Housing affordability is a particularly acute issue in Czechia, where real house prices have increased faster than households’ real disposable income since 2010, especially in large cities. This chapter assesses policy challenges and draws on international practices to provide actionable recommendations to improve housing affordability and increase investment. The chapter recommends refining the national framework and operational mechanisms for affordable and social housing provision and establishing not-for-profit affordable housing providers. It also recommends a more efficient spatial planning governance and a more extensive use of land-based finance tools to support the development of affordable housing. Finally, Czechia’s area-based housing taxation system can be reformed to secure funding for affordable housing development, improve equity, and disincentivise dwelling vacancies.
Housing Reforms in Czechia and Poland
Abstract
As discussed in chapter 1, housing affordability has become a pressing issue in Czechia, where house prices and rents have increased faster than households’ disposable incomes since 2010, especially in large cities. On the supply side, investment in housing as a share of GDP declined sharply after the 2008 global financial crisis, recovering only after 2013 but remaining low compared to the EU average. Following the decrease in interest rates from the early 2000s to 2008, demand for housing investment increased but has been mitigated by rising house prices. Despite some investment, prices have however continued to rise, driven by an increase in real wages, inflation in real construction costs, restrictive land-use policies and low housing-related taxes which have further fuelled demand. The provision of social housing is limited (3.6% of all dwellings compared to 8% in the EU (OECD, 2024[1]), which further limits housing affordability for low-income and vulnerable households. As a consequence, Czech households face a higher housing cost burden compared to the average EU household, spending approximately 22.1% of their disposable income on housing costs in 2023 (compared to approximately 19.7% in the EU).
The Czech Housing Strategy 2021+ identified tools to increase housing affordability, including through the development of not-for-profit housing providers, programmes to boost investment in affordable housing, and reform opportunities to leverage spatial planning to facilitate affordable housing development. While this strategy is the first attempt to provide a comprehensive response to the housing affordability challenge, its implementation has been slow and could more strategically target some of the key housing bottlenecks.
The OECD Stakeholder Survey: Affordable Housing in Czechia that was circulated to Czech housing experts and municipalities’ representatives for this project (Box 2.1) identified the rigidity of spatial planning and the inefficient and unequitable property tax system as key barriers for investing and developing in affordable housing. The limited use of land-based finance tools was also identified as a missed opportunity to support the development of affordable housing. Further, there is no legal framework nor financial support scheme to support the creation and operations of not-for-profit housing providers, which could play a role in the development of affordable housing, as is the case in other OECD countries (Figure 2.1).
The OECD Stakeholder Survey: Affordable Housing in Czechia was circulated to government representatives (including national and municipal governments) and researchers in Czechia. Stakeholders working in Prague represented half of the sample. The survey included questions related to the overall housing policy priorities, the role of not-for-profit housing actors, the use of land and spatial planning, land-based finance and housing taxation.
See Annex A for more details on the survey’s methodology and respondents.
Source: 2024 OECD Stakeholder Survey: Affordable Housing in Czechia.
This chapter proposes a set of recommendations for consideration by the Czech authorities along three pillars:
Refining the framework and operational mechanisms for affordable and social housing provision.
Unlocking the development of affordable housing through more effective spatial planning governance and land regulation.
Creating incentives to limit dwelling vacancies in high-demand areas and secure funding for affordable housing development through housing tax reform.
OECD countries have developed a wide range of eligibility criteria and approaches for the provision of social and affordable housing. Some countries provide state-owned housing units (e.g. public housing in Australia, public housing in Austria, social housing in Ireland, social houses and apartments in Latvia) to subsidies to private providers (e.g. subsidised housing in Austria, moderate-rent private housing in France, social housing assistance in Germany). Some countries have several systems in place, relying on both public and private housing, to accommodate a variety of situations. There is also a variety of eligibility conditions and rent-setting systems, as rents can be established by national or local authorities, depend on residents’ incomes, or depend on current market conditions (e.g. a share of the local median rent). Moreover, the definition of social and affordable housing can sometimes overlap (Box 2.1). This section examines first the definition of affordable and social housing and then discusses the type of actors that provide affordable and social housing to identify policy actions for Czechia.
In a context of increasing housing prices, the need to ensure that households can access decent and affordable housing has become even more urgent. The OECD (2020[2]) defines:
Social housing as “residential rental accommodation provided at sub-market prices that is targeted and allocated according to specific rules, such as identified need or waiting lists”;
Affordable housing as “rental and owner-occupied dwellings that are made more affordable to households through a broad range of supply- and demand-side support”.
Social housing tends to be provided by the state or local government (municipal or regional authorities) and target low-income groups, while affordable housing units are provided by a broader range of actors and can target higher-income households. Not-for-profit and limited-profit organisations, such as housing cooperatives, social landlords and housing associations, are important providers of affordable housing in OECD countries.
In practice in most cases, households have to go through an application process to obtain a social housing unit and meet eligibility criteria, which typically include income thresholds, and can additionally also account for vulnerability factors to prioritise specific groups, for instance, elderly people, people subjected to an eviction procedure, people in substandard dwellings, families or people with disabilities. By contrast, affordable housing units are not necessarily allocated through an application process. Affordable housing policies usually focus on financing the development of new affordable housing units but can take a variety of forms: soft loans, subsidies to individual households or developers, land provision, investment funds, etc. Eligibility conditions based on incomes are often included, but not always.
Source: OECD Affordable Housing database.
2.1.1. There is currently no universal framework guiding the provision of affordable and social housing
The legal definition of affordable and social housing is only found in ad-hoc support programmes
The Czech rental market is relatively developed, with 22% of households living in a rented dwelling in 2021. However, affordable housing options on the rental market are limited, as social (subsidised) rental housing accounted for only 3.6% of the dwelling stock in 2021. There are ongoing efforts to create a framework for affordable housing provision in Czechia. Since 2014, Czechia has provided subsidies to develop social rental dwellings (sociální bydlení) financed by the European Regional Development Fund (ERDF). Social dwellings built under this programme target households with acute housing needs (e.g. homeless people, households living in substandard or overcrowded dwellings, etc.) or at risk of developing acute housing needs. Rents cannot exceed 50% of market rents (Box 2.3).
More recently, the Ministry of Regional Development of the Czech Republic (Ministerstvo pro místní rozvoj České republiky – MMR) introduced an Amendment of the State Investment Support Fund (Novela z. o Státním fondu podpory investic – SFPI), which was adopted by the Parliament on 8 March 2024 (Act No. 126/2024 Coll.). The Amendment introduced the first operational definition of affordable rental housing in Czechia, introducing provisions on affordable rental housing, namely establishing affordable rent levels and target groups, and on rental contracts for affordable rental housing (Box 2.3). While these provisions only apply to affordable housing projects supported by the SFPI; they have been used also by the National Development Bank (Národní rozvojová banka – NRB) in its Affordable Rental Housing Programme (Dostupné nájemní bydlení), which supports the development of affordable rental housing projects with a cost larger than EUR 10 million.
The main beneficiaries of these support schemes are municipalities. While these three support schemes did not introduce a general definition of social nor affordable housing in Czechia, meaning a legal framework which would have to be used by all financing institutions, they currently constitute the only legislative framework defining the eligibility conditions for social and affordable rental housing. Further, as the SFPI definition of dwellings with an affordable rent was approved under the EU state aid rule, it is the only operational definition that public financing institutions can currently use.
Although there is no universal definition of social nor affordable dwellings in Czechia, there are operational definitions linked to specific funding programmes: subsidy schemes delivered using the European Union’s Integrated Regional Operational Programme (IROP) and the State Investment Support Fund’s (Státní fond podpory investic – SFPI) affordable housing scheme. Eligible organisations for the IROP and SFPI schemes are allowed to combine these support schemes at the project level but have to specify which units will be built using each type of funding as the two schemes target different households.
Support for social housing development from the EU’s Integrated Regional Operational Programme
Czechia has implemented state subsidy schemes for social housing construction since 2014 using funds from the European Union’s Integrated Regional Operational Programme (IROP). The IROP funds are delivered to develop social rental dwellings (sociální bydlení), defined by the programme as housing targeting households with acute housing needs (e.g. homeless people, households living in substandard or overcrowded dwellings, etc.) or at risk of developing acute housing needs. Rents cannot be above 50% of market rents (Czech Ministry of Regional Development, 2024[3]). Social dwellings additionally have to be furnished with basic equipment (e.g. basic sanitary and kitchen equipment, connection to the water and electricity grid, etc.), be barrier-free and be located in areas with access to civil amenities (e.g. schools, health and social care, stores to purchase essential goods, public transportation).
Beneficiaries can be local authorities (e.g. municipalities, regions, etc.), churches and NGOs specialised in social housing provisions (with at least 5 years of experience). The projects’ financing structure relies on a mix of European Regional Development Fund (ERDF) funds (70% to 85%), subsidies from the state budget (0% to 25%) and the beneficiary’s own resources (0% to 30%). The relative weight of each source of funding depends on the type of beneficiary, and on whether the project is located in less developed regions, transition territories, or recognised economically and socially disadvantaged areas. Eligible expenses include direct costs (e.g. land acquisition, construction costs, etc.) and indirect costs (e.g. application-related costs, administrative capacity, etc.).
The first IROP subsidy scheme was implemented from 2014 to 2020 and led to the development of 1 956 social dwellings, either through construction or acquisition and renovation. The programme delivered a total of CZK 2 473 099 107 (approximatively EUR 98 million) in subsidies, which accounted for 62% of the programme’s initial budget of CZK 4 billion (approximatively EUR 160 million). A second IROP scheme has been implemented since 2021 and will run until 2027, with a total budget of CZK 3.44 billion (approximately EUR 137.6 million) and aiming to support the development of 1 200 social flats. As of December 2024, 24 social dwellings had been completed through the scheme, for a total subsidy of CZK 84 million (approximatively EUR 3.4 million), amounting to approximately 2.4% of the allocated funds.
Source: Czech Ministry of Regional Development (2024[3]).
Support for affordable rental housing development by the State Investment Support Fund
The 2024 Amendment of the State Investment Support Fund (Novela z. o Státním fondu podpory investic – Act No. 126/2024 Coll) introduced key legal definitions related to the provision of affordable housing in Czechia:
“Affordable rent” (Dostupné nájemné): a rent set below 90% of the market rent for similar dwellings in terms of size and location. In the specific case of affordable rental housing provided by the state (e.g. central government, state agencies, regions, municipalities or their legal entities), the rent has to be cost-based during the first year of operation, meaning based on the costs of building or from acquiring the dwelling, and can reach 100% of the market rent. Affordable rents can be increased once every 12 months based on inflation, measured by the average consumer price index (Index spotřebitelských cen) produced by the Czech Statistical Office. The increase in affordable rents cannot exceed 4% over 12 months, even if the rent was not increased in previous years.
“Affordable rental housing” (Dostupné nájemní bydlení): housing units rented at an affordable rent.
The rent-setting mechanisms and the definition of target groups for affordable rental housing are the responsibility of the Ministry of Regional Development of the Czech Republic (Ministerstvo pro místní rozvoj České republiky – MMR). Eligibility conditions for affordable rental dwellings are based on households’ income, assets, location and vulnerability:
Household members do not own or co-own housing properties nor cooperative shares with the rights to an apartment. This condition is lifted for households with a member working in an essential field (e.g. healthcare, education, public safety and rescue, social services) and who does not currently reside in the region in which the affordable dwelling is located.
The household’s net income is below the 8th income decile of all households, or below the 9th income decile of all household if all household members are younger than 35 years old.
The household has a member living with a person who has committed a violent crime against his/her own family member (e.g. mistreatment of a trusted person, mistreatment of a person living in a common dwelling, dangerous threats or dangerous persecution).
The Act also defines the nature of lease agreements for affordable rental housing (Nájemní smlouva pro dostupné nájemní bydlení). Leases have a renewable 1- to 2-year fixed term, or longer for some vulnerable groups. People applying for housing to move out of a dwelling where they live with a person who has committed a crime related to person endangerment can obtain a 3-year lease. Households whose members are all older than 70 years can obtain indefinite leases. The SFPI finances projects with a cost up to EUR 10 million.
Source: Parliament of the Czech Republic, Act No. 126/2024 Coll., PART I, Sections 11a to 11e.
Support for affordable rental housing development by the National Development Bank
The National Development Bank (Národní Rozvojová Banka – NRB) has implemented its Affordable Rental Housing (Dostupné nájemní bydlení) Programme since April 2025. The definition of affordable rental housing is the same as the one introduced by the SFPI (described above).
The goal of the programme is to support large development projects of affordable rental dwellings (i.e. with a cost higher than EUR 10 million), and to leverage private capital to cofinance these projects, in order to provide developing actors incentives to own, manage and rent completed apartments for at least 20 years instead of selling them.
The programme was allocated a budget of CZK 2.25 billion (approximatively EUR 90 252 000) to provide long-term subordinated loans to affordable rental housing development projects borne by local governments (municipalities, cities and state institutions), development companies and institutional investors. The loan amount can cover up to 80% of the investment costs up to CZK 1.2 billion (approximatively EUR 48 148 800). A minimum of 10% of the cost must be covered by the beneficiary’s own equity and another 10% through a commercial loan. The loans have a fixed interest rate between 1% and 2% per annum, a maturity of up to 25 years, and a disbursement period of up to 48 months.
Source: Czech National Development Bank (2025[4]).
Additionally, the Czech Chamber of Deputies adopted the Housing Support Act (Zákon o podpoře bydlení) in April 2025, which aims to provide housing support to people experiencing homelessness or at risk of homelessness. This support is described in the law through two mechanisms: the introduction of 115 contact points throughout the territory, giving priority to areas with high numbers of people in housing distress, and the implementation of “guaranteed housing” (garantované bydlení), which is a rental intermediation mechanism to incentivise private landlords and municipalities to rent their dwellings to very-low income households (i.e. below 1.43 times the subsistence level) in exchange for public guarantees and support. If approved by the Senate, the Act could be enacted in 2026.
Other OECD and EU countries have consolidated the legal definition of social and affordable housing
In addition to only applying to projects funded through specific channels, the SFPI’s legal definition of affordable rental housing is relatively broad when compared to other OECD countries. In countries like France and Belgium1, which were visited by Czech and Polish officials in the framework of this project, the legal definition of social and affordable housing establishes responsibilities for the provision and management of affordable and social housing, funding mechanisms and rules to establish social rents and eligibility criteria, such as income ceilings and priority points for vulnerable groups.
Social housing eligibility conditions in France and Belgium are established to target a range of households based on baseline income ceilings (with variations depending on vulnerability factors), with a distinction between social housing and affordable housing (Table 2.1). This more nuanced targeting, relative to the Czech approach, acknowledges that some households have greater needs and a lower capacity to pay their rent, and therefore need more support. The same building can include social and affordable dwellings, thus facilitating social mixing. In France, the law also defines the conditions under which a social and affordable housing provider may benefit from subsidies and low-interest loans to build and manage housing for these different eligible households. Income ceilings are updated annually.
By contrast, the current definition of affordable housing in Czechia does not differentiate between social and affordable housing, and does not sufficiently target low-income households, the 8th decile eligibility condition being a relatively high-income ceiling. Countries with high income ceilings, such as Austria and the Netherlands (Table 2.1), typically have a very large social dwelling stock: social rental dwellings accounted for 34.1% (2021) and 23.6% (2019) of the total stock in the Netherlands and Austria respectively, which represent the highest shares in the OECD (OECD, 2024[1]). With only 3.6% of social dwellings, a large part of the demand for affordable housing remains unmet in Czechia, and households who do not need support still meet the eligibility conditions. Stricter eligibility conditions in France and some Belgian regions for instance allocate social dwellings to people who need it the most: 50% of households were eligible for a social dwelling in the Brussels-Capital Region (2020), 24% and 54% in France (2023, PLAI or PLUS dwellings respectively) and 15.7% in Flanders (2023).
Rent setting mechanisms vary depending on the target households, but always take into account the cost associated with building and maintaining the dwellings (Table 2.2). In the Belgian regions, social housing rents are adjusted based on the income of the beneficiary households and affordable housing rents are established as discounted market rents, computed from the dwelling’s market value. These rents cannot however be lower than half of the “baseline rent” (loyer de base), which is established based on the dwelling’s characteristics and value.
In France, social and affordable rents are directly linked to the borrowing costs for social housing providers (Table 2.2). Since the interest rates of construction and acquisition loans offered to social housing providers are, in part, based on the targeted beneficiaries, these rents are also indirectly linked to the income of the potential beneficiaries. There are four types of loans with the same maturity but increasing interest rates to finance the four types of social and affordable dwellings: PLAI loans have the lowest interest rates, while PLI loans have the highest.
Other countries like Austria and the Netherlands have also taken a cost-based approach to social rents, in order to ensure social housing providers have a sustainable business model (Table 2.2). In Austria, these costs include a contribution to the maintenance and improvement fund, but exclude service charges (e.g. waster collection, cleaning of building, etc.) that may vary over time in order to keep social rents below market rates. In the Netherlands, the entirety of the rental market has been subjected to rent ceilings, computed based on its surface area, energy performance and its Official Listed Value (Waardering onroerende zaken – WOZ; see Box 2.10 for further details) since 2024. Dwellings with the lowest score (up to 143 points) have a social rent capped at EUR 879.66, intermediary dwellings (144-186 points) are capped at EUR 1 157.95, and higher quality dwellings do not have a cap – provided they are not social dwellings, meaning dwellings owned by housing associations and built with a targeted public loan.
Source: Study visits to Belgium and France (2024), OECD (2023[5]), Austria’s Federal Ministry of Labour and Economy (Bundesministerium Arbeit und Wirtschaft), City of Vienna, Government of the Netherlands.
In Czechia, affordable rents in new affordable housing developments funded by the SFPI or the NRB are to be set based on the cost of the dwelling and then indexed to inflation (with the rent increase capped at 4% annually). The costs included in the calculation of the cost-based rent include construction or acquisition costs, as well as operation costs (Náklady na provoz), meaning the cost of management, insurance, real estate taxes, maintenance and repair, and the cost of energy and water associated with the maintenance and operation of common areas.
Linking the legal definition to funding mechanisms in Czechia and other OECD countries
Definitions of social and affordable housing are made operational through specific providers and managers of these dwellings (addressed in the section below) and targeted funding mechanisms. While an in-depth assessment of the financing of social and affordable housing is beyond the scope of this work, the linkages between funding and the eligibility criteria and rent-setting mechanisms for social and affordable housing should be taken into consideration in any operational definition.
In Czechia, new affordable rental dwellings can be financed by the SFPI or the NRB through subsidised loans for construction or acquisition. Focusing on SFPI support, which is funded by EUR 40 million from the National Recovery Plan, eligible costs for construction projects include those related to construction, consulting fees and brokerage, exploration work and compensation fees. For acquisitions, the SFPI compares the price disclosed in the purchase contract to the relevant market price following to the Property Valuation Act and support can cover part of this price. Applicants can apply for a loan or a loan accompanied by a subsidy. The loan can cover up to 90% of total eligible costs, with a maximum maturity of 30 years. The subsidy can cover up to 25% of the total eligible cost, with some exceptions where coverage can reach 40% (e.g. at least 10% of the dwellings will be allocated to students or to households in the 6th income decile). A 5% bonification also applies for projects with high energy efficiency, or located either in heritage areas or in priority regions (Ustecky, Moravskoslezsky and Karlovy Vary). Applicants have to provide proof of their financial stability (e.g. no recorded arrears on the date of submission of the application, no bankruptcy or liquidation procedure in the three years before their application, financial rating, etc.) and agree to remain the exclusive owner of the land and building where the project will be carried out. The affordable rental dwellings built or purchased using these loans have to be less than 120 m² and meet the mandatory requirements of the Czech Building Act in terms of energy performance and resident safety. Applicants also commit to lease these dwellings at an affordable rent for at least 20 years after the completion of the project, or for the loan repayment period if it exceeds 20 years, within the legal framework defined in Box 2.3.
A more targeted definition of social and affordable housing should also take into consideration the potential funding and potentially build the basis for linking subsidised dwelling to targeted financing mechanisms. In Belgium, support is provided to social and affordable housing developers through a mix of loans and subsidies, while France has created a system of subsidised loans with conditions linked to the level of affordability of the dwellings (Table 2.3). In the Netherlands, housing associations obtain long-term loans from the Nederlandse Waterschapsbank (NWB) and the BNG Bank, which are both publicly owned. Housing associations can obtain a guarantee from the NWB’s Social Housebuilding Guarantee Fund (WSW) only for the construction of social dwellings, meaning the rents on these dwellings are capped regardless of the number of points they are attributed. In all three countries, these public loans have discounted interest rates and can have long-term maturities (e.g., up to 40 years in France, up to 50 years in the Netherlands).
2.1.2. There are only few actors providing affordable and social housing
The current not-for-profit housing landscape in Czechia is small and their mandate is not clearly defined by law
The main historical not-for-profit housing actors in Czechia are housing cooperatives. However, housing cooperatives do not have an obligation to provide affordable housing (either for rent or purchase), and cooperative shares can be sold at market prices. The Ministry of Regional Development is currently considering legislation aimed at introducing limited-profit and not-for-profit housing providers.
Housing cooperatives
Cooperative housing has a long history in Czechia, with the first “people’s housing coops” (lidová bytová družstva) reported in the 19th century (Panel Story Project, November 2023[7]). They provided apartments (“sociální byty”) to vulnerable groups, with the support of state subsidies and employers. After the Second World War, during the communist period, housing coops gained popularity as they allowed multiple households to pool resources, hence playing a crucial role in the reconstruction of destroyed housing stocks. State loans covered most construction costs of these multi-unit prefabricated buildings, and collective contributions covered the remaining. The 1950s saw the development of a substantial number of panel-style flats built by housing cooperatives with state support, which eventually accounted for 40% of newly built flats in the 1980s and 1990s. These panel blocks were however often built from lower quality materials, imposing high maintenance costs. After 1991, the state transferred its housing units to municipalities and housing cooperatives and imposed an obligation to transfer cooperative housing units’ property rights to individual tenants if they asked (Housing Europe, 2017[8]). The majority of these flats were consequently transferred to private owners, leaving mainly the lowest quality ones to municipalities and cooperatives (Figure 2.2, Panel A). The share of cooperative housing has been shrinking since 2000, accounting for merely 3.4% of dwellings in 2021 (3.1% including uncategorised dwellings) (Figure 2.2, Panel B).
Note: The evolution in Panel A only reflects buildings administered by members of the Union of Czech and Moravian Housing Associations (“Svaz ceskych a moravskych bytovych druzstev” or SCMBD). Public rental refers to municipal housing. The figures in Panel B are derived from national census data, excluding missing observations ("Not identified") category. The "Other" category includes households reporting a free use of dwellings.
Source: Housing Europe from SCMBD data (Panel A); Czech Ministry of Regional Development (2021[9]) and Czech national census data (Panel B).
The cooperative owns the building, while tenants benefit from indefinite leases, with cost-based rents that take their flat’s surface area into account. The rent also includes a fixed fee for building administration and management (estimated between EUR 6 to EUR 8 per month in 2011 by Lipej and Turel (2018[10])), while cooperatives cover the mortgage, insurance premia, maintenance costs using the collected rents and, in the few cases where the cooperative does not own the whole building, housing society administration fees. Housing cooperatives used to operate as non-profit organisations by law (Box 2.4), using rent revenues only to maintain and repair the buildings, repay mortgage interests or develop the cooperative. Following the Business Corporations Act, cooperatives are allowed to generate profit, up to a third of which can be redistributed to their members. There profits can however not be derived from rents, which must be cost-based, but can be obtained from selling cooperative shares on the market.
The cooperative model in its current form is not geared towards providing affordable housing. There are opportunities to broaden the landscape of not-for-profit housing actors beyond the cooperative model to facilitate the emergence of other housing actors with a focus on the provision of social and affordable housing.
The current framework in which Czech housing cooperatives operate was established in the commercial code of 1991 (Act 513/1991) and the subsequent Transformation Act, which gave cooperative members the right to purchase their unit and to sell their membership share on the free market, but at a lower price than the market equivalent. Rents and rent increases were further regulated by the 2006 law on the unilateral increase of rent (Law No. 107/2006 Coll.), which allows rents to increase based on the flat’s size and location.
Since 2012, housing cooperatives’ obligations have been defined in the Business Corporations Act on Commercial Companies and Cooperatives, which defined the following:
Housing cooperative definition: A housing cooperative is a legal entity in Czech law that primarily serves its members’ housing needs. Their core purpose is to meet housing needs, with restrictions on other business activities. It can manage properties owned by others under certain conditions.
Cooperative flats: A cooperative flat is a unit owned or co-owned by a housing cooperative and leased to a cooperative member who himself (or its legal predecessor) contributed to its acquisition. Members are lessees, not owners, and the lease agreement defines rent, repair costs, etc.
Cooperative share and ownership: A cooperative share represents ownership and grants a member the right to lease a cooperative flat. Legal and natural persons can be members. Ownership entails leasing rights, rent determination, and repair obligations. The transfer of a share is subject to the conditions in the Articles of Association. However, in practice, cooperatives cannot prohibit the transfer of a member’s share as long as the buyer meets the conditions stated in the admission statues of the cooperative.
Transfer of cooperative share: Transferring a share involves a Share Purchase Agreement. The transferee assumes debts and obligations associated with the flat. The housing cooperative must be informed, and a transfer fee might apply. Specific documents and confirmations are needed for a smooth transfer.
Ownership differences: Ownership of a cooperative share grants leasing rights to a flat, while ownership of a flat provides full property rights. Cooperative share ownership is registered within the cooperative, not publicly. Property taxes apply differently.
Subleasing and taxation: Subleasing a cooperative flat requires approval from the cooperative’s designated body. Income from subleasing is subject to personal income tax. Expenses related to the leased property can be deducted.
Other not-for-profit housing actors
There are few not-for-profit housing actors in Czechia (Figure 2.3). Not-for-profit organisations and NGOs provide crisis housing, mostly funded from subsidies from the Ministry of Labour and Social Affairs. These emergency shelters are operated as a social service under the Act on Social Services (Act No. 108/2006). These services rely on a combination of housing and social services, usually renting flats from municipalities or private owners and subletting them to their beneficiaries. Access to these housing services is reserved for households at high risk of social exclusion (e.g. high indebtedness) and relies on short-term rent agreements (1-6 months), and flats tend to be privately owned. Social housing was provided by non-governmental organisations only in 5% of all surveyed municipalities according to the OECD-MMR housing survey and represents merely 3.6 housing units per 10 000 inhabitants (OECD, 2021[11]). Half of these units were built within the past few years, indicating that this is a relatively recent approach with upscaling potential.
Note: Shares were computed based on 28 answers.
Source: 2024 OECD Stakeholder Survey: Affordable Housing in Czechia.
Legal framework for not-for-profit housing actors
The scope of the social and not-for-profit segment of the housing market is hard to define given the lack of a regulatory definition of social housing in Czechia. The current legal framework in Czechia, and in particular the absence of a legal definition of not-for-profit housing providers, appears to be a key element to be addressed in order to broaden the scope of affordable housing options. Such legal framework could facilitate the introduction of other affordable housing providers, such as housing associations providing social housing at a rent below market price, which are commonly found in OECD countries (OECD, 2021[12]).
The development of the not-for-profit sector (Neziskový sektor) has been identified as a key avenue to increase the supply affordable housing in Czechia by respondents to the OECD Stakeholder Survey. In particular, 86% of stakeholders agreed or strongly agreed that introducing a legal definition of the mission and obligations of not-for-profit affordable housing providers, such as cost-based rents and continuous reinvestment in affordable housing, would contribute to increasing the supply of affordable housing on the market (Figure 2.4). Further, 81% of respondents agreed or strongly agreed that granting not-for-profit housing providers conditional funding would increase the supply of affordable housing on the market.
Note: The "Create a legal status for NFP housing providers" category is based on answers to the statement "The provision of affordable housing by not-for-profit providers could be increased by introducing legislation to create not-for-profit housing actors with the objective of providing affordable housing (for example, through obligations for cost-based rents and continuous reinvestment in affordable housing)" (29 responses). The "Grant conditional funding to NFP providers" category is based on answers to the statement "The provision of affordable housing by not-for-profit providers could be increased by providing public funding for affordable housing to cooperatives and not-for-profit actors under the condition of building affordable rental housing (for example, through obligations for cost-based rents and continuous reinvestment in affordable rental housing)" (27 responses).
Source: 2024 OECD Stakeholder Survey: Affordable Housing in Czechia.
The introduction of the legislative framework could be also accompanied by support for investment by not-for-profit actors for the provision of affordable housing. European Union (EU) law prohibits State aid to private and public actors to avoid distortive advantages. However, EU State aid regulation allows for government interventions under certain rules. Accordingly, State aid rules do not appear to be per se a barrier to the development of not-for-profit housing if the purpose of these not-for-profit housing actors is the provision of social and affordable housing (which is currently not the objective for the existing Czech cooperative model) (Box 2.5). Moreover, the EU Urban Agenda Housing Partnership’s guidance paper on EU regulation and public support for housing stipulates that “non-financial measures are also available to authorities to support investments in affordable, adequate and social housing without being labelled as state aid under EU rules, e.g.: Support the creation and capacity of institutions and organisations that will contribute to social and affordable housing such as not-for-profit investors, Community Land Trusts, housing cooperatives and public companies” (EU Urban Agenda Housing Partnership, 2017[13]). Such non-financial measures like supporting non-profit organisations as housing providers could be leveraged to further develop affordable housing options in Czechia.
The EU defines State Aid as a distortionary market intervention by a state entity or with state resources that provide recipients with an advantage over competitors on a selective basis that likely has an effect on trade between member states. For this purpose, the European Commission enforces rules that regulate State aid. Economic activities that represent Services of General Economic Interest (SGEI) are exempted from State Aid regulation. SGEI describe economic activities that would not be provided under equal conditions if market forces alone were at play. As social housing falls within the scope of SGEI, EU State Aid rules do not inhibit public support for social housing investment. There are, however, strict conditions for agents in the sector to qualify their activities as SGEI.
In the Netherlands, cooperative housing has been successfully used to provide affordable housing, relying on a cooperative model that is significantly different from the current Czech cooperative model. The 2015 Dutch Housing Act addressed a 2009 European Commission decision related to rules for social housing investment in the Netherlands by making a clear distinction between housing associations’ social and commercial activities. Only the activities of housing associations that qualify as SGEI are eligible for State Aid, ensuring favourable financing conditions with interest rates below market conditions. Moreover, the European Commission’s decision also required targeting generated housing capacity to disadvantaged citizens or socially less advantaged groups. The Dutch Housing Act links therefore tenants’ eligibility for social housing to income ceilings.
Source: European Commission (2009[14]), (2023[15]), and (2023[16]); OECD (2023[5]).
Other OECD and EU countries have developed actors specialised in the provision of affordable and social housing
Not-for-profit housing providers are important actors in the development of affordable housing in many OECD countries. Although the legal framework differs from one country to another, the definition of “not-for-profit” or “limited profit” housing actors generally relies on reinvesting profits into the maintenance and development of their housing stock and selling or leasing dwellings at below-market rates. Rents tend to be cost-based, meaning that they are meant to cover the construction and maintenance costs of the dwellings, and can sometimes be computed depending on tenants’ incomes.
Most social and affordable rental dwellings are delivered by social landlords in the Belgian Regions and in France (Table 2.4). These social landlords are not-for-profit companies operating with public loans or subsidies from regional authorities in Belgium and from the central government in France. They are accredited by public authorities with a mandate to build, acquire and maintain social dwellings with these loans and subsidies. They are also in charge of collecting rents, which are used to cover employees’ wages and to be reinvested into maintaining and expanding their housing stock. In France, 45% of social landlords are Offices Publics de l’Habitat (OPHs), which are firms in which municipalities or other local authorities have a stake but which are independent and operate autonomously as social landlords. OPHs operated 45% of the total social dwelling stock (2.13 million dwellings) as of January 2023.
Other OECD countries operate social housing through not-for-profit or limited-profit organisations whose operations can be broader than the social segment of the housing market. In the Netherlands, social and affordable housing is provided through a combination of public entities and limited-profit or not-for-profit housing providers, which are private organisations with public missions and benefitting from public financing schemes (Table 2.4). In the Netherlands, housing associations (woningcorporaties) own roughly 75% of the rental housing stock and have an obligation to provide 92.5% of their stock at social and intermediary rents (Government of the Netherlands, 2025[17]). The remainer of their dwelling stock can be rented at private market-rent, provided these dwellings were not financed with a public guarantee and the number of points they are attributed is 187 or above.
Source: Study visits to Belgium and France (2024), OECD (2023[5]), City of Vienna, Van Deursen (2003[18]).
In Austria, limited-profit housing associations (Gemeinnützige Bauvereinigungen – GBV) deliver social and affordable housing together with municipalities (mostly in Vienna), accounting for 71% and 29% of the social and affordable housing stock respectively in 2020 (Housing Europe, 2021[6]). GBVs are private firms with an independent management board with a mandate to build and manage affordable dwellings, which is established by the Limited-Profit Housing Act (Wohnungsgemeinnützigkeitsgesetz). As discussed in previous sections, although the general eligibility conditions of GBV dwellings set a relatively high income threshold, dwellings financed with a public (regional) scheme come with stricter eligibility conditions to ensure low- and middle-income households are the priority target.
Overall, social housing providers in Austria, Belgium, France and the Netherlands all operate on a limited- or not-for-profit business model to ensure financial sustainability and constant reinvestment into the social and affordable dwelling stock, and are regulated by the competent authorities (state-level or federated entities). Affordable and social housing support is only delivered to these providers, and public funding is only delivered to support the development of social dwellings, by setting social eligibility conditions on the dwellings built using this support.
In addition to housing delivered by not-for-profit housing providers, rental intermediation schemes allow not-for-profit social rental agencies to offer privately-owned dwellings at a discounted rent: the private landlord agrees to a lower rent level in exchange for guaranteed rent payment and fiscal advantages. In France, the Brussels-Capital Region and Wallonia, there are not-for-profit social rental agencies (SRAs), which specialise in rental intermediation, often targeting vulnerable households (Table 2.5; see also Box 3.6). In Flanders, in July 2023, SRAs were merged with social landlords, which now use the dwellings as affordable housing. Rental intermediation only represents small shares of rental dwellings in both France and Belgium and is less stable than housing managed by not-for-profit housing providers. However, rental intermediation can be effective to address short-term affordable housing shortages since these dwellings are already built.
Source: Study visits to Belgium and France (2024).
In Belgium, smaller-scale for-profit private actors have also entered the market to buy and renovate dwellings before renting them out as social or affordable dwellings through rental intermediation, such as Inclusio in Belgium. In France, the provision of social dwellings by private actors is induced through an obligation that municipalities have to impose on private developers to include social dwelling in new developments if the municipality does not have at least 20% of social dwellings (Table 2.6; on developer obligations, see also below section 2.2.3).
Source: Study visits to Belgium and France (2024).
2.1.3. Recommendations to refine the framework and operational mechanisms for affordable and social housing provision
Introducing a universal legal definition of affordable and social housing building on the existing definitions included in the IROP programme and the State Investment Fund affordable rental housing scheme
The Czech authorities could consider the following policy actions:
Build on the definitions of social and affordable housing currently related to existing programmes to create a national framework, facilitating the provision of both, including through financial and regulatory incentives. The legal framework can be introduced by amending the current legislation or, preferably, through separate legislation that would apply to all future programmes aimed at supporting affordable and social housing. The framework should take into consideration the following elements:
Eligibility conditions: there could be a clear differentiation in the definition of social and affordable housing to target different needs, with the former targeting households at a lower end of the income distribution and the latter targeting low- to middle-income households who cannot reasonably afford rental housing at market rates, nor a commercial mortgage to purchase a dwelling. This differentiation will help target households and direct funding. Income ceiling could be revised periodically to maintain the intended targeting. Higher-income eligible households would pay higher rents, and affordable dwellings would be financed by loans with higher interest rates than dwellings targeting lower-income households. The inclusion of additional categories of eligible households could be considered, including for instance people experiencing or at risk of homelessness, people with disabilities, victims/survivors of intimate partner violence, and people living in sub-standard housing. Land-based and spatial planning tools could facilitate the uptake of programmes by local authorities (see Pillar 2). The development of not-for-profit/limited profit housing providers (on which see recommendations below) could create additional capacity for take up of these programmes.
Rent setting: rents could be cost-based but modulated depending on the household’s size and composition, in particular taking the number of dependent people into account. This hybrid rent setting method ensures social housing providers can cover their costs, and that households with lower incomes of vulnerabilities do not pay rents beyond their financial capacities. A rigid cost-based system may not be fair for all social tenants, since people with different financial capacities could face the same rent. Income- and vulnerability-based modulation allows rent to be adjusted to households’ situations, including adjustments over time if their income increases for instance, ensuring that lower-income households pay a lower proportion of their income while higher-income tenants contribute more. In order to take inflation into account and ensure social and affordable housing operators can cover construction and maintenance costs, the legal framework should additionally allow for regulated rent increases.
Develop targeted financing mechanisms to back the provision of social and affordable housing building on existing programmes and introduce incentives for the take up of these programmes. The SFPI’s and the NRB’s current Affordable Housing Programmes could be more targeted for the provision of affordable housing. These programmes could be complemented by other funding programmes for social housing through the provision of lower interest loans or public guarantees based on the eligibility conditions identified in the recommended framework. These funding programmes could target not-for-profit social and affordable housing providers with some financial incentives for initial take up and the roll out of pilot programmes in some municipalities through the active involvement of national authorities.
Establishing a legal framework to define the role and responsibilities of affordable and social housing providers
The Czech authorities could consider the following policy actions:
Introduce legislation defining the role and obligations of not-for-profit/limited-profit social and affordable housing providers: the current legislation on limited-profit and not-for-profit housing providers could take into consideration the following elements:
Mandate to develop and manage social and affordable dwellings: The mandate of not-for-profit housing providers could be focused on the development, purchase and maintenance of social and affordable dwellings, following the criteria defined in the social and affordable housing legislation recommended above. If private for-profit actors are also included in this role, the status of these companies should be strictly restricted to a social purpose. Social landlords could also include municipality companies or associations of municipalities. The narrow definition would allow these housing actors to receive public support in the form of long-term loans (maturity of 40+ years), guarantees, subsidies, and fiscal advantages.
Funding to develop and manage social and affordable dwellings: The Affordable Housing Programme funded by the State Investment Support Fund could provide an opportunity to facilitate the creation of social landlords through the application to the programme by legal entities established by municipalities, which could also include not-for-profit actors. This could create a tangible opportunity to jump start the emergence of these actors.
Rental intermediation: In addition to the stock owned and managed by not-for-profit housing providers, a rental intermediation mechanism could increase the supply of social and affordable housing by using existing privately-owned housing. Rental intermediation allows social and affordable housing actors to lease private properties in order to sublet them at affordable rates, offering private landlords guaranteed rent, fiscal benefits and / or management services. While social and affordable housing development takes some time, rental intermediation can quickly expand affordable housing options without new construction. Rental intermediation could be the responsibility of not-for-profit housing providers or implemented by distinct social rental agencies, whose role should then also be legally defined.
Provide capacity development for not-for-profit / limited-profit social and affordable housing providers to support the emergence of these actors. Newly established not-for-profit housing providers could receive some form of capacity development at the start. This could take the form of training in finance, property development, and business planning. The support could be initially linked to access to funding in a form of a small grant to support the training as done in other OECD countries (Box 2.6).
In Australia, community housing providers (CHPs) have access to Capacity Building Program Grants. The programme enables CHP to receive customised assistance from a professional advisory service provider to improve their housing investment capacities. The eligible advice for capacity building is targeted at supporting the CHPs with their applications for funding from either the National Housing Infrastructure Facility (NHIF) or the Affordable Housing Bond Aggregator (AHBA) of the National Housing Finance and Investment Corporation (NHFIC).
Public support for capacity building is provided in form of grants, which amount to a maximum of AUD 20 000. The grants are available to officially registered CHPs which must either express their interest in AHBA or NHIF funding before they can receive a grant referral from the NHFIC. The professional advisory service provider (consultant) who supports the capacity building can be chosen by the CHP from a list of approved providers.
Consultancy services available through the Capacity Building Program cover four key areas:
Finance (e.g., financial modelling, fundraising and financial risk analysis)
Business planning (e.g., the preparation of business cases and partnership development)
Property development (e.g., sustainable and accessible property design and urban planning)
Risk management (understanding, managing, monitoring and mitigating different risk categories, e.g., financial risks)
Source: Capacity Building Program Grants, https://www.nhfic.gov.au/capacity-building-program-grants.
2.2.1. Leveraging local planning tools to boost affordable housing supply in high-demand areas and promote compact urban development
Challenges in land-use and spatial planning undermine its ability to mitigate the housing crisis
As seen in Chapter 1, real housing prices have increased sharply in Czechia, influenced by several factors, including rising incomes and restrictive land-use governance, making housing less affordable. This decrease in affordability has been felt hardest in bigger cities: as of 2019, households in large cities spent an average of CZK 7 285 on housing per month, compared to CZK 4 615 in municipalities with 1 000 people or fewer (i.e. almost 60% more). Indeed, the purchase price per square metre increased across Czechia between 2019 and 2021 for both family houses and flats, mostly in regions with larger cities (Figure 2.5, Panel A). In Prague, the price per square metre for a family house increased by over 46% in the span of just two years. Furthermore, the difference in the overburden rate between urban and rural areas is one of the largest among EU countries: in 2023, the share of households overburdened by housing costs in cities was 7.2 percentage points higher than in rural areas (13.2% in cities vs. 6.0% in rural areas, Figure 2.5, Panel B).
Note: Panel A: X-axis shows the region with its capital city in parentheses. * = No regional authority town, but Prague is the regional authority.
Source: Panel A: Czech Statistical Office, https://vdb.czso.cz/. Panel B: Housing cost overburden rate by degree of urbanisation - EU-SILC survey (Eurostat).
The lack of affordable housing in Czechia is partly due to the insufficient leveraging and the inefficiency of land use and spatial planning tools to encourage housing development in areas where it is most needed, in response to changes in demand, and in a timely manner. Despite housing needs being concentrated in a limited number of municipalities, residential construction in the Czech Republic has remained largely disconnected from price dynamics, with supply failing to adjust to growing demand (OECD, 2021[11]). Housing development appears concentrated in areas with relatively lower housing prices, while high-demand areas have seen lower levels of new construction (OECD, 2021[11]). Furthermore, land-based finance tools, i.e. tools that recover land value increases resulting from public infrastructure provision and changes in land-use regulations and that can be used to increase the supply of affordable housing, are rarely used in Czechia.
In addition to rising housing prices and a lack of affordable housing supply, the underutilisation of land use and spatial planning tools in Czechia can have various negative externalities. One of these is urban sprawl, driven by low-density development and the proliferation of monofunctional buildings and neighbourhoods. This pattern of expansion undermines social, environmental, and economic sustainability by limiting housing supply, increasing infrastructure costs, and exacerbating car dependency. Additionally, inefficient spatial planning diminishes quality of life by limiting access to essential services and amenities while also creating barriers to the labour market as a lack of affordable housing prevents households’ mobility.
A framework for land use and spatial planning already exists in Czechia. The national government provides the overarching legal framework for spatial and land use planning, while municipalities are responsible for issuing building permits, as well as urban planning and zoning competencies (Box 2.7). The national guidelines are meant to frame local plans to serve the strategic needs of Czechia as a whole, in particular with respect to sustainable development and infrastructure. In addition, there are three types of local plans that municipalities can use, with different scopes and levels of regulatory power (Box 2.7).
There are however barriers to effectively using land use and spatial planning tools to increase housing supply in areas experiencing high demand, including: i) rigid requirements for local plans (e.g. Regulatory Plans are prohibitively difficult to change and must always conform with higher level ones, and the same level of detail is needed for Local Territorial Plans for municipalities of all sizes) ii) fragmentation undermining coordination between levels of government, policy sectors, and municipalities; iii) limited capacity of local governments to develop detailed land use plans or process permits; and iv) time- and cost-intensive permitting processes. Strategic reforms of land use and spatial planning, two policy instruments underutilised by Czechia in the context of the housing sector, could facilitate coordination and incentivise housing development to address the country’s housing crisis.
Similar to 21 of 32 countries surveyed by the OECD in 2016, Czechia uses a hierarchical system of spatial plans, with plans at the national, regional and local level (OECD, 2016[19]). National level policies set general guidelines while delegating the execution of plans to subnational governments. However, lower-level plans must comply with higher level ones.
The new Building Act from 2021 (Building Act No. 283/2021 Coll., effective since 2024) is the main regulation for land use in Czechia, defining the spatial planning system. It defines the Spatial Development Policy on the state level and the Spatial Development Principles on the regional level, both of which are binding for the Local Territorial Plans ("Územní plán") and Regulatory Plans (“Regulační plán”) created by municipalities – see below more details on these two types of plans. The Ministry of Regional Development is responsible for the legislative framework that defines the planning system and supervises and guides the planning of lower levels of government.
The Spatial Development Policy is a binding spatial planning instrument with nationwide scope developed and applied by the Ministry of Regional Development. It is intended to coordinate the spatial planning activities of the regions and municipalities, as well as inter-sectoral concepts, policies and strategies. It is periodically updated (every four years) and approved by the state government, with its last update in 2023. The Spatial Development Policy determines the strategy and basic conditions for the fulfilment of the spatial planning tasks and thus provides a framework for the generally beneficial development of Czechia, particularly regarding sustainable spatial development.
The Spatial Development Principles for regions are set by planning offices that are formally part of regional authorities but exercise their powers within the delegated powers of the state. Spatial Development Principles for regions must adhere to the state level Spatial Development Policy, and in turn municipal level plans must adhere to a region’s Principles. These Principles are intended to specify regional development objectives and co-ordinate planning activities of municipalities, but do not include more granular local land use plans, which are left to municipalities.
Spatial planning at the municipal level
Municipalities are responsible for housing provision, including affordable housing, and have competency over grant allocation and distribution, urban planning and zoning. The new Building Act from 2021 (Building Act No. 283/2021 Coll., effective since 2024) includes a streamlining of the permitting process and empowering municipalities to set obligations more firmly for developers as part of a planning contract. While the new Building Act does not contain significant changes to spatial planning, such changes are envisioned for the next round of updates in the near future.
At the municipal level, there are three types of plans, two of which are legally binding.
A Local Territorial Plan is a land use plan that shows permitted land uses for the entire territory of a municipality and is strictly enforced. It is evaluated every 4 years. More than 95% of all municipalities have this plan. This plan leaves scope for discretion by the Building Office responsible for issuing planning permissions, but must be in line with the regional level Spatial Development Principles and the state level Spatial Development Policy.
A Regulatory Plan is only prepared for specific areas, such as redevelopment zones, and covers only small parts of municipalities. It provides further regulations regarding the details of permitted developments, such as architectural specifications. Public authorities can procure these plans from the private sector, but this is quite rare in practice. Regulatory Plans must be revised if the Local Territorial Plan on which they are based is changed and must be in line with the Local Territorial Plan of the municipality as well as the regional level Spatial Development Principles and the state level Spatial Development Policy.
A Planning Study is an ad-hoc document that can be procured by regional and local authorities or by private actors to develop solutions to particular planning problems. It is non-statutory and is not legally binding.
Sources: OECD/Lincoln Institute of Land Policy, PKU-Lincoln Institute Center (2022[20]), OECD (2017[21]), OECD (2021[22]).
The impact municipal planning instruments can have on housing supply is undermined by their rigidity
Under the national level planning framework, spatial plans developed at the municipal level must conform strictly to regional Development Principles and national Development Policy, despite stark differences in local contexts (Box 2.6). This means that all 6 258 municipalities in the country have to use the same planning instruments as defined by this national framework, even though 5 531 of them (more than 88%) have fewer than 2 000 residents each, and just six municipalities are home to more than 22% of the national population (Figure 2.7, Panel A). Indeed, with 58 municipalities per 100 000 inhabitants, Czechia has the most fragmented municipal landscape among all OECD countries (Figure 2.7, Panel B).
Source: OECD (2017[23]).
Source: Panel A: Czech Statistical Office, https://vdb.czso.cz/. Panel B: OECD.Stat (2023[24]).
Due to the uniform structure of planning instruments regardless of municipality size, these municipal level instruments suffer from a rigidity that undermines their utility in procuring housing development where it is needed, when it is needed, and in the form it is needed. While municipalities are technically free to design their Local Territorial Plans (LTP) and Regulatory Plans (RP) as they see fit, the “one-size-fits-all” nature of the former and the challenges involved in amending the latter limit their respective capacities to adequately attract housing development in a timely manner that matches the scale and type of demand in larger cities.
For instance, though 95% of municipalities have an LTP, the uniform requirements of the plan regardless of the size of the municipality can prevent large and growing cities from leveraging them to address specific needs in certain defined areas. By contrast, larger municipalities rarely use RPs despite their potential efficacy in establishing a detailed and binding land use plan for a targeted area because of how difficult it is to update them if a shift in demand or context arises after initial approval. Furthermore, the process of procuring these planning instruments can be sluggish, leaving them unable to respond to a rapid shift or spike in demand, especially in a particular neighbourhood or section of a city. The Planning Study (PS) instrument has advantages for municipalities compared to the other two concerning flexibility and stakeholder coordination, but because it is not binding, developers cannot reliably guide investment based on its results.
Coordination between tools and between stakeholders both suffer as a result of the trade-offs between these three planning instruments available to municipalities, leading to an underserved urban housing market. An improved coordination of these instruments in a way that allows each one to complement the others and mitigate their weak points could make them more effective in the effort to address the housing crisis in Czechia. The trade-offs between the current iterations of these respective instruments at the municipal level, as well as potential ways to enhance their utility to address the housing needs of cities, are analysed below.
Local Territorial Plans
Per the Building Act, a Local Territorial Plan (LTP) must apply to an entire municipality and requires the same amount of detail whatever the city size, resulting in a “one-size-fits-all” structure that can place an administrative and financial burden on larger cities. The costs of coordinating numerous stakeholders and collecting the necessary planning specifications for the LTP of an entire city can be quite heavy for larger and more complex municipalities compared to smaller ones. In addition, the LTP does not permit more granular intra-city planning for specific areas, which would allow a larger city to establish a distinct spatial plan for specific areas where greater detail is necessary based on demand and a broader urban land use strategy. Regulatory Plans are supposed to provide this, but they are often underused by larger, more dynamic cities due to their inflexibility (see section on Regulatory Plans below).
Indeed, LTPs appear to take longer on average to prepare and to process for larger cities compared to smaller ones, which can prevent them from responding nimbly to ever-evolving demand compared to smaller municipalities whose demand for development is usually stabler. As of 2022, the procurement of LTPs for municipalities with 100 000 or more residents took more than 5 years on average, and could exceed 11 years (Table 2.7). Likewise, the average procurement time of LTPs for municipalities with 100 000 or more residents was found to be 6 to 7 years, compared to much shorter average processing times for smaller cities (Institute of Spatial Development, 2022[25]).
While changes to LTPs for large cities appear to take less time on average (less than 3 years for cities with 50 000 or more residents (Table 2.8), changes to the LTP for Prague, by far Czechia’s largest city, can take far longer. According to the Spatial Planning Authority of the City of Prague, the average duration of LTP changes in the period 2021-2023 was 5.7 years in the standard process, and 2.8 years in the accelerated process (a legal option via the Building Code). The City of Prague has been procuring nearly all its LTP changes in the accelerated process since 2020; prior to this, the average procurement period for LTP changes was 6.8 years. This suggests that even the accelerated LTP option for larger cities is not quite fast enough to sufficiently respond to updates to demand for urban development.
Source: Spatial Planning Department of the MRD.
Regulatory plans
Regulatory Plans (RPs) can be very specific on technical aspects related to building size, density, materials, etc., and have a flexible scope that can apply to any size of land from a single plot to a neighbourhood or even an entire city. These are significant differences from LTPs and could make RPs a useful alternative for municipalities that aim to develop one specific area of a city, rather than update the city-wide LTP. Thus, in principle these facets make RPs effective tools for promoting housing development in specific areas.
However, in contrast to LTPs, which are used by almost all municipalities, Regulatory Plans are seldom used by larger cities to spur housing development in designated areas due to several challenging aspects, including a weak capacity to coordinate stakeholders and difficulty in making changes after initial approval. Though an RP can be quite useful for smaller municipalities with more stable housing demand, it is not agile enough to respond to shifts in demand for large cities that often have a more complex landscape concerning both spatial planning and stakeholders.
The main challenges to effective use of RPs include a lengthy public consultation process, a lack of flexibility after adoption, and a rigidly hierarchical planning system that precludes the adjustment of superordinate plans based on updates to an RP. Each change to an RP triggers a public consultation, which can lead to a long and expensive process that discourages use of the tool. Indeed, RPs cannot be easily changed after initial adoption, even if the change is universally supported among stakeholders. This requires cities to get an RP perfect the first time or endure a cumbersome adjustment process, which is especially difficult with multiple stakeholders and the high level of detail required. Finally, a change to an RP is not possible if it conflicts with an LTP or regional level Development Principle, despite the change being universally agreed to among affected local stakeholders.
Combined, these binding aspects of the RP can result in significant delays between the time a change is submitted and when it is approved, undermining its potential to positively impact the housing market if the needs of an area have dramatically shifted in the meantime. This process can also be prohibitively costly for developers who cannot always afford to hire and retain planning experts for the entire duration of the procurement process, which can take up to 10 years.
Planning studies
The Planning Study (PS) instrument has several benefits compared to the LTP and RP, such as its ad hoc usage, its flexibility of scope, and its ability to coordinate multiple stakeholders with divergent interests around a coherent strategic land use plan. However, as the PS is not legally binding, developers tend to avoid direct investment based on its findings to limit risks, undermining its utility.
The non-binding nature of the PS would not be such a challenge if an informal consensus agreement formed by the PS through stakeholder coordination concerning a given urban area could be formalised through the RP. However, this use of the RP is not practical due to its rigid aspects described in the previous section: in most cases, by the time an RP could be procured and adopted, the context underpinning the PS that the RP is being used to solidify would have changed.
To cope with this poor synchronisation among municipal level planning instruments, Prague has used private contracts (called “planning contracts”, or “Plánovací smlouvy” in Czech) to formalise consensus agreements forged between the municipal government and developers via the PS. These private contracts act as de facto Regulatory Plans that ensure the PS is adhered to for an agreed upon period. While this is an effective temporary solution, it does not ensure municipal planning instruments complement each other in the long run. In addition to addressing the limitations of RPs mentioned in the previous section, the mutual relationship between the RP and PS could be made more formal to ensure that the respective strengths of each one are leading to more effective land use planning that benefits municipalities.
Czech stakeholders have highlighted the rigidity of spatial planning tools
According to the OECD Stakeholder Survey, just over half of respondents (52%) agreed or strongly agreed that the Local Territorial Plans are too rigid, while 43% expressed the same opinion regarding the Regulatory Plans (Figure 2.8). Reasons cited were that adopting and / or adapting Local Territorial Plans was too lengthy and costly for all relevant actors (local authorities, public and private sectors), which reduced the ability of local planning systems to respond to new demand and slowing down the development of affordable housing.
Building permit processes have recently improved in Czechia. The building permit process has been historically slow and convoluted, and a key obstacle to developers’ response to new demand on the housing market, which was addressed by recent simplification reforms. The permitting process used to require two steps: developers need to first specify the physical characteristics of a building, before providing proof of compliance with various safety standards. The 2021 Building Act unified them into one single step addressing both aspects at the same time. This has sped up the processes, while reducing both the administrative burden for local authorities and the cost for developers. Despite this streamlining, 71% of stakeholders still find the permitting process too long and complex, which can result in developers not being able to respond quickly to new housing demand. The ongoing digitalisation of the permitting process could further help shorten the length of the procedure and alleviate local governments’ capacity issues.
Note: The "Municipal Local Territorial Plans ("Územní plán") are too rigid" category is based on answers to the statement "The structure and requirements of municipal Local Territorial Plans are too rigid to respond to housing demand in cities " (23 responses). The "Municipal Regulatory Plans (“Regulační plán”) are too rigid" category is based on answers to the statement." The structure and requirements of municipal Regulatory Plans are too rigid to respond to housing demand in cities" (21 responses).
Source: 2024 OECD Stakeholder Survey: Affordable Housing in Czechia.
Further streamlining administrative processes and reforming spatial planning documents could help accelerate the development of affordable housing development, as agreed by a large majority of respondents to the stakeholder survey (Figure 2.9). This includes further streamlining the process for building permits (76% of stakeholders agreed) – e.g. by limiting reasons to challenge a permit and decreasing review time –, reforming the structure and requirements of the Local Territorial Plans for larger cities to support faster procurement and incorporation of changes (76%), reforming the Regulatory Plans to streamline the public consultation process and make it easier to change in response to demand (71%), and streamlining the process for approval and change of Local Territorial Plans and Regulatory Plans (73%). Moreover, some stakeholders suggested updating spatial planning tools to allocate or reserve land for affordable housing and increasing public participation to support affordable housing development.
Note: The question asked to the stakeholders was “To what extent do you agree or disagree that the following possible solutions could lead to leveraging more efficiently land-use and spatial planning tools to support affordable housing development?". “Reform the structure and requirements of the municipal Local Territorial Plan for larger cities to support faster procurement and incorporation of changes” and “Reform the municipal Regulatory Plan to streamline the public consultation process and make it faster/simpler to change in response to demand received” and “Further streamline the process for building permits (in addition to recent reforms to the to Building Act)” received 21 answers, “Further streamline the process for approval/change of Local Territorial and/or Regulatory Plans” received 22 answers.
Source: 2024 OECD Stakeholder Survey: Affordable Housing in Czechia.
Experiences related to spatial planning and permitting processes in other OECD and EU countries
Other OECD countries have implemented comprehensive reforms of their spatial planning tools to address housing affordability needs. New Zealand, which is characterised by low-density cities and increasingly unaffordable housing market, has implemented two key policies to promote urban densification: i) the National Policy Statement on Urban Development 2020 (NPS-UD), which mandates local authorities in major urban areas to increase building height limits within walkable catchments of urban centres and along rapid transit corridors, while also abolishing minimum car parking requirements; and ii) the Medium Density Residential Standards 2021 (MDRS) which requires these authorities to permit the construction of up to three homes of three storeys on any residential lot by default. Through more sustainable and efficient land use, this policy has allowed to curb urban sprawl, restrict low-density housing, and promote urban densification.
In France, urban planning authorisation applications, including building permits, can be submitted online since 2022 through a streamlined and free platform in order to speed up permitting processes. All municipalities are required to acknowledge receipt of urban planning authorisation forms, including building permits, through this digital platform. Municipalities with more than 3 500 inhabitants also have to process these applications digitally. To support this transformation, the government introduced a comprehensive digitalisation programme for land-use regulations, known as Online Building Permits (Permis de construire en ligne). This initiative offers a wide range of actions, including simplifying procedures for both users and municipal staff, saving time and costs, improving transparency, and enhancing coordination between services. Ultimately, these improvements led to higher-quality services for users.
2.2.2. Improve coordination between different levels of government, sectoral policies, and between municipalities to increase affordable housing production
The lack of coordination between different levels of government and actors hinders housing development where needed
Coordination of local land use planning can be difficult in Czechia along vertical, horizontal, and inter-municipal axes. Fragmented responsibilities and a lack of coordination between different levels of government and policy sectors undermine the ability of subnational governments to leverage land use planning to supply housing (OECD, 2021[11]). Nearly two-thirds of stakeholders (65%) in the OECD stakeholder survey reported that a lack of vertical coordination was a barrier to increasing affordable housing provision, while 81% of stakeholders agreed that improving coordination between different levels of governments would help implementing efficient affordable housing policies (Figure 2.10).
Note: The question asked to the stakeholders was “To what extent do you agree or disagree that the following possible solutions could lead to leveraging more efficiently land-use and spatial planning tools to support affordable housing development?". “Increase coordination of land use planning vertically between governments” received 21 answers, “Increase coordination of land use planning horizontally between sectors” and “Increase coordination of land use planning between municipalities” received 22 answers.
Source: 2024 OECD Stakeholder Survey: Affordable Housing in Czechia.
Vertical coordination
Vertical coordination is difficult because while the national government has devolved the responsibility and cost of developing local land use plans to municipal governments, the municipal plans must always adhere to regional level Development Principles, which in turn observe the national Spatial Development Policy. This is not necessarily a problem in theory, but in practice it can mean that municipal level plans cannot be sufficiently altered if they conflict with higher level ones.
As discussed in the previous section, a municipality’s LTP must adhere to the regional level Development Principles, and any RP must adhere to that municipality’s LTP. The PS is not binding in any manner. This system of spatial planning does not allow bottom-up modifications, meaning that even if local actors unanimously agree on a change to an RP, or reach consensus on a PS, these changes are not possible if they contradict the presiding LTP and/or regional Development Principles. The LTP and DPs have to modified first, meaning they cannot be updated in response to modifications to lower-level plans. While LTPs can be updated at any time in order to allow a change to the RP, the process can be lengthy and slow down related development (Table 2.8). Reforming the RP so it can feedback into superordinate land use plans more quickly and strengthening the PS so it can have a greater influence on those same plans, could help mitigate this issue.
Horizontal coordination
Horizontal coordination of municipal planning is also a challenge, since strategic regional plans focused on economic development are not aligned with spatial plans, despite the interdependency of these competencies. Conflicts and gaps between different policy sectors suggest that a holistic approach to land use that includes all relevant sectors may be more effective than the current sector-based approach. A large majority of respondents (80%) from the OECD Stakeholder Survey reported that horizontal coordination of municipal planning is insufficient, while 82% agree on the added value of increased coordination of land-use planning with other policy sectors (Figure 2.10).
Most municipalities lack a housing policy framework altogether. When municipalities do have a housing strategy, it is not usually coordinated with the spatial plan. The lack of coordination in the development of key amenities (e.g. housing, schools, office buildings, etc.) with public transport and infrastructure contributes to urban sprawling, leading to an inefficient use of land, increased commuting time for workers, and greater emissions due to private car use. Coordination between sectors is further hindered by the narrow definition of “infrastructure” by Building Authorities, which does not take the broader regional context into account, including housing issues, making their contributions to land use and spatial plans incomplete. These plans could for instance take into account housing demand, school capacity, transport connectivity, and infrastructure such as electrical grids and the water supply at the regional level.
Fostering horizontal coordination, in particular coordinating housing and spatial strategies, could help incentivise housing development where it is most needed, removing a key barrier to social housing development (an underdeveloped segment of the housing market), and facilitating additional supply of multi-family rental housing stock in the location and form it is needed. Horizontal coordination between land use and other policy fields such as transport and the environment is also necessary to reach broader planning goals of sustainable and compact urban development.
Another obstacle to effective coordination of local land use plans is the longstanding view that housing is a private and individual concern, as both municipalities and voters appear sceptical of coordinated development according to the 2024 OECD Stakeholder Survey. There seems to be strong ideological opposition to coordination of housing development in the country since the fall of communism, resulting in Not-In-My-Backyard (NIMBY) resistance to policies that would enable better spatial planning and coordinated land use, including in the context of housing development.
Inter-municipal coordination
With 58 municipalities per 100 000 inhabitants, Czechia has the most fragmented municipal landscape among all OECD countries (Figure 2.7). This administrative fragmentation at the local level hampers effective local strategic planning. The existence of many small municipalities impedes planning at the right scale and makes it difficult to ensure that municipalities have sufficient capacity to plan their development effectively and strategically. To face this issue, various cooperation mechanisms exist in Czechia, but have been underutilised in the domain of housing. Intermunicipal cooperation is ensured by the 205 municipalities with extended powers (Obec s rozšířenou působností), which are larger municipalities in charge of functions delegated by the central government for particular catchment areas. The central government finances these services through grants. Smaller municipalities can also delegate additional functions which they do not want or cannot perform because of capacity constraints to municipalities with extended powers (OECD, 2019[26]).
The Czech Republic 2000 Act on Municipalities has established other types of cooperation and coordination between municipalities, including Voluntary Municipal Associations (VAMs). VAMs can be founded by two or more municipalities, which do not have to be neighbouring. The main competencies of VAMs are water and sewage management, followed by waste management. There were 702 active VAMs in 2022 (OECD, 2023[27]), and their expenditures in the area of housing and communal services have increased in the past decade. There is still untapped potential for intermunicipal collaboration on housing, and municipalities could be further incentivise to pool resources by implementing planning instruments at a larger scale encompassing municipalities and their functional area (OECD, 2012[28]).
While regional governments provide Development Principles as a framework for municipal level land use planning, the coordination of municipal level planning between municipalities was broadly considered difficult as well by surveyed stakeholders, particularly relative to housing. Coordination between municipalities is crucial, as neighbouring municipalities often face similar or interconnected challenges while often sharing the same infrastructure, at least partially. A municipal plan developed in isolation from neighbouring municipalities' plans is less effective in addressing local housing challenges and limits opportunities for resource and capacity sharing among municipalities. This can lead to duplication of efforts by municipalities and a suboptimal use of resources. The challenge of intermunicipal coordination, especially on housing policies, was already raised in the 2021 OECD-MMR survey, in which 89% of Czech municipalities reported that there was no intermunicipal coordination on housing policies (OECD, 2021[22]). Similarly, 70% of stakeholders in the 2024 OECD Stakeholder Survey agreed that coordination remains insufficient, while 77% agreed that enhanced coordination between municipalities could foster more affordable housing development (Figure 2.10).
To increase intermunicipal cooperation, considered crucial to overcome Czechia’s fragmented territorial governance, the Ministry of the Interior has prepared an amendment to the Act on Municipalities to establish the Institute of Community of Municipalities (Institut Společenství obcí). The Institute was designed to enable better cooperation between municipalities, supporting more efficient planning, reaching economies of scale, and implementing local initiatives. In particular, the creation of “flying officials” shared by the member municipalities is intended to help reduce administrative burdens and costs, and increase the quality and efficiency of decision-making. (OECD, 2023[29]).
In addition to this effort to facilitate cooperation among municipalities, stakeholders in the housing, planning and development sectors are currently undertaking a Planning Study commissioned by the Ministry of Regional Development in the metropolitan area of Prague and its surroundings, though the study results will not be binding. The Prague Institute of Planning and Development (Institut plánování a rozvoje hlavního města Prahy – IPR) is also working with the Ministry of Interior to encourage and facilitate cooperation among different levels of government, which remains a major challenge.
Practices related to coordination between municipalities and across planning levels and policy sectors in other OECD and EU countries
Like Czechia, France has a very fragmented municipal structure, with more than 36 000 municipalities. In order to promote urban and territorial planning at the scale of the functional area, strengthen the capacities of cities and optimise their budgets by pooling their resources, France established intermunicipal cooperation bodies (Établissements publics de coopération intercommunale – EPCI). The nature of the EPCI is determined based on population size, and in turn defines the EPCI’s responsibilities and access to government funding through the General Operating Grant (Dotation Globale de Fonctionnement), which is the main funding channel of local governments. Smaller Communautés de communes serve rural areas, while Communautés d'agglomération (more than 50 000 residents) and Communautés urbaines (more than 250 000 residents) take on more advanced responsibilities, such as economic development and urban planning. Métropoles (more than 400 000 residents) have extensive powers, including overseeing transport and social policy, thereby driving regional growth.
EPCIs bring together several municipalities which delegate, for example, planning and housing powers to the intermunicipal organisation to improve the coherence of these policies across the territory. EPCIs are specifically responsible for designing and implementing intermunicipal spatial plans (Plan local d’urbanisme intercommunal – PLUi), which can integrate a housing section (PLUi-H), improving both intermunicipal and horizontal coordination. The establishment of EPCIs is mandatory throughout the French territory, as well as the transfer of some responsibilities (spatial planning, economic development, waste management, etc.) from the municipalities to these intermunicipal organisations – the nature of these responsibilities depends on population size. In 2025, French municipalities were grouped in 1 254 EPCIs.
France also implements coordination between urban and housing strategies at the national level. The National Agency for Urban Renewal (Agence Nationale pour la Rénovation Urbaine – ANRU) promotes vertical and horizontal coordination by creating partnerships between public actors (national and local governments, social housing provider, public land management agency, etc.) to implement the demolition and reconstruction of buildings, the rehabilitation and construction of housing and community facilities, as well as the transformation of public spaces.
The establishment of national discussion forums can also improve coordination across planning levels and urban policy sectors. Austria for instance established the Austrian Conference on Spatial Planning (Österreichische Raumordnungskonferenz – ÖROK) in 1971, which is a national organisation overseeing coordination on spatial planning policies between the three levels of government. Its members include representatives from all levels of government (national, regional, municipal) as well as economic and social partners in an advisory capacity. Every ten years, the ÖROK revises the Austrian Spatial Development Concept, which is designed to account for the spatial diversity of Austrian cities.
In Italy, inter-governmental coordination mechanisms are also well developed. The main institutional mechanisms are the Conferences, which are forums for discussion and coordination across vertical levels of governments (e.g. the Conference of State-Regions; the Conference of State-Cities and Local Autonomies; and the Joint Conference of State-Regions-Municipalities and Local Authorities. The three conferences are held at the Presidency of the Council of Ministers). The Conference of State-Cities and Local Autonomies (Conferenza Stato-città ed autonomie locali), for instance, is presided by the President of the Council of Ministers and gathers the Minister of Interior, the Minister of Regional Affairs, the Directorate General of the Treasury, the Minister of Finance, the Minister of Infrastructure, the Minister of Health, the president of the Association of Italian Municipalities, the president of the Association of the Italian Provinces, the president of the Association of Italian Mountain Communities, 14 mayors and 6 presidents of Provinces. The conference coordinates the relations between state and local authorities, as well as studies and discusses issues pertaining to local authorities.
2.2.3. Land-based finance tools are rarely used to support housing affordability objectives
Land-based finance: definition and potential use for affordable housing provision
Land-based finance (LBF) can be an important tool to provide resources for affordable housing in locations with strong housing demand. It enables local governments to recover land value increases resulting from public infrastructure provision (e.g. a new metro line) and changes in land-use regulations (e.g. newly buildable land, higher FARs). Value uplifts can be substantial and can be used to pay for affordable housing construction. The strength of LBF instruments is twofold:
They tap windfall profits for landowners. Therefore, the proper use of LBF instruments does not have an impact on incentives and costs, such as housing costs.
Value uplifts are strongest where real estate markets and housing demand are dynamic and where social housing is needed the most, and where it would cost governments the most to provide social housing in the absence of LBF.
Several land-based finance tools can support housing affordability objectives (Box 2.8). The use of land-based finance tools by local government can also strengthen incentives for development. Where there is overreliance on the resources such tools provide there may be risks of overdevelopment (OECD/Lincoln Institute of Land Policy, PKU-Lincoln Institute Center, 2022[20]).
Developer obligations
Developer obligations mainly apply when developers seek development approval or special building permissions. The obligations can consist of cash or in-kind contributions designed to defray the costs of new or additional public infrastructure and services that private development requires. Some countries require developers to build affordable housing that is sold or rented below market price in exchange for development approval. This practice, called “inclusionary zoning” or “inclusionary housing”, can be viewed as a form of developer obligation. The contributions, such as the number of affordable units that developers have to build, can be either negotiated between local governments and developers or calculated using a fixed formula.
In Korea the developer obligations are mandated by national law and are used to compensate for the impact that the new development or development at higher density will have on local infrastructure and public service demand. Small development projects may be exempt. Charges are either rule-based or negotiated. Being incorporated into the planning system, these obligations are consistently enforced.
Strategic land management
With strategic land management, governments buy land or use existing land holdings to recover increasing values from them, which can in turn be used to fund public services and infrastructure, such as affordable housing. If governments acquire land at pre-development prices, they can fully recover land value increases that are due to public development or changes in land-use regulations. Governments can recover land value gains with the sale or lease of rezoned and developed plots, which have a higher value. Similarly, governments can lease usage rights, recovering value increments through higher rents.
Strategic land management (called Active Municipal Land Policy) plays a crucial role in housing policy in the Netherlands. The instrument is mainly used in the largest cities of Amsterdam, Rotterdam, The Hague and Utrecht. The legal basis is defined in "Besluit Begroting en Verantwoording Provincies en Gemeenten" (BBV) and the "Mededingingswet" (Competition Law), which outlines conditions for how municipalities must act as market players in the land market. Typically, local governments acquire vacant, abandoned or unproductive land through debt financing, in advance of needs for the purposes of urban development, spatial planning, and capture of capital gains. They purchase land at either market price or reduced price. After rezoning, municipalities service the land through physical preparation and the building of public spaces and infrastructure. Local governments recover initial investments through the sale or lease of the developed plots.
Land readjustment
Land readjustment is where privately-owned, contiguous land plots are pooled and developed jointly. It is often accompanied by zoning changes or relaxed density regulations so that newly developed land becomes more valuable. In turn, landowners provide a share of their plots for public infrastructure and services, such as public roads, utilities, parks or affordable housing. Landowners are returned a smaller plot that is nonetheless more valuable due to the improvements made. Land readjustment can be initiated by local governments or private landowners. The instrument is referred to as “land pooling” in some countries.
In Japan, an average of 870 land readjustment projects are conducted yearly. Land readjustment projects can be initiated by governments, special public bodies, private entities, landowners and leaseholders. Land readjustment first needs the consent of at least two-thirds of involved landowners and leaseholders. 30-40% of readjusted plots are reserved for public improvements including infrastructure and utilities. The readjusted areas also typically include publicly owned plots for sale, which are used to recover development costs.
Charges for development rights (density bonus)
Charges for development rights may be levied to build at a higher density beyond an established baseline that is defined by a jurisdictional ordinance or regulation. Thus, they require clear, predefined land-use and zoning regulations that set baseline and maximum densities. Developers may also be charged for development rights when governments change zoning or relax density regulations. In some cases, development rights, for example to protect new nature reserves, can be transferred to a different plot better suited to higher density development. Usually, the types and amounts of cash or in-kind charges are defined in advance in ordinances or local regulations. The revenues from charges for development rights could be used to fund affordable housing construction. Charges for development rights, as defined in the OECD-Lincoln Institute “Global Compendium of Land Value Capture Policies, are typically known as “density bonus” in English-speaking countries.
In Canada some local governments may implement charges for development rights which are locally known as density bonusing. Developers who make a request to build at higher density have to pay a combination of cash and in-kind provisions, such as day care facilities, subway station connections and affordable housing units. The contribution may vary according to the zone. If the contribution is affordable housing units, they must be built on-site and be comparable to market-rate ones, in terms of size, design standards and amenities. For units to be rented or sold at affordable prices, the project must have a minimum share and size of units, which can vary by jurisdiction and zone. Beneficiaries are households eligible to social welfare programmes
Infrastructure levy
An infrastructure levy is a tax or fee levied on landowners possessing land that has gained in value due to infrastructure investment initiated by the government. The government identifies the catchment area in which landowners are deemed to benefit from public works who then need to pay the levy. The amount of the levy should be based on the land value benefit obtained and can be either a one-time payment or payable over a longer period. The infrastructure levy can cover the provision of affordable housing when the increase in land value due to public infrastructure investment outweighs the infrastructure’s cost. For example, the levy can pay for the construction of affordable housing along public transport lines. Other common terms for the infrastructure levy include “betterment contribution”, “betterment levy” or “special assessments”.
Colombia's infrastructure levy, established in 1921, funds public roads, transport, utilities, and green spaces, mainly in large and mid-sized cities. The levy typically covers project costs and may be tied to land value increases, which many landowners prefer. Affected landowners are identified using market-based methods, and payments are calculated based on distance, location, size, quality, and property value.
Use of land-based finance tools in Czechia
Czechia rarely uses land-based finance tools to provide affordable housing – as well as land-based finance in general (Table 2.9). This is mainly due to inadequate legislation and municipalities’ lack of technical capacity.
Developer obligations are mostly used to cover public infrastructure needs but not affordable housing
Legislation for developer obligations is inadequate for affordable housing provision
In Czechia, municipalities use developer obligations to cover the public infrastructure needs generated by private development of land. Usually, developers have to provide part of the public utilities and roads within the new development areas, but rarely affordable housing (OECD/Lincoln Institute of Land Policy, PKU-Lincoln Institute Center, 2022[20]). Developers seeking approval for new development or for changes in Local Territorial Plans or Regulatory Plans may enter into a planning contract (plánovací smlouvy) with municipalities. Planning contracts are negotiated on a case-by-case basis with developers and may or may not require the provision of infrastructure or payment of a fee by developers, depending on municipalities’ negotiating power.
In the past, planning contracts have been rarely used. The 2021 Building Act (implemented since 2024) aims to broaden their use, allowing municipalities to use them for any type of development approval, not only for Local Territorial Plan or Regulatory Plan changes. But weaknesses remain. For example, the requirement attached to planning contracts to provide public infrastructure or pay a fee expires six years after the approval of new development or changes in the Local Territorial Plan or Regulatory Plan. Since planning contracts are subject to developers’ approval, developers may prefer waiting for the planning contracts’ requirements to expire rather than committing to infrastructure obligations.
The Building Act does not mention that planning contracts can require a share of housing units in new developments as affordable units, although inclusionary zoning could legally be used since July 2024, if affordable rental housing is provided following the affordable housing definition from the State Investment Support Fund (SISF, see more details in Box 2.3 in section 2.1.1). However, this rarely occurs in practice. Currently, municipalities, when they change a Local Territorial Plan or Regulatory Plan at the request of private developers, sometimes try to negotiate that developers build some housing units that are then transferred into municipal ownership as social housing. But this is rarely achieved. Most small municipalities do not have the capacity to negotiate with developers. When developers build (or pay for) affordable housing units to obtain development approval, the affordable units are built on-site, within the boundaries of the market-rate project for which development approval is issued.
Another important reform direction would be to set the required number of affordable units that developers have to build, based on the increase in land value from development approvals, to fully exploit the potential for affordable housing provision. Land-based finance instruments are also better accepted by developers and landowners when they are charged in relation to the value uplift as the benefit is more visible, as opposed to when they are charged to simply cover the costs of public improvements.
While lack of administrative capacity is the main barrier to the use of developer obligations notably for social housing (Figure 2.11), most respondents to the OECD stakeholder survey also reported that the lack of reference to the use of developer obligations for social housing in legislation and the lack of awareness of this potential instrument to provide social housing are barriers. The Building Act does not specifically mention that local governments can require a share of housing units in new developments as affordable units. Inclusionary zoning could legally be used. However, this rarely occurs in practice. Currently, municipalities, when they change a Local Territorial Plan or Regulatory Plan at the request of private developers, sometimes try to negotiate that developers build some housing units that are then transferred into municipal ownership as social housing. But this is rarely achieved. When developers build (or pay for) social housing units to obtain development approval, the affordable units are built on-site, within the boundaries of the market-rate project for which development approval is issued.
Source: 2024 OECD Stakeholder Survey: Affordable Housing in Czechia.
Public land is rarely managed strategically to provide affordable housing
The national government and municipalities sell publicly owned land to private entities with no affordable housing requirements. In particular, this occurs in municipalities experiencing outward migration and declining house prices, as they try to retain landowners and economic activity. Ostrava is one of the few Czech cities that manages public land strategically to provide affordable housing. It does so by selling plots to private developers, repurchasing 10% of flats back at a reduced price and making them affordable (at 75% of the market rent). Municipalities may also lack financing for the acquisition of land. Legislation does not allow them to buy or expropriate land at the price before the announcement of a public investment or zoning change when the market price has already priced in the effect of a public investment decision or a zoning change. Opening up the possibility of buying at predevelopment prices allows to recover the increase in land values that public investments or zoning changes generate.
Land readjustment, charges for development rights (density bonus) and the infrastructure levy are not used and do not have a legal basis in Czechia. These LBF tools can also be used to the benefit of social housing. For example, owners of land adjacent to the stations of a new railway line may see the value of their land rise and could be asked to provide social housing when developing their land. Land readjustment was included in legislation until 2023 for brownfield redevelopment and the conversion of rural to urban land, but not for affordable housing provision. It was rarely used, mainly because all landowners had to consent, which has proved unrealistic especially when land ownership is fragmented. The new Building Act, in force from 2024 onwards, dropped the instrument. In many countries, only a share of landowners – typically between 50% and 75% – or landowners who own a certain share of the readjustment area need to consent to initiate a readjustment project. Expropriation can be a fall-back option if some landowners do not consent. Charges for development rights (density bonus) and the infrastructure levy do not have a legal basis in Czechia.
As the results of the stakeholder survey suggest, multiple barriers would need to be addressed to expand the use of strategic land management (Figure 2.12). These include lack of awareness, limited administrative capacity, financing constraints and absent or inadequate legislation. Given that acquiring land prior to development at a lower cost potentially reduces the cost of social housing provision to the government, eliminating such obstacles could increase the availability of social units and meet community needs more effectively.
Source: 2024 OECD Stakeholder Survey: Affordable Housing in Czechia.
Practices related to land-based finance in other OECD and EU countries
Laying out affordable housing requirements on developers in legislation
In Belgium, the Brussels-Capital Region and city of Ghent in the Flemish Region are both working on including affordable housing requirements in local land-use plans. This would avoid the need to negotiate such requirements on a case-by-case basis with developers, which makes their implementation dependent on municipalities’ political will and negotiating power. This also holds back affordable housing requirements in Czechia. This also helps provide clarity to developers. In Ghent, developers and citizens participate in the local land-use planning process through consultation, which helps to build consensus. Developers also have an incentive that a local land-use plan gets approved, to be able to develop land, and therefore may be more willing to accept developer obligations if they are included in spatial plans.
Several OECD countries have successfully used developer obligations to improve housing affordability in the most expensive cities, such as several major cities in Germany. For example, since 2020, the city of Frankfurt not only requires the provision of 30% affordable rental units in greenfield housing developments, but also the provision of 10% affordable owner-occupied units, 15% co-operative units and 15% free-market rental units (OECD, 2021[11]). Similarly, some Belgian municipalities, in particular in Flanders and the Brussels-Capital Region, use “urban planning charges” to require that developers provide up to 25% of housing units in new developments as affordable units.
Municipalities often prefer that developers provide affordable housing directly. This helps reduce transaction and agency costs. Developers may also have an interest in providing “good” social housing that is well integrated in the new neighbourhood, as well as infrastructure, to sell their developments better.
Affordable housing requirements should be based on the increase in land value from development approvals
In Israel for example, to estimate the value uplift of plots that are granted development approval, municipalities obtain an appraisal by a legally certified real estate valuer. The appraisal is based on the site-specific market value of land, using relevant criteria as determined by the real estate valuer. If developers contest the amount, they may request a second appraisal by a nationally appointed valuer among a list of highly experienced real estate valuers. These must cease private practice and are certified to decide on appraisals contested by private parties and municipalities. Finland and Colombia are further countries that set land-based finance charges in relation to the increase in land values (OECD/Lincoln Institute of Land Policy, PKU-Lincoln Institute Center, 2022[20]).
Affordable housing requirements are especially suitable for urban areas where housing prices and the need for affordable housing are particularly high. Moreover, in these areas land value uplifts from rezoning greenfield land as buildable land or from granting development approval are also likely to be particularly large. Such requirements should therefore be the larger the value uplifts from development approvals. In Belgium for example, municipalities can require a fixed fee of EUR 50 per privately developed square metre, which may be too low in urban areas where land prices are high.
However, affordable housing requirements need to be used more carefully in contexts where housing prices are less high. To avoid unintended consequences, it is important that developer obligations and other land-based finance tools are adapted to the local context (OECD, 2021[11]). Giving developers time to build affordable units, as well as granting exemptions – for example for small developments or projects with a social purpose – may also help make developer obligations more socially and politically acceptable.
Public land should be managed strategically to provide affordable housing
In areas facing high housing demand, municipalities can use their land for affordable housing provision. This can be achieved by entering into joint development agreements with private developers or not-for-profit housing providers. Municipalities can view public land as a strategic resource that can play a role in providing affordable housing in the future. Integrating affordable housing requirements in infrastructure investment and other urban planning decisions can help enable the future use of municipal land for affordable housing development. Decisions to buy and sell public land should take into account the potential value of land for municipalities in the future, after urban planning and infrastructure investment decisions which may raise its value (OECD, 2021[11]).
Strategic land management can facilitate the acquisition of public land at lower cost for affordable housing. In France for example, many municipalities manage land strategically for urban development purposes, including affordable housing construction. Municipalities and land agencies can buy or expropriate land at the price before the announcement of a public investment or zoning change, which allows to recover the increase in land values that public investments or zoning changes generate. Typically, municipalities and land agencies then sell the land to community land trusts (Organismes de Foncier Solidaires – OFS) for affordable housing construction. The national and municipal governments increasingly create national and local public land agencies to buy and manage land for affordable housing construction. The national government and municipalities also lease their land to encourage development with a public purpose, including affordable housing construction. The government recovers investments in land purchase through the sale or lease of rezoned plots (OECD/Lincoln Institute of Land Policy, PKU-Lincoln Institute Center, 2022[20]).
An innovative approach to use strategic land management for the provision of affordable housing is the Bail réel solidaire (BRS) in France. Established in 2017, the BRS is a property demarcation tool that separates land ownership from property rights on housing to support affordable housing for middle-class households. Under the BRS, the OFS act as non-profit public or private organizations repurchasing land the government has acquired through its strategic land management and use it to provide housing. The OFS retains ownership of the land, while households acquire property rights to their new homes through a lease, allowing them to acquire ownership rights at a reduced price (25-40% lower than market price). Eligibility criteria limit access to the BRS to households below predefined income levels. The expectation is that housing offered under BRS will avoid speculative real estate dynamics. The land remains on the balance sheet of the OFS where it serves as collateral for loans the OFS can take to fund its housing investment. The OFS have access to subsidized public loans. The key innovations of the BRS system are:
Perpetual lease: while the lease duration is limited, it can be resold. Upon resale the lease resets to its original duration.
OFS exclusively manage the BRS and ensure eligibility criteria are met.
2.2.4. Enhancing technical and human capacity of local governments would help implement efficient planning processes
The limited capacity of local governments leads to an ineffective planning process
Securing enough expertise and staffing related to land use planning remains a challenge for public authorities in Czechia, including among Building Authorities. In Prague, the country’s political, cultural, and economic hub with 1.3 million residents, there is only capacity to process five Planning Studies per year, despite intense and rising demand for more housing. As seen previously, these Planning Studies formalised via private contracts between the city of Prague and developers have recently been used as de facto Regulatory Plans. There is a mismatch between the complex requirements for processing a Local Territorial Plan (LTP) or modifying a Regulatory Plan (RP), and the limited capacity of local Building Authorities to handle these changes – greatly limiting municipalities’ ability to use land-use tools to promote affordable housing. The planning capacity of larger municipalities could be improved by providing additional resources to Building Authorities, relaxing LTP requirements for cities above a certain size, and simplifying the process to amend RPs.
Increasing public authorities’ capacities, including those of Building Authorities, is crucial to help municipalities implement efficient spatial planning, process building permits, and support public and private developers in their housing developments projects. In Czechia, municipalities are responsible for issuing planning permission, urban planning and zoning. However, a lack of capacity within municipalities to effectively exercise these powers is considered a major barrier to affordable housing development, particularly in smaller municipalities. Some municipalities lack digital, technical and conceptual expertise within their administration, which prevents them from implementing useful land use tools such as developer obligations (see section 2.2.3 for details on developers’ obligations), or from digitalising building permit processes.
Two-thirds of the respondents to the OECD Stakeholder Survey identified the lack of municipal capacity and expertise as a major barrier to provide affordable housing, citing issues such as a lack of technical expertise due to labour shortages (partly due to low salaries), budget constraints, and insufficient local powers for strategic land management (e.g., pre-emptive rights to buy land). These limited capacities are also linked to the lack of data, particularly demographic information about the local population. The current design of the tax system also does not require people to register their current primary residence, further limiting the available information on housing vacancies for municipalities (see below in this chapter section 2.3.1 for details on Czech housing taxation). The lack of data has consequences on cities’ spatial planning and their assessment of housing needs and of demand for public services (e.g. transport, schools, hospital, etc.) (OECD, 2021[11]). The stakeholder survey results also displayed strong support for improving local capacity and expertise of planning teams in larger cities (70 % of stakeholders agreed), which was perceived as the most beneficial policy solution to leverage land-use and spatial planning to increase the supply of affordable housing, with 54% of stakeholders ranking this solution first (Figure 2.13).
Note: The question asked to the stakeholders was “Please rank up to three policy or support measures that would be most beneficial to increasing the supply of affordable housing, including social and municipal housing.
Source: 2024 OECD Stakeholder Survey: Affordable Housing in Czechia.
To enable municipalities to use inclusionary zoning, strategic land management and other land-based finance instruments, the national government could provide a legal framework, adequate administrative support and accurate cadastre data. Municipalities, in turn, would need to develop the expertise and administrative capacity within their planning departments to effectively use the tools at their disposal. In particular, municipalities could to strengthen their capacity to develop effective land use plans, conduct land valuation and use their planning powers to engage proactively with developers to steer housing development in the desired direction (OECD (2021[11])).
Practices related to local governments’ capacity in other OECD and EU countries
In Belgium, similar to many OECD countries, the lack of technical capacity at the local level is a key obstacle to effective land use, spatial planning and land-based finance policies. As a response, Wallonia has rolled out a strategy to subsidise municipalities to hire a spatial planning and housing policy expert (Conseiller en aménagement du territoire et de l’urbanisme). These experts are integrated into the local public administration and provide guidance and train municipal staff in these topics. This strategy has so far proved effective in increasing local technical capacity and could be replicated in Czechia.
Additionally, including topics related to spatial planning and land-based finance tools into civil servant training and university curricula could further promote an urban and spatial planning culture. In particular, curricula could focus on the compatibility of land-based finance instruments with private property rights, improving their political acceptance in the long run as laid out in the OECD-Lincoln Institute Global Compendium of Land Value Capture policies.
Czechia could draw inspiration from the Palladio Institute for Advanced Studies on Real Estate and the City (L’Institut Palladio des Hautes Etudes sur l’Immobilier et la Cité), established in France in 20112. This institute aims to train real estate and urban development professionals to address current and future challenges, whether economic, environmental, social, or societal. Similarly, in Mexico, more than 50 municipal planning institutes (Institutos Municipal de Planeación – IMPLAN) have been established in the largest cities of Mexico (e.g. Puebla, Tijuana, Guadalajara, Ciudad Juárez, etc.). These institutes work on a wide variety of topics increasing municipal capacity in issues such as housing, transport, urban planning and sustainable urban development. They also contribute to give continuity to long-term investment projects – going beyond the short municipal term (OECD, 2015[30]).
2.2.5. Recommendations to unlock the development of affordable housing through more efficient spatial planning governance and land regulation
Leveraging local planning tools to boost affordable housing supply in high-demand areas and promote compact urban development
The Czech authorities could consider the following policy actions:
Direct housing development to areas with the greatest needs while mitigating urban sprawl and its associated environmental, economic, and social externalities.
Prioritise high-density residential construction in urban areas with elevated housing prices and promote densification in high-demand locations by setting minimum density requirements – which could be introduced at the national level – for new housing development in Local Territorial Plans, introducing density bonuses for affordable and social housing developments, or facilitating parcel division within cities to enable “intensification” of existing urban assets. Conversely, to limit extensive urban sprawl especially in small and medium-sized cities and in areas with low housing prices, zoning regulations should remain restrictive to prevent excessive development and inefficient land use.
Adapt planning requirements to municipal sizes and capacities to improve their responsiveness to demand, especially in high-demand areas.
Introduce differentiated planning requirements for municipalities based on their sizes and administrative capacities. Larger cities, where the housing demand is the highest, could benefit from greater flexibility, regarding stakeholders’ consultation for instance, while smaller municipalities could receive technical and financial support to develop appropriate spatial plans.
Provide municipalities with greater flexibility in local planning, allowing for a quicker and more adapted response to housing needs.
Enable municipalities to make adjustments to the Regulatory Plans (adjusting zoning boundaries within the urban area, adjusting marginally the building rights in a given area, etc.), even if it deviates from higher-level planning tiers, provided there is consensus among all stakeholders at the local, regional, and state levels.
Streamline the permitting process to accelerate affordable and social housing development.
Finalise the ongoing digital transformation of building permit applications and approvals, to facilitate and speed up the submission and the examination of the building permits. Ensure all building authorities have access to the same database, to reduce inconsistencies and delays and improving the quality of data.
Improving coordination between different levels of government, sectoral policies, and between municipalities to increase affordable housing production
The Czech authorities could consider the following policy actions:
Coordinate spatial planning at the scale of the functional area to further strengthen intermunicipal coordination and better address urban and housing needs across territories.
Encourage the transfer of urban planning responsibilities from individual municipalities to Associations of Municipalities (společenství obcí) or to municipalities with extended powers, depending on the local context, through either mandatory measures or targeted financial incentives, such as special grants or tax. This process could build on the existing intermunicipal structures in Czechia, establishing population thresholds to define the responsibilities and capacities of intercommunal bodies. By prioritising economic and social realities over administrative boundaries, this approach could enhance the efficiency of local urban planning policies and strengthen the provision of social and affordable housing.
Create a cross-sectoral and multi-level dialogue body to improve the vertical and horizontal coordination of spatial planning and housing policies.
Establish a dedicated national dialogue body to discuss, evaluate and coordinate spatial planning policies across the three levels of government (national, regional, and municipal) and across sectoral policies (public space planning, infrastructure, and affordable housing). This body could bring together representatives from all levels of government, as well as economic and social partners, to facilitate multi-level and cross-sectoral dialogue and ensure alignment between urban planning and housing policies, while providing a platform for bottom-up feedback and allowing municipalities to raise challenges and propose solutions at the national level. At a local level, especially in large cities, mandatory cooperation and coordination of concerned public authorities might also help to implement faster and higher quality planning.
Enhancing the use of land-based finance tools to support affordable housing development
The Czech authorities could consider the following policy actions:
Clearly lay out affordable housing requirements on developers in legislation.
National legislation could make explicit that developers can be required to build affordable housing in exchange for approval of new development or of changes in Local Territorial Plans or Regulatory Plans.
The expiry of affordable housing requirements on developers six years after the approval of new development or of changes could be removed in Local Territorial Plans or Regulatory Plans.
Affordable housing requirements could be included in Local Territorial Plans possibly after consultation with developers and citizens.
Base affordable housing requirements on the increase in land value from development approvals.
After setting minimum affordable housing requirements, municipalities can then set such requirements based on the increase in land value resulting from development approvals. This goes together with increasing technical capacity.
Manage public land strategically to provide affordable housing.
Introduce legislation to be able to buy or expropriate land at the price before the announcement of a public investment or zoning change, to recover the increase in land values that public investments or zoning changes generate. This would also benefit the use of land readjustment.
The national and municipal governments could assign responsibilities to buy and manage land for affordable housing construction to public authorities responsible for social housing provision.
Consider introducing options for households on moderate income to purchase home ownership rights without the underlying land, leaving land management to a non-profit or public institution, that can benefit from access to real estate below market price, supported by land-based finance, as in the case of the Bail réel solidaire in France.
Enhancing technical and human capacity of local governments would help increase the efficiency of the planning process
The Czech authorities could consider the following policy actions:
Expand the expertise in urban planning and housing as well as in land-based finance by enhancing initial and professional training.
Provide education and training for urban planning and housing experts, targeting both public and private sector professionals, by partnering with universities, research institutions, and planning institutes to establish specialised curricula that align with national and municipal planning needs, and by developing vocational training and certification programs for mid-career professionals to specialise in affordable housing development and land-use planning.
Consider tying access to public loans for housing or other development to the introduction of land-based financing instruments, combined with technical assistance for effective implementation of such instruments.
Efforts to enhance technical capacity could include the ability to assess value uplifts, for example, with professional surveyors or on the basis of historic transactions, as in France, as well as to undertake land transactions using land-based finance instruments.
Leverage on the urban and housing capacities within larger local authorities to provide expertise to smaller municipalities.
Mobilise regions, municipalities and associations of municipalities to provide technical assistance related to urban planning and housing (e.g. experts, workshops, counselling and advisory services) to municipalities or groups of municipalities. The assistance could target both common issues (e.g. a series of workshops related to affordable and social housing development) and local needs of municipalities.
Leverage on the pooling of human and financial resources within the Association of municipalities to strengthen local workforce and hiring capacity.
Hire urban planning and housing experts at the intermunicipal level to strengthen intercommunal expertise, making these positions more attractive due to the broader territorial scope and the possibility of offering higher salaries.
Property taxes can be efficient taxes to improve the allocation of housing, can provide a stable revenue source and have empirically been found to be among the least damaging taxes for long-run economic growth (Johansson et al. (2008[31]); Arnold et al. (2011[32]); Acosta-Ormaechea and Yoo (2012[33]); OECD (2021[34]); (2024[35])). Property taxes can also improve the allocation of housing, potentially improving housing affordability. For instance, they can incentivise older individuals without dependents who live in relatively large properties to downsize, releasing larger residences into the market and contributing to a more balanced and affordable housing market. Empirical studies have also shown that recurrent taxes on immovable property are commonly capitalised into house prices over time, helping slow house price growth and fluctuations (Blöchliger et al., 2015[36]; Oliviero et al., 2019[37]). Property taxes are also the taxes over which local governments have most control, giving them autonomy to adjust their fiscal policy to local demands and increasing political accountability (OECD, 2021[38]). They can provide a source of revenues for the provision of affordable and social housing.
2.3.1. The current property tax system produces inequitable outcomes and provides limited revenues
Czechia’s recurrent taxes on immovable property are calculated using an area-based approach that is less equitable than value-based taxation, as it can result in different taxes for properties of the same value, generating inequitable outcomes between taxpayers. Furthermore, house price increases do not automatically lead to higher property tax revenues as taxes are not based on market values. Property tax rates are also low in Czechia, which can have the direct impact of reducing housing costs but may indirectly contribute to reducing housing affordability. Indeed, low property taxes, along with other tax features such as mortgage interest deductibility on primary residences and capital gains tax exemptions, imply a low overall tax burden on homeowners, which can increase housing demand relative to other assets. This may contribute to pushing prices up and reducing housing affordability in the absence of increases in housing supply. Low property tax revenues may also discourage municipalities from boosting housing supply if revenues fall short of increased expenditure needs.
Expert views expressed through the OECD Stakeholder Survey largely supported reforms that would make housing taxation more equitable and better respond to the country’s housing challenges. These reforms include transitioning from the current area-based property tax system towards a value-based system, introducing higher taxes on vacant dwellings and secondary homes in high-demand areas to help make housing more affordable, reforming the capital gain tax exemptions, and phasing out mortgage deductibility (Figure 2.14). The analysis that follows discusses these issues in detail.
Source: 2024 OECD Stakeholder Survey: Affordable Housing in Czechia.
Property taxes are based on the size of dwellings not reflecting market values
Czechia levies property taxes based on the size of land or buildings (area-based property tax), although it levies some taxes on land based on the average land price (Table 2.10). The area-based approach to taxing buildings and other plots of land differs from common practice in most OECD countries where properties are taxed with reference to estimated market values. Area-based property tax systems are, however, rarely only based on the size of properties, and tend to include adjustment factors or coefficients that take into account other property characteristics. In Czechia, the tax rate can be adjusted for additional floors and whether rooms are used for business activities. Tax rates also vary between types of property, which is common in other OECD countries, including higher rates on commercial properties than residential ones. There are three types of coefficients that can increase the total tax for certain geographical areas or municipalities:
A size coefficient adjusts the tax payable for the number of inhabitants in a municipality. The coefficient ranges from 1 for the smallest municipalities to 4.5 in Prague. Municipalities can reduce the coefficient by up to three size categories or increase the coefficient by one category (described in the note to Table 2.10).3 The option to decrease the coefficient will cease on 1 January 2025.
A local coefficient is a discretionary coefficient that municipal governments can apply to increase the tax on a building by a factor from 1.1 to 5.4
Additional coefficients can apply to certain types of buildings. Municipalities may apply a coefficient of 1.5 by decree to houses used for family recreation, garages, and buildings used for business.5 An additional coefficient of 2.0 applies for houses in national parks or protected areas. For apartments, a coefficient of either 1.22 (for flats with a co-ownership of the relevant plot of land) or 1.2 (in all other cases) applies.
Note: Tax rates apply from 1 January 2024, reflecting a recent reform which increased tax rates. The tax base for agricultural land and forest land is the average price of land as determined by a decree agreed between the Ministry of Agriculture and the Ministry of Finance of Czechia with reference to land quality. The category of “other” taxes on land includes agricultural paved areas of land, other paved areas of land, building plots, built up areas and courtyards, and other areas. The size coefficient is equal to 1 if the land is located in a municipality with less than 1 000 inhabitants, 1.4 in a municipality with less than 6 000 inhabitants, 1.6 in a municipality with less than 10 000 inhabitants, 2 in a municipality with less than 25 000 inhabitants, 2.5 in a municipality with less than 50 000 inhabitants, 3.5 in a municipality with more than 50 000 inhabitants and in František Lázně, Luhačovice, Mariánské Lázně and Poděbrady, and 4.5 in Prague. Municipalities have the option to exempt agricultural land from property taxes.
Source: IBFD, (2023[39]), Kukalová et al. (2021[40]); Act No. 338/1992, available at https://www.zakonyprolidi.cz/cs/1992-338.
Area-based property taxes fail to approximate market values, reducing horizontal and vertical equity of the tax system. Properties with the same market value may face different tax obligations under area-based tax systems. Adjustment factors and coefficients increase complexity without accurately adjusting rates in line with property values. For example, high-value properties in city centres could face the same or even lower property taxes compared with cheaper housing in the outskirts of the city. Czechia’s system therefore yields regressive outcomes. Households with greater housing wealth pay proportionately less tax relative to the value of their properties compared with people with lower housing wealth (Figure 2.15). Similarly, lower‑income households pay a greater share of their income in property tax than higher income households. However, regressivity of property taxation is not unique to Czechia - several studies reach the same conclusion for other countries, including those with value-based systems (Andriopoulou et al. (2020[41]), Palameta and Macredie (2005[42]), Kim and Lambert (2008[43])).
Note: Dark blue bars (left hand axis) show total property taxes paid on all properties owned as a share of the value of the household’s primary residence. It should therefore be noted that this indicator is overestimated for households owning more than one property, which is more likely to be the case for higher income households. Light blue bars (right-hand axis) show property taxes paid by the household as a share of household annual gross income. Income and wealth deciles refer to equal groups of 10% of the survey population based on income earned or value of housing.
Source: EU-SILC 2022, calculations provided by Michal Šoltés, IDEA CERGE-EI.
The implementation of value-based property taxes in Czechia would require precise information on the dwelling stock. Information on dwelling characteristics is only collected through the census, which occurs every 10 years, and is not used in the taxation policy. This does not allow policy makers to regularly follow up on existing dwelling’s maintenance state. Further, although the Czech Statistical Office (Český statistický úřad – CSU) produces statistics on real housing prices, they are not used by policy makers to inform taxation decisions (Box 2.9).
National real estate and land cadastre
The Czech Survey and Cadastral Authorities (Český úřad zeměměřický a katastrální – CUZK) was created in 1992 under the responsibility of the Czech Ministry of Agriculture (Ministerstvo zemědělství), to oversee the registration of real estate and property rights. The CUZK is responsible for updating Czechia’s land and real estate cadastre and conducting surveys on land and property uses. The CUZK relies on 14 cadastral offices (Katastrální úřad) – one for each region –, which approve changes to the boundaries of cadastral territories or to local nomenclatures. In addition, the CUZK manages the Land Surveying Office (Zeměměřický úřad), which administers Czechia’s geodic databases and manages cadastre archives. Since 2007, the CUZK has also managed the Geodetic, Topographical and Cartographic Research Institute (Výzkumný ústav geodetický, topografický a kartografický – VUGTK), which is a public research institution working in the field of geodesy, surveying and cadastre.
The CUZK manages several datasets containing information on land and buildings. Among them, the Real Estate Cadaster (Katastr Nemovitostí – KN) records information on each unit of real estate in Czechia, mainly their location and ownership history, and can be consulted online. The KN is used a as the main source of information to update the Register of Territorial Identification, Addresses and Real Estate (Registr územní identifikace, adres a nemovitostí – RUIAN), which contains information on administrative territories (for example, regions, municipalities, etc.) and the Register of Census Districts and buildings (Registr sčítacích obvodů a budov – RSO), containing descriptive and location data on territorial units, buildings and their addresses, and apartments. Information includes the number of dwellings within a building, commodities (e.g. elevator, connection to waste and water supply, etc.), the floor area, the period of construction, etc. Part of these building and dwelling characteristics are derived from the Population and Housing Census (Sčítání lidu, domů a bytů – SLDB), which is conducted every ten years by the Czech Statistical Office (Český statistický úřad – CSU).
Data on land and real estate prices
The KN database contains information on transaction prices of dwellings. In addition, the Czech Statistical Office (Český statistický úřad – CSU) produces the Real Estate Statistics database (statistiky za oblast cen nemovitostí), which contains information on resale and rental price indices of residential real estate and building land (see methodology online). These statistics are computed from three sources of information: the listed price for new apartments, surveys on realtors for existing dwellings and online adds. The resulting price indices are published at the regional level.
Source: Czech Survey and Cadastral Authorities (Český úřad zeměměřický a katastrální – CUZK) and Czech Statistical Office (Český statistický úřad – CSU).
The revenues derived from property taxes are relatively low and are a small source of municipalities’ funding
As is the case in many OECD countries, revenues from property taxes are allocated to local governments. In Czechia, however, property tax revenues comprise a very small share of total municipal government funding (Figure 2.16). Czechia raises less than 1% of total tax revenue (i.e., across all levels of government) from different taxes on assets (i.e., property taxes, wealth taxes (if applicable), etc), which is the lowest share of total tax revenue in the OECD and significantly lower than the OECD average (6%).
Note: Data were not available for Sweden.
Source: OECD/UCLG (2022[44]).
Property tax revenues have not historically kept up with property price increases, although a recent reform to increase rates and introduce indexation will partially address this issue. Nominal property tax revenues have increased by around 35% between 2010 and 2021 (OECD, 2023[45]), mainly due to greater coefficient use by some municipalities (including Prague) and better enforcement. Since area-based tax rates have remained unchanged, property tax revenues have increased by significantly less than the value of housing stock in Czechia - nominal house prices have nearly doubled while the number of houses increased by around 12%.6 7 As a result, property tax revenues as a percentage of GDP have shown a modest downward trend since the early 1990s. Recurrent taxes on immovable property amounted to only 0.18% of GDP in 2023, which is among the lowest in the OECD (OECD, 2025[46]). This is largely due to low rates, as discussed further. Not only is revenue from property taxes among the lowest in the OECD, but so are overall revenues from taxes on assets (Figure 2.17).
Note: Bars represent different taxes on assets as a percentage of total tax revenues in Czechia. Data include taxes paid by households and non-households and include household and non-household real estate. Other taxes on housing, including taxes on capital gains or rental income from housing, were not available for this figure.
Source: OECD Revenue Statistics Database.
The base rate for property taxes was set as CZK 3.5 per square metre for residential buildings after 1 January 2024, an increase of 80% on average, but which remains lower than in most other countries with area-based systems (OECD, 2025[46]). While municipalities have discretion to determine the applicable tax rate, most do not use the available coefficients. In 2019, around 30% of municipalities applied or changed one of the three types of coefficients.8 Rather than use coefficients, municipalities tend to rely on their share of general taxation (e.g., personal income taxes) and grants for revenue. Different factors drive the relatively low coefficient use, including the unpopularity of increasing taxes and concerns about impacts on low-income households (Janoušková and Sobotovičová, 2019[47]). Furthermore, coefficients have, until a recent reform, applied to entire municipalities, deterring municipalities which would prefer a more geographically targeted application. The reform of property tax rates is also indexing them with inflation from 1 January 2024. This reform, however, will fail to capture house price growth in excess of the economy-wide inflation rate. It will also likely amplify the inequitable outcomes stemming from the area-based system.
Value-based tax systems and reform experiences in other OECD and EU countries
Most OECD and EU countries rely on value-based property taxes, Czechia being the only exception together with Poland and Slovakia in the EU. Tax systems based on properties’ market values are better suited to account for taxpayers’ housing wealth, and the resulting tax revenues are more responsive to changes in the housing market. Value-based property taxes are hence more effective in stabilising the fluctuations in the housing market and can raise more revenues, with limited distortions on investment and labour decisions (Cournède (2019[48]), Johansson (2008[31])).
Data and valuation
Recent reforms to transition from area-based to value-based property taxes in Central and Eastern Europe point to the importance of collecting transaction price data and having appropriate valuation standards prior to the launch of the reform to ensure that the recurrent property tax is based on up-to-date market values.
While regularly updating values of residential properties will imply some administrative costs, the use of digital tools can help keep these costs down. The use of these tools could require some support from the central government, especially for smaller municipalities or using joint municipal offices arrangements. For example, Lithuania started working on mass valuation of properties in 1998, with initial mass valuation launched in 2005 (Grover, 2017[49]). Currently, the Real Estate Register and Cadastre contains open-access data9 on all real estate objects registered in Lithuania and all real estate transactions since 1998, including cadastral data and maps, ownership and its history, and property restrictions. A mass valuation of all properties in Lithuania is performed yearly at the central level, producing an estimate of the average market value of land and buildings which is then used for the implementation of several policies and taxes, such as calculating property taxes (OECD, 2023[50]). As of 2016, the cost difference was between €1 per property for mass valuation and €100 for each single property valuation (Grover, 2017[49]).
In the Netherlands, local authorities are responsible for activities such as the maintenance of fiscal cadastres, property valuation, tax collection and tax rate setting, while the central government is responsible for controlling and levelling the quality of the tax administration across the country. Official property values are updated every year by local governments, and are subject to central government oversight. The central government examines the uniformity of the valuations performed by local governments through the National Valuation Board, so that values are comparable across municipalities. Residential properties are typically assessed using the sales comparison approach, which is implemented through the Computer-Assisted Mass Appraisal (CAMA) system. These mass valuations rely on several data sources, including the System of Register Database, information from real estate advertisements, specific data collected by municipalities and from interactions with taxpayers through online questionnaires or in the form of complaints and appeals, such as improvements’ quality and maintenance (Box 2.10). Communication with taxpayers is done online in 80% of cases and by mail in the remaining 20% (OECD, 2024[51]).
Design of value-based property taxes for resident owners and users of business premises
In the Netherlands, the property tax (onroerendezaakbelasting – OZB) is levied on dwelling owners, as well as businesses (tenants or owners). Property taxes are levied once a year as part of the combined municipal tax bill (Gecombineerde aanslag), along with several other taxes paid to municipalities (e.g. sewage charges). The tax amount is computed as a fixed percentage of the Official Listed Value (Waardering onroerende zaken – WOZ) of the property. The percentage is fixed by the municipality, with different rates depending on who the OZB is levied on. For instance, the city of Amsterdam established the following tax rates in 2023:
Property owner tax for residences: 0,0577 % of the WOZ.
Property owner tax for business premises: 0,2436 % of the WOZ.
Property user tax for tenants/users of business properties: 0,1809 % of the WOZ.
People and businesses subjected to property taxes receive their WOZ as part of their tax assessment within the first eight weeks of each year. All current WOZ values are publicly available online. Taxpayers can request the valuation report disclosing how this value was computed for the property in question, and file an objection within six weeks of the original WOZ decision.
Computation method, data and access to the Official Listed Values (WOZ)
Municipalities assess the value of homes and business premises following the 1995 Valuation of Immovable Property Act (Wet Waardering Onroerende Zaken). These assessments were made once every four years from 1997 to 2001, and have been made annually since 2002. Municipalities have the advantage of having a more extensive knowledge of local markets than national authorities, since they are also responsible for planning and building permits, base maps of addresses and their own cadastre. Municipalities’ assessment of WOZ values is overseen by the Council for Real Estate Assessment (Waarderingskamer) to ensure consistency of valuation methods and check quality.
In practice, the WOZ reflects the estimated market value of a property on 1 January of the previous year. For each dwelling, the WOZ is deduced from data on the characteristics of the dwellings (e.g. surface, location, maintenance condition, year of construction, etc) and data on properties recently sold in the same neighbourhood. This data is found in the Cadastre, Land Registry and Mapping Agency database (Kadaster), which contains information on the characteristics of all residences and immovable properties, as well as actual resale prices from notaries. Municipalities can choose to update a property’s reported characteristics based on their own observations, using for instance aerial photos, visible signs from the outside of the property, pictures in online adds to rent or sale the property, or direct inquiries to the owners.
The computation of a dwelling’s WOZ is then done in three steps:
Market analysis (marktanalyse): Municipalities examine the resale prices of all houses found in the Cadastre database and exclude any properties which were sold under special circumstances.
Computation of the model value (modelwaarde): The approved sales prices and all the available information on dwellings are used to run a mass computer-assisted appraisal model, which produces estimated values for all dwellings in the municipalities.
Final check by an appraiser (taxateur controleert): An appraiser approves the model values as official WOZ values.
Other uses of the Official Listed Values (WOZ)
Beyond municipalities, the WOZ is used by the national Dutch tax authorities to determine owner-occupied home deductions for income taxes (het eigenwoningforfait), corporate taxes, and donation and inheritance taxes. Local water boards (Waterschappen) also use the WOZ to establish water system levies for buildings. In the case of social housing (sociale huurwoningen), which can be delivered by private owners in the Netherlands, the WOZ is also used to attribute a certain number of points to social dwellings, which in turn determine the maximum rent that can be charged.
Source: The Netherlands’s Council for Real Estate Assessment (Waarderingskamer), City of Amsterdam.
Acceptability of reforms and preventing liquidity issues among homeowners
Property tax reforms can be met with resistance, especially in countries with a large share of owner-occupiers. Higher recurrent taxes on immovable property may lead to liquidity issues if taxpayers do not have the necessary income to pay these taxes. This issue can become particularly evident in periods of significant increases in house prices, since the value of the property – and therefore, the tax amount – would increase, without a corresponding income increase.
Equity and acceptability considerations have been at the core of the design and implementation of property tax reforms in OECD and EU countries. The local property tax reform introduced in Ireland in 2021 was expected to increase the recurrent property tax burden for about a third of taxpayers. To support lower-income households and avoid liquidity issues, the reform broadened eligibility to property tax deferrals and lowered the interest charged on deferred tax payments – with, however, limited effects on increased property tax revenues (OECD, 2025[52]). Changes to the local property tax introduced in 2025 aims to increase revenues, while continuing to protect low-income households by increasing rates, while broadening valuation bands and indexing income thresholds for deferrals of local property tax on inflation, wage growth and increase in state transfers since 2021 (Ireland Department of Finance, 2025[53]). The duration of the deferral varies depending on the reason why the person is eligible for the deferral, and in all cases people have to inform the Revenue Commissioners if their circumstances have evolved and they are no longer eligible for deferral (Table 2.11).
Source: Ireland’s Office of the Revenue Commissioners, https://www.revenue.ie/en/property/local-property-tax/deferral-of-payment/index.aspx
More generally, households’ incomes can be taken into account to increase property taxes’ progressivity. In France, the property tax (Taxe foncière sur les propriétés bâties – TFPB) is levied on all owners or usufructuaries of built properties. The TFPB’s base rate is applied to half of the dwelling’s cadastral rental value (valeur locative cadastrale), which is the theoretical rent which could be charged if this property was rented out. The TFPB can however be capped at half of the household’s annual taxable income, for households not subjected to the Property Wealth Tax (Impôt sur la Fortune Immobilière – IFI)10 and with an annual income below a certain threshold. This income threshold is set annually by the central state and takes into account the household’s size, the number of dependent people, potential disabilities, etc. For instance, the income threshold was set at EUR 41 518 for a two-person household in metropolitan France in 2024. Households have to file a claim with the tax office if they want to benefit from the TFPB cap.
2.3.2. Limited incentives exist to put unoccupied dwellings back on the market
Vacant dwellings in densely-populated areas is relatively high
In 2021, 16% of dwellings were vacant in Czechia, with some variation across regions (Figure 2.18). In the regions of South Bohemia and Vysočina, 22% and 21% of dwellings were vacant in 2021 respectively, while 12% and 13% of dwellings were vacant in Prague and Moravia-Silesia respectively. Prague stands out with a high population density (2 624 people per square kilometre), while it is relatively low in other regions. Vacant dwellings located in areas with a low population density are in line with a low demand for housing, while the impact of vacant dwellings might however be more significant in a high-density population area like Prague. A tax on vacant housing in areas where housing demand is high would increase the cost of keeping these dwellings vacances for property owners, providing incentives to put these dwellings back on the market.
Czechia’s property tax design may not sufficiently discourage housing vacancy. Taxes on residential land and buildings apply at the same base rate. The land tax applies only to unimproved land – once land is developed, only area-based taxes on buildings apply. This design is not unlike property tax design in other OECD countries. However, Czechia’s property tax rate is comparatively low. Higher property tax rates typically serve as stronger deterrents against holding vacant properties. Thus, the relatively low tax rate in Czechia might not be adequate to discourage vacancies effectively. Furthermore, the area-based system would not promote efficient land and housing as effectively as a value-based system that taxes vacant high-value properties in high-demand areas more heavily.
Note: The dwelling vacancy rate in the Czech housing census database is based on the number of “unoccupied dwellings”, which are defined as units that are not the usual place of residence of any person. More details can be found in the census’ online explanatory notes.
Source: 2021 Czech Housing Census.
Vacant housing taxation in other OECD and EU countries
The experience of other OECD and EU countries suggests that vacant housing taxation can be effective if appropriate enforcement and monitoring mechanisms are in place. Taxes on vacant dwellings can be implemented and monitored by cities which have identified a housing shortage. In 2017, the City of Vancouver introduced an Empty Homes Tax to provide an increase in the supply of rental housing. Between 2017 and 2023, the number of properties declared vacant decreased by 68.6%. During the same period, the tax generated revenues amounting to CAD 169.9 million, which were used to support the development of new social, supporting and not-for-profit housing. The tax rate was set to 3% of the property value, and the occupancy status is based on mandatory reporting from the owner. The city of Vancouver has put in place a risk-based audit system to check the validity of the declaration made, completing approximately 10 500 audits in 2021 and approximately 12 900 audits in 2022 (Housing Vancouver, 2024[54]).
Alternatively, vacant dwelling taxation can be established by the central government, targeting areas where a housing shortage has been identified. In France, the tax on vacant dwellings (Taxe sur les Logements Vacants – TLV) was introduced in 1999 in the eight urban units with more than 200 000 inhabitants to incentivise owners of vacant dwellings to put them back on the market. It was since reformed in 2006 and 2013, mainly to extend its coverage to municipalities with tensed housing markets (zones tendues) – meaning high-demand areas – currently covering 5% of metropolitan municipalities and 14% of dwellings. The identification of properties and owners eligible to pay the TLV is made by local authorities in collaboration with the central tax authority (Direction générale des finances publiques – DGFiP), relying on a unit-level database on dwellings’ characteristics, locations and occupancy status (Figure 2.14).
Taxes on vacant dwellings and secondary residences
In France, vacant dwellings (logements vacants à usage d’habitation) are legally defined in the tax code as dwellings with minimum comfort requirements (e.g. connected to the electricity and water grids, equipped with basic sanitary amenities, etc.) but which have not been occupied for at least a year. They are distinct from secondary residences (résidences secondaires), which are used for at least a few months during the year, and furnished.
There are two taxes on vacant dwellings in France:
The tax on vacant dwellings (Taxe sur les Logements Vacants – TLV) is levied on owners of vacant dwellings located in municipalities with over 50 000 residents, or where there is a significant undersupply of dwellings, also known as “tense housing market areas” (zone tendues). The list of tense housing market areas is established by decree following the 2013 law on Housing Access and Renovated Urban Planning (Loi pour l'Accès au Logement et un Urbanisme Rénové – ALUR). Following a 2024 revision, 1 837 metropolitan municipalities are currently considered to have a tense housing market (5% of metropolitan municipalities), accounting for 5.2 million dwellings (14% of the metropolitan stock). The TLV rate is based on the dwelling’s cadastral rental value (valeur locative cadastrale), which is the theoretical rent which could be charged if this property was rented out. This rate increases over time: 17% for the first year during which the dwelling was vacant, and 34% the following years. The tax is only levied on dwellings fit for occupation, as dwellings which require a deep renovation (formally defined as renovation with a cost higher than 25% of the property’s value) are not subjected to the TLV.
The housing tax on vacant dwellings (Taxe d’Habitation sur les Logements Vacants – THLV) can be put in place by all municipalities where the TLV does not apply. The housing tax was levied on all dwellings occupiers until the 2020 finance law and meant to finance public services delivered by municipalities (e.g. local infrastructure and waste collection), with higher rates for vacant and secondary dwellings. Since 2023, it has only been levied on secondary and vacant dwellings. The tax is levied on owners of dwellings fit for occupation which have been vacant for over two years, and the rates are established by local authorities – either municipalities or public institution for inter-municipal cooperation (Établissement Public de Coopération Intercommunale – EPCI). The THLV is not levied on dwellings which require a deep renovation, nor on dwellings which have been occupied for at least 90 consecutive days of the fiscal year.
Identification of vacant dwellings and technical support for municipalities
Since 2021, France has been developing the “Zero Vacant Housing” (Zéro Logement Vacant – ZLV) online platform to support municipalities in identifying vacant dwellings and establishing a strategy to reach out to owners and put the dwellings back on the market. The ZLV platform was initiated as part of the 2020 National Plan to Combat Vacant Housing (Plan national de lutte contre les logements vacants), which put the emphasis on supporting local authorities and facilitating the conversion of public or commercial buildings into residential use. The Plan was formulated based on good practices shared by 10 large municipalities gathered in the national network of municipalities committed to combatting vacant housing (Réseau national des collectivités mobilisées contre le logement vacant).
Since 2023, the ZLV platform has also become an information hub for owners of vacant dwellings, who can use it to find out about the applicable tax rates, the support they may be eligible to and which local authority to eventually contact. The platform operates under the supervision of the National Housing Agency (Agence nationale de l’Habitat – ANAH), the Ministry of Ecological Transition (Ministère de la Transition Écologique), and the Ministry of Housing (Ministère chargé du Logement).
The ZLV platform relies on the “Vacant Dwelling” database (Logements Vacants – LOVAC), which was created by the 2020 National Plan to Combat Vacant Housing. The LOVAC database links information derived from tax returns provided by the central tax authority (Direction générale des finances publiques – DGFiP) on dwellings’ location, ownership history and declared occupancy status, information on dwellings’ characteristics and eventual resale price from the exhaustive notarial transaction database (Demande de Valeurs Foncières – DVF), and GPS information from the National Address Database (Base Nationale d'Adresses – BAN). The LOVAC database contains information at the dwelling level, accessible upon request to municipalities and local authorities levying taxes (e.g. EPCIs) and state agencies (e.g. ANAH) in order to reach out to the owners of vacant dwellings.
In addition to the ZLV platform, it has become mandatory for property owners to declare the occupation status of their properties, following the phasing out of the general housing tax in 2023. This declaration is made through the “Managing my real estate” (Gérer mes biens immobiliers – GMBI) online service, which is supervised by fiscal authorities. This source of information has replaced the tax-return information on vacancies, which was lost due to the suppression of the general housing tax. Property owners can oppose paying the TLV and THLV by providing proof of the dwelling being unfit for occupation, by showing it was occupied for at least 90 days of the fiscal year (for instance, by proving a lease or a utility bill), or by proving the dwelling has been on the market for purchase or rent, conditional on asking prices to be aligned with current market prices.
Source: French Ministry of Economics, Finance and Industrial and Digital Sovereignty (Ministère de l'Économie, des Finances et de la Souveraineté industrielle et numérique), No Vacant Housing (Zéro Logement Vacant) platform.
Two key challenges when enforcing targeted taxes on vacant dwellings are establishing a reliable method to identify these dwellings, and eventually providing support to renovate them if they prove to be unfit for occupation. France for instance relies on administrative and fiscal data, which are used to target property owners with taxes on vacant dwellings, and / or used by local authorities to get in touch with them and support eventual renovations.
Other countries have taken a regulatory approach. In Belgium, municipalities in the region of Wallonia have been cooperating with water and electricity distribution network operators since 2022 to identify vacant dwellings. By law, a dwelling is considered vacant if its total annual water or electricity consumption were below 15 m3 and 100 kW, respectively. As of 2024, 40 municipalities have been using this method to identify vacant dwellings (15% of Walloon municipalities), and 60 other municipalities (23%) were planning to. Once the dwellings are identified, owners can be eligible for low-interest loans and regional subsidies from the Walloon Housing Fund (Fond du Logement). Access to these loans and subsides are conditional on the dwelling being put back on the market once the renovations are completed, either by the owner or through a real-estate manager – in some cases, a collaboration with a social rental agency (Agence Immobilière Sociale – AIS) can be brokered to renovate and maintain the dwelling in exchange for charging an affordable rent. Conditional renovation support programmes and partnerships with social rental agencies are further discussed in Chapter 3. Should the owner refuse, they would be subjected to a fine of EUR 500 to EUR 12 500 per dwelling, set depending on the unit’s front length and the number of floors, and for each 12 months of uninterrupted vacancy (an interruption is formally defined as an occupation period of at least 3 consecutive months).
2.3.3. Capital gain exemptions and mortgage interest deductibility for primary residences contribute to increasing housing demand and reduce affordability
Tax incentives such as mortgage interest deductibility tend to stimulate housing demand by increasing the after-tax return on homeownership. Mortgage interest deductibility for primary residences without taxes on imputed rents incentivise households to invest in residential real estate instead of renting, increasing the number of potential buyers, which in turn puts upward pressure on housing prices. Uncapped capital gain exemptions, especially on secondary residences, can also create financial incentives to purchase property, as buyers enter the market expecting tax-free capital appreciation. Further, both policies disproportionately benefit high-income households who can afford a mortgage, and create foregone revenues for the state which could have been invested to support housing affordability.
Capital gain exemptions apply to all properties in Czechia
In Czechia, similar to many OECD and EU countries, capital gains from the sale of owner-occupied dwellings are tax exempt if the property was used as a main residence for at least two years prior to the sale, or if gains from the sale are re-invested in other housing assets. Unlike most OECD and EU countries however, sales of secondary properties are also exempt from capital gains taxes if the property was owned for more than ten years. As property value increases are not captured by recurrent property taxes, this means that increases in housing values gained by homeowners fully escape any form of taxation and the government foregoes significant revenues.
Capital gains tax exemptions can fuel the increase in housing demand by increasing the number of potential buyers, limiting affordability in the long run. Czechia provides for capital gains tax exemptions on the sale of housing assets. Capital gains from the sale of owner-occupied housing are tax exempt if a property was used as a main residence for at least two years prior to the sale or if gains from the sale are re-invested in other housing assets (rollover relief). Secondary properties are exempt from capital gains taxes after they have been held for more than ten years. The capital gains tax treatment of owner-occupied housing is relatively comparable to most OECD countries; about half provide full or partial capital gains tax exemptions on the sale of the main residence, with some conditioning the exemption on a minimum holding period. On the other hand, Czechia is among the minority of countries that provide exemptions for capital gains taxes on secondary properties, including after holding periods.
There is a case to remove or cap capital gains tax exemptions. Capital gains tax relief on housing assets has often been justified as a way to avoid discouraging property sales (which may in turn have wider implications for residential and labour mobility) and support home ownership. However, there are strong arguments against fully exempting such capital gains. They have limited effectiveness in promoting home ownership, since the main impediments to home ownership generally arise before purchase, while the benefits of tax exemptions materialise upon sale (OECD, 2022[55]). Capital gains tax exemptions for housing also reduce neutrality across savings instruments and may lead to increased housing demand and house price growth if supply remains unchanged, and lower housing affordability. In Czechia, the potential disincentives to relocate due to capital gains taxation are also mitigated by the provision of rollover relief to individuals who reinvest capital gains in other main residences. Finally, uncapped capital gains tax exemptions on both owner-occupied and secondary housing disproportionately benefit wealthier households. Capping or removing capital gains tax exemptions would therefore increase the tax system’s progressivity while potentially limiting distortions to savings allocations and preventing housing overconsumption.
Czechia provides interest relief for mortgages to favour home ownership and does not tax imputed rents
Czechia’s mortgage interest relief for owner-occupied housing can reduce efficiency, equity, and tax revenue. In Czechia, mortgage interest on main residences is deductible for personal income tax purposes up to a cap, while imputed rents are not taxed11 – which is common in OECD and EU countries. This cap was reduced from CZK 300 000 to CZK 150 000 per year for new mortgages by the 2021 amendment of the Income Tax Act, and is now likely to apply to the average mortgage.
Many OECD countries also grant mortgage interest relief for owner-occupied housing even if they do not tax imputed rents, mainly as a policy tool to support home ownership. However, empirical evidence has shown that mortgage interest relief for owner-occupied housing is not effective at raising home ownership rates while also being costly and regressive when imputed rents are not taxed, and reducing housing affordability by pushing up prices where housing supply is constrained (OECD, 2022[55]).
Current practices and approaches in other OECD countries
Caps on capital gain exemptions
Some OECD countries apply a capped capital gains tax exemption. In the United States, the 1997 Taxpayer Relief Act introduced a tax-free exclusion rule for real estate. Capital gains up to USD 250 000 (or USD 500 000 for married couples filing jointly) on the sale of the main residence can be excluded from taxation if the home has been owned and used as the main residence for at least two of the previous five years. Mexico also exempts capital gains on owner-occupied housing if the gain is below 700 000 investment units (roughly USD 250 000) and if the taxpayer has not disposed of housing within the previous five years. Korea exempts capital gains for houses valued below KRW 900 million (approximately USD 790 000) if they do not qualify for a full exemption based on the holding period.
Mortgage interest relief
Mortgage interest relief is one of the most common tax policy tools to support home ownership across OECD countries, although its effectiveness is not consensual and foregone revenues can be significant. Removing mortgage interest relief on owner-occupied dwellings is complex as it creates winners and losers and can disrupt the housing market through lower housing prices, with wider effects on the economy. Some OECD and EU countries have introduced a gradual phasing out of mortgage interest relief to address these concerns.
In Ireland, mortgage interest relief for owner-occupied housing was gradually phased out after 2009 in response to housing price inflation and the increased volatility of property markets. As the scheme was phased out, new mortgages taken out after January 2013 did not qualify anymore and the relief expired for mortgages taken out prior to 2004. The relief continued to apply up to the end of 2020 for households who bought a home on a mortgage between 2004 and 2012, given high property prices and mortgage repayment obligations. The highest rate of relief (capped at a maximum interest amount) was applicable to households that bought a property between 2004 and 2008 at the peak of the housing boom. For property purchases in other years, the rate of relief was between 15% and 25%. The scheme was initially set to expire in 2017, but an extension was implemented to phase out relief more gradually and avoid a spike in mortgage payments for MIR recipients in 2018. Subsequently, the amount of mortgage interest qualifying for relief was gradually reduced from 75% of the existing relief in 2018, to 50% in 2019 and 25% in 2020. The mortgage relief scheme has been fully abolished since January 2021 (OECD, 2022[55]).
In the Netherlands, the rate at which mortgage interest can be deducted was also reduced for both new and existing mortgages. This rate reduction was initially phased in very gradually, targeting a reduction in the marginal income tax rate at which mortgage interest could be deducted from 52% to 38% between 2014 and 2042. Given a continued and accelerating increase in housing price inflation, particularly in cities, the government agreed on an acceleration of the reduction and a lowering of the rate by one percentage point in 2018. The new target rate was set at 37% and reached in 2023 (OECD, 2022[55]).
2.3.4. Recommendations to secure funding for affordable housing development and limit dwelling vacancies through housing tax reform
Reforms aimed at addressing the inefficiencies and negative impacts of the current property tax system should be designed and introduced as a comprehensive and sequenced package that ensures efficiency of the system, help secure more resources for the provision of affordable housing is appropriately implemented and monitored. Careful attention should be put into making the reforms acceptable. With a high rate of home ownership – 71% of dwellings were owner-occupied in 2021 – property tax reforms can become easily unpopular and stall. The reform package could build on the following elements:
Transitioning from an area-based to a value-based property tax
Introduce mass valuations of residential properties, first, and extend it to other properties and land as the system gets established as the cornerstone and basis for the property tax reform. The valuation could be first conducted at the central level in close co-operation with local authorities. Since Czechia has the largest number of municipalities per inhabitant in the OECD (see section 2.2.2 above), and these municipalities tend to be small, they may not have the technical capacity to conduct mass valuations. A larger local body could be more relevant to conduct the valuations in the case of smaller municipalities or groups of municipalities (as recommended above for spatial planning). The valuation can be initially conducted every other year with a view of moving towards an annual evaluation as capacity strengthens. The Real Estate Statistics database developed by the Czech Statistical Office can provide the initial basis for the valuation.
Design a new property tax system that would be based on the market value of the residential property and land, and gradually increase these recurrent taxes on land and property over time to increase revenue and discourage over-investment in housing. The new system could be introduced once market values have been appropriately assessed to determine tax rates. Rates could be legislated at the central level and revenues should remain with municipalities.
Consider introducing deferrals or other relief for low-income households and liquidity-constrained households. Once the rates have been set, tax relief could be determined for some groups of households.
Consider introducing differentiated tax rates for main residences versus secondary residences or vacant dwellings. Once the rates have been set, the design of property taxes could additionally consider the occupancy status of dwellings. This would require the authorities to gather information from property owners and could take the form of discounted property rates for occupied housing (either owner-occupied or rented).
Considering targeted taxes on vacant dwellings in areas with high housing demand
Consider introducing a vacant housing tax in areas where there is a significant imbalance between supply and demand as the recommended property tax reform is being introduced. The implementation could start in areas with high population density, where there is likely an undersupply of dwellings – such as Prague. More generally, the legislation could determine the criterion for introducing the tax (for example, the size of the urban area and the demand for housing relative to the supply). Rates could be determined on the basis of the market value of the property to be effective, and could ultimately rely on the same valuation database needed for the suggested property tax reform discussed above. As property tax rates increase, the rate could be remodulated.
Assign resources and technical support to municipalities for the monitoring and enforcement of vacant dwelling taxes. The only source of information on dwelling vacancies in Czechia is the census, which is undertaken every ten years. To be effective, a vacant-dwelling tax would need to be accompanied by an enforcement mechanism, for example through audits of self-declarations of vacant dwellings. The identification mechanism could be based on data on, for instance, utility consumption information (gas, electricity or water usage) provided by distributors. Collaborative resources could be created for municipalities to facilitate their housing market analysis and identification of vacant dwellings.
Provide for an assessment of the effectiveness of the tax in reducing vacant dwellings. The enabling legislation could already require the assessment of the effectiveness of the tax four to five years after implementation. Resources should be assigned to municipalities to monitor and collect data on vacant dwellings and long-term rentals.
Reforming capital gains taxes on housing and phase out mortgage interest deductibility for primary residences
The Czech authorities could consider the following policy actions:
Consider capping capital gain exemptions on primary residences, adjusting the gains taxed for inflation, and removing capital gains exemptions for secondary homes. The cap could be set high enough to exclude the majority of households, with the aim to capture only the top of the distribution, and frequently updated to account for housing price inflation. The tax could apply to gains earned after a specific date to avoid taxing excessively long-term homeowners. The tax could also consider any existing rules on unrealised capital gains, in order to not disincentivise homeowners from selling their property.
Continue to gradually phase out mortgage interest relief for owner-occupied housing. The cap on deductibility has already decreased from CZK 150 000 to CZK 300 000 and should be further scaled back over time for new and existing mortgages until it is no more applied to new mortgages.
Table 2.12 below summarises the recommendations to increase housing affordability in Czechia across the three pillars, linked to the relevant existing legislation when applicable:
Pillar 1 focuses on strengthening the operational and legal framework for affordable and social housing providers by introducing a national definition of social and affordable housing and legally defining the roles of not-for-profit and limited-profit providers. These efforts can be supported by existing programmes, for instance the affordable housing programme run by the State Investment Support Fund.
Pillar 2 addresses how spatial planning, land regulation and land-based finance tools can be used more effectively to deliver affordable housing through local planning reforms, improved coordination across government levels, and capacity-building for municipalities.
Pillar 3 focuses on housing and property tax reforms to reduce dwelling vacancies and secure funding for affordable housing programmes, which include transitioning to value-based property taxes, the introduction of targeted taxes on vacant homes in high-demand areas, and reforming capital gains and mortgage interest tax rules.
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← 1. Housing policies are a competency of the regions in Belgium.
← 3. For example, a municipality with 12 000 inhabitants that has a coefficient of 2.0 can reduce the coefficient by up to three categories (i.e., as low as 1.0) or can increase it by one category (i.e., as high as 2.5).
← 4. Local coefficients from 0.5 to 1.5 can be applied to agricultural land from 1 January 2025.
← 5. The additional coefficient of 1.5 will no longer be available from 1 January 2015 as part of the recent property tax reform.
← 7. Property tax revenues have increased less than prices in other countries, including some with value-based systems. Despite having value-based systems, some countries’ tax bases do not accurately reflect house price development, typically because property values are outdated or underestimated. This highlights the importance of well-designed value-based property taxes with regular revaluations.
← 8. Of municipalities to which a size coefficient applies (those with over 1 000 inhabitants), 709 municipalities (48%) changed the coefficient (i.e. increased or decreased it). 596 municipalities (8%) applied the local coefficient while 1 479 (24%) applied the coefficient of 1.5 (Kukalová et al., 2021[40]).
← 10. The IFI is an additional tax levied on people owning real-estate worth more than EUR 1 300 000 net of debt.
← 11. In the case of owner-occupied property, there is a compelling case for providing mortgage interest relief where imputed rents (i.e. the in-kind income earned by owner-occupiers living in their homes) are taxed. If imputed rents are not taxed, the justification for allowing costs, including mortgage interest payments, to be deducted appears limited as there is no corresponding taxable income.