Housing Restitution and Privatisation: Both Catalysts and Obstacles to the Formation of Private Rental Housing in the Czech Republic and Estonia

Abstract

The return of property expropriated during the communist period to previous owners or to their descendants (property restitution) led to the quick emergence of a private rental sector in those post-communist countries that applied a physical form of property restitution soon after 1990. The Czech Republic and Estonia are examples of such countries. Within just a few years, as a result of property restitution, a private rental sector grew out of almost non-existence to become a significant part of the countries’ total housing stock. However, the character of this sector remained different from the private rental sector found in countries with advanced economies – especially owing to specific rent regulation, tenant protection and, albeit indirectly, public housing privatisation. This article analyses and compares the genesis of private rental tenure in the Czech Republic and Estonia. Its main goal is to demonstrate how state regulations and interventions have influenced tenure choice, the formation of social norms, and thus the permanent perception of private renting. In both transition countries private renting gradually acquired the character of a transitional and residual form of housing. State interventions early on in the transition were probably the most significant factors behind the fact that private renting did not establish itself as a real tenure alternative to owner-occupied housing.

Key Words:

• Czech Republic
• Estonia
• housing tenure
• housing system
• private renting

Acknowledgements

This article was prepared with the support of research grant No. WD-05-07-3 of the Ministry of Regional Development of the Czech Republic, research grant No. 7588 of the Estonian Science Foundation, and the target funding project No. SF0180052s07 of the Ministry of Education and Science Estonia.

Notes

1. Lux (2009) estimates that, by the end of 2008, 73 per cent of the original public housing stock had already been sold to sitting tenants in the Czech Republic too. In Estonia, 90 per cent of public housing stock was privatised.

2. By ‘parliament’ we do not mean only an assembly of elected deputies in a representative democracy. The term ‘parliament’ emerged from the French word ‘parler’ (to talk) and therefore we use it here as it includes also the local and regional governments, mass media, informal networks, associations, commissions and also the space for discourse between politicians and ad hoc civic movements.

3. The Czech price/rent data were taken from the Institute of Regional Information's (IRI) index, available since 2000, using the bidding rents and prices for selected 335 Czech municipalities. Estonian data are based on statistics gathered by Statistics Estonia on the price of property sales (data available since 2002) and average monthly rents (data on larger urban centres available since 1999). This includes all transactions that were mediated by real estate agencies.

4. In the case of Estonia the comparison was made using the weighted average annual interest rates of Estonian kroon time deposits (over one-year deposits).

5. The sample consisted of 9,675 households in 2007, 11,294 households in 2008; 582 (6 per cent of all households, 27 per cent of tenant households) in 2007, and 664 (6 per cent of all households, 28 per cent of tenant households) were PRS tenants.

6. The sample of merged datasets consisted of 19,689 households, of which 373 (2 per cent) were PRS tenants.

7. The following are some statistically significant differences between the PRS and owner-occupied housing: 60 per cent of private tenants in the Czech Republic (and 87 per cent tenants in Estonia) live in flats with two or fewer rooms (compared to 25 per cent of homeowners in the Czech Republic and 45 per cent of homeowners in Estonia); 25 per cent of PRS tenants in the Czech Republic (35 per cent in Estonia) have less than one room per person (compared to 13 per cent of homeowners in the Czech Republic and 24 per cent of homeowners in Estonia); and 24 per cent of private tenants in the Czech Republic (13 per cent in Estonia) complain about the high level of humidity in their flat (compared to 13 per cent of homeowners in the Czech Republic and 11 per cent of homeowners in Estonia). Despite the smaller size and poorer technical conditions of their dwellings, 59 per cent of private tenants in the Czech Republic (68 per cent in Estonia) pay total housing expenditures equal to an amount figuring in the highest tercile of housing expenditure distribution (compared to just 27 per cent of homeowners in the Czech Republic and 33 per cent of homeowners in Estonia) and 33 per cent of PRS tenants claim that for them housing costs represent a significant financial burden (25 per cent in Estonia).