3 October 2022

Macroeconomic effects on RE market in Czech Republic

The real estate sector makes up a massive part of the economy and is crucial to accomplishing the goals of the economic growth and the national stability. As result, many researchers have analyzed the influence of the major macroeconomic factors on changes in the real estate prices from diverse perspectives while using various techniques.

Macroeconomic factors - image

For a real estate investment strategy to be effective is essential to comprehend macroeconomic consequences. Although, you have no direct control over this type of impact, you may take efforts to manage it and so secure your assets and portfolio. Macroeconomics examines an economy’s overall behavior, performance and structure, in contract to microeconomics, that focuses on decisions made by households about their disposable income.

Housing markets have revived strongly in many countries around the world in recent years, including Czech Republic. Nevertheless, house prices in this region remain on average far above Central European levels relative to households’ income. Thus, house prices in Czech Republic are the second highest after Austria.

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Various studies have shown that the labor market and demographic factors were the important macroeconomic factors that have an effect on real estate prices because real estate construction is typically lagging behind increase in demand and therefore market equilibrium is achieved through change in prices rather by changes in quantity.

In this article we examine how above-mentioned factors including unemployment rate and migration have an impact on residential real estate prices and in the Czech Republic’s capital, Prague.

Unemployment rate

Unemployment comes as no surprise. The number of employees who are unemployed and seeking for employment is used to quantify it. Problems can arise with both high and low unemployment rates. While a low unemployment rate could be a sign of economic overheating, a high unemployment rate is a sign of economic hardship.

Generally, the unemployment rate in Czech Republic is the lowest in the European Union for a long time. According to the study by Gitter, there are six factors that play a role in low Czech unemployment rate:

  • the low international value of the Czech crown,
  • the human capital of the Czech workforce,
  • tripartite wage setting with a view towards maximizing employment rate,
  • the efforts of National employment office,
  • market-oriented labor policies,
  • and the small size of the agricultural sector of the economy.

On another side, there is one big concern about the influence of homeownership on unemployment in a negative way. According to Statista, the homeownership rate in the Czech Republic was relatively high in the last decade. The high homeownership rate could increase unemployment via a lower level of physical mobility of property owners. That means homeowners are more attached to their immobile real estate capital. Suppose some geographical areas experience a negative employment shock. In that case, the immobile households remain unemployed instead of moving elsewhere where labor demand exists.

According to the Glaeser and Gyourko model, the advantages of decreasing housing prices benefit the poor more than the wealthy. It means that the high-income resident will strongly prefer to leave the struggling metropolis where the need for work declines. On the other hand, the low-income resident will decide to stay because there is not as much significant salary loss associated with a failing municipality than for high-income resident, and they can afford their house. This viewpoint brings up the link between unemployment, migration, and real estate prices.


There are different opinions about how the unemployment rate may determine the direction of the population’s migration, which can impact the rental of real estate and the price of this real estate. Although, there is no generally accepted opinion on the direction and degree of impact of internal and international migration on unemployment and housing prices.

Nevertheless, now the Czech Republic is one of the countries that hosted Ukrainian refugees due to the Russian invasion. Following numbers are rising new concerns about the price of housing in the Czech Republic and especially in Prague:

  • According to European Commission, as of 22 June there are 380.212 Ukrainian citizens in the Czech Republic who fled the invasion of Ukraine by Russia. From that number more than 83.000 refugees have been registered in Prague.
  • Approximately 70.000 refugees from Ukraine are employed in the Czech Republic and therefore pay income taxes and social and health insurance;

According to data from Deloitte, the average bid price for one square meter sharply rose in Q1 of 2022, at the same time when the war in Ukraine started and refugees were fleeing to the European countries. Moreover, the price for one square meter in Prague rose more than in other regional Czech cities and the rest of the country.

Macroeconomic factors - graph

Additionally, there is a long-term trend among post-Soviet Union citizens seeking residence in the Czech Republic, especially in Prague. According to the Czech Statistical Office, the number of foreigners in Prague has constantly been increasing since 2004 (except for 2012 and 2013, when it decreased by 1709 people year-on-year) simultaneously as the number of foreigners in the country. In 2004, there were 77.922 foreigners in Prague; at the end of 2020, their number increased to 228.531. Most foreigners come from Ukraine, Slovakia, and Russia.

All of these factors have a significant influence primarily on the rental price. According to Joshua Gallin, the real estate market and the market of rental housing are closely connected to each other. More specifically, when house prices are high relative to rental prices, subsequent changes in real rental prices are larger than usual. Moreover, the subsequent changes in real house prices are smaller than usual.

In most European real estate markets, in the last decade, rapid changes in property prices, both upward and downward, were observed. Those fluctuations can be attributed to changes in economic and social factors that affect the property market. If you consider RE investments, then you should study not only general economic factors that may influence your real estate deal, but more importantly macroeconomic factors.

When examining the influence of macroeconomic factors on the real estate market, it is essential to study principles of macroeconomics, define the unemployment rate, measure the migration level, as well as map out the situation in the localities that will be subjected for possible real estate investments.