t want to go into debt for a thirty-year apartment mortgage.
I don’t see it that way. The period of the nineties was very interesting, but it was not sustainable and healthy in the long run. Housing is the primary response to value changes in society. The first reaction is not to refuse freedom in the form of rent. My classmates were willing to do anything for a mortgage, today’s young people don’t deal with it at all. They don’t know if they will work in the Czech Republic, when they will have a family, so I don’t want to commit myself. Against this are political decisions that are fundamentally inflexible, defining how and where to build regardless of the evolving society. Sometimes I feel that politicians are trying to create a trend for how we will live, but politics should rather respond to trends. I’ll give you a concrete example. Sixty percent of people who moved outside of Prague to the suburbs state that if they had not been forced to leave by the price or lack of an apartment, they would have wanted to stay in Prague. I was shocked by the figure of how many people go to Prague every day. Would you guess?
One hundred and fifty thousand?
Two hundred thousand people, according to the Chamber of Commerce. This has unfathomable consequences. For the past five years, we have commented with horror on how many building permits the building authorities will issue for apartments, but the essence is in the quality of life. If you look at a classic Central Bohemia, you spend two hours of your active life in traffic jams every day. And this is exactly what the young generation will not do and stay in rent. My generation will still travel because they are pathologically fixated on their garden. It also has an ecological and environmental aspect. I am really unhappy about what has happened since the Czech Republic joined the EU, when we lost a million hectares of arable land due to construction outside the cities. And housing policy in Prague goes against common sense. Another point is socialization. When you take children to school in Prague, how do you create communities? We maintain relationships through Facebook, a trend we may not like, but we live by its housing policy. Cultural aspect. What is the usage in the satellite?
Tomas Pardubicky (43) |
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• Graduated from Prague University of Applied Sciences. |
• Participated in building eBanka, which he joined in 1997 and left in 2001 as CEO and Chairman of the Board of Directors. |
• Subsequently, he worked at Komerční banka in the position of executive director for the area of organization and project management. Since 2007, he has been the CEO and member of the board of directors of Finepu Holding. |
However, I feel that even living in a rental in Prague is a luxury. Paying 20 thousand to rent a 3+kk is probably not for the poor either.
I personally think that Prague has embarked irresistibly on the path of pushing the middle class out of the city, following the example of Munich. Prague becomes a city of rich and social groups maintained by benefits. A city of tourists. Unfortunately.
So the middle class will be hit the hardest?
If you look at cities like Paris or Munich, the social construction of apartments was also the trigger for their current problems. This was financed by the construction of new apartments, which made them more expensive for the middle class. This group, to quote a colleague from Germany, subsidized those who are most often at risk of economic development. Today, doctors, managers, businessmen, and bankers usually live in rented accommodation or outside Munich.
But the politicians will probably have to respond to the housing crisis somehow.
The worst thing that could happen to us is that the city or the state would start building apartments themselves. There will be huge inefficiencies because private individuals cannot logically do it as well as investors. I’d rather not even imagine land purchases by the city or the state… Let’s support the socially weaker portion, but let’s not confuse it with the construction of social housing, so far all models have failed. Doses are still the most transparent and cleanest way. And you can see them.
Read the interview with the author V Tower, Prague:
Housing benefits alone have been growing by leaps and bounds in recent years.
When I studied in Finland in 1995, unemployment was 20 percent. I found that the average welfare benefits were higher than the average wage. We are getting closer to it little by little, which does not motivate us to stand on our own feet and start doing something.
How will you respond to housing trends?
We want Prague to be a good place to live, and we want to make money by contributing to it. It doesn’t matter to us whether we are building ownership or rental housing. Just three years ago, the share of Czech investors who bought apartments for rent was five percent, in 2017 it was thirty percent. I expect that number to be fifty percent this year. And if something fundamental does not happen in the city’s housing policy, it is quite possible that 90 percent of new buildings will go to apartments for rent, because the average price of an apartment will no longer correspond to the purchasing power of an average family in Prague. For now, it offsets the low mortgage interest rate, but it will rise.
So where will the market move?
I will return again to the parallel with Germany and France, as they are structurally similar markets. Institutional investors have swarmed massively in these countries, and it will happen here as well. On the one hand, they will be funds that will buy apartments for small investors, and on the other hand, they can be pension funds. In Germany, one of the largest housing investors is a fund that collects money from pension funds and invests it in housing. That fund is very successful on the German stock market.
Will you therefore start a fund?
We already went through the team in 2009 and it was not lucky timing. Rather, there are a number of funds that are interested in cooperating. But again, the production is lacking. Why did they sell to institutional investors now when we are still selling from paper? With what I say, I will probably disappoint everyone who expects a drop in apartment prices. If institutional investors rush into this area, prices can rise even further. This, combined with not being built, can be a spiral that politicians are not aware of. When I put this in context with the numbers from our real estate agency Maxima Reality, I expect rents to increase by twenty to thirty percent in three years.
That doesn’t sound very encouraging.
We are in a standard situation that we have had here permanently since the nineties. Workers push for wage growth, and in order to feed the whole system, it is offset by production inflation. It is not optimistic and from my point of view the biggest problem is overregulation. The commercial system cannot respond flexibly to civil society and its preferences. If we buy a project today, we will put it on the market in six years at the earliest, but on average up to ten years. So predicting what the desires will be at that moment and what the market will look like is really not an easy task in a digital society. I would like a politician to say that the most important thing is flexibility. When there is a recession, let everything calm down, when there is a boom, let investment be made, new ideas come, innovation is done. For the last five years, we have been living in constant growth, new projects are being created, people are optimistic, but if you look at the housing policy, it is going exactly against the trend and the construction industry was the only one to decline. Now, in recent years, good architecture could be done here. I’m not sure we’ll be able to afford to invest in a beautiful one in two years. And we missed this opportunity again in Prague.
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