The causes of the housing crisis begin with land ownership

At the beginning of October, the J&T financial group announced one of the largest land transactions in Prague this year: it is buying part of the land on Rohanské ostrov in Karlín from the Sekyra Group. At the same time, the sold land originally belonged to the city.

This is one of a number of cases where Prague has lost a lucrative development site where affordable housing can be built. And this is proving to be crucial in a number of European cities right now, at a time when rental prices are still rising.

The vast majority of attention paid to the housing crisis has so far focused mainly on the lack of apartments on the market for purchase or the lack of available apartments for rent. However, what lies beneath remained outside the interest of not only the media, but also the academic and political spheres. The series of articles of the international investigative project “Ground Control”, which we will publish over the coming months, aims to focus attention on a fundamental factor shaping the shape of our cities: land ownership.

Profit for J&T and Sekyra Group, loss for the city

J&T Real Estate informed about the purchase in a press release, already published by ČTK: it bought the land in question in the Karlín location from Konsorcia Rohan, in which Sekyra Group has a half share. Already in 2008, the Rohan Consortium concluded a contract with the then city management, according to which it has the right to gradually buy land in the locality from it, at a fixed price increased by the inflation index.

“Although I think that the prices are not market, we are unfortunately not able to break free from the historic contract, because we would be threatened with legal disputes, in which we would probably not succeed,” the current councilor for property Adam Zábranský (Pirates) explains the sale. Among those sales, we also find two purchase contracts from June of this year. And it is those that concern the sale of two hectares of land at the corner of Štorchova and Voctářova streets.

But they were not bought from the city by the Rohan Konsorcium, but by the company Rohan E one, s.r.o., directly owned by the Cypriot company J&T REAL ESTATE CR LIMITED. The Rohan consortium guaranteed compliance with the obligations from the original contract.

J&T bought the land from the city for approximately 320 million crowns — that is, less than sixteen thousand crowns per square meter. According to the price map, surrounding plots of land in the locality reach double the price.

The ownership structure of Konsorcium Rohan also ends in Cyprus. In the Cypriot company Kadenzamo Limited, which controls the Rohan Konsorcium, the executive is, for example, Ivana Tollarovičová, who, as we previously showed, figures in a number of J&T box companies.

J&T’s entry into the Rohan Consortium, in which Sekyra Group has a half stake, would be a way to claim the city’s land under a historic contract. Such a construction would allow another company — here J&T — to come to the land for less than the market price through the original contractual partner. It is worth noting that J&T already applied for a contract with the city in 2008, when it was unsuccessful against the Sekyra Group.

We don’t know how J&T Real Estate and Sekyra Group settled with each other. The company did not disclose the specific price of the acquisition, but according to it, the value of one square meter exceeded 20,000 crowns.

Whether J&T figured in Konsorcium Rohan already in 2008, i.e. at the time of signing the original disadvantageous contract with the city, cannot be ascertained. At that time, another Cypriot company had a thirty percent stake in it. However, no more detailed information can be found about her in public sources either. J&T Real Estate did not respond to our questions by the time of publication of the text. Only one thing is certain: from the published prices, it follows that the one who lost in the sale in the end is the city.

Cities invest, landowners profit

As Adam Zábranský promises, sales of similar plots of land should already be over: “Since the last election period, we have almost stopped selling plots of land in development locations, with the exception of property exchanges due to transport constructions that we need to implement. Even in these cases, however, we try not to get rid of land that Prague could independently stop with housing construction.”

At the same time, so-called contributions were introduced last year, on the basis of which developers are supposed to contribute to the development of the city’s infrastructure from their projects. The approved methodology for calculating contributions was criticized by civic organizations as not very ambitious, but the introduction of the system itself is at least a partial step forward.

It is precisely the investments from the public budget that increase the value of land, from which the private owner ultimately profits. Whether the city invests in a new subway line, a road or builds a school, this will increase the attractiveness of the neighborhood and, in fact, increase the property value of all those who own real estate in the area.

Up until now, there has been basically no way for the for-profit owners to give anything back to the city. Thanks to the contributions, at least the developers themselves began to participate to a certain extent in building the infrastructure.

The only way the city can recover the invested funds is to introduce higher taxation of land ownership. Their value does not only increase with public investments, but also with, for example, a change in the zoning plan — the moment the land is converted into a building plot, its value naturally increases.

We will deal with the issue of real estate taxes and their calculation in a separate text. It is worth noting, however, that the income from them in the Czech Republic has long been below the average of member countries of the Organization for Economic Cooperation and Development — OECD, which she herself pointed out.

The city does not have the necessary data on the land

“Privatization of land means loss of control. Therein lies her short-sightedness. Of course, it would be orders of magnitude cheaper to build publicly available housing on urban land,” notes researcher Alexander Dobeson from the University of Copenhagen, who deals with the history of land ownership.

The latest data from the Prague Institute for Planning and Development show that the city is still the second largest owner of land, after natural persons. However, it is important to mention that the data includes the entire area, not just building plots.

How much and what kind of land the city has with potential for the construction of residential housing is still not fully mapped. The contribution organization Pražská developerská společnost, which is supposed to register vacant city plots and plan their development, has a certain overview. According to its representative Martin Červinka, unlike many cities in the west, Prague has relatively enough land for the next few decades.

The Prague development company currently has land with the potential for the construction of six to eight thousand apartments. According to Červinka, however, it can be estimated that the city may still have land for approximately another ten to twelve thousand apartments.

For context: a total of more than nineteen thousand new apartments were completed in Prague last year alone. Zábranský sees further potential in land entrusted to urban districts, often in the vicinity of housing estates. However, he points out that their development tends to be more complicated, especially due to local resistance.

However, Prague is not the only public owner of land in Prague. A number of plots of land fall under the state and its institutions, which are administered by the Office of State Representation in Property Matters. Just this year, one of the largest exchanges of land and buildings in history between the state and the city is being completed — Prague will get, for example, the Karlín barracks.

Although the Office of Representation of the State in property matters offers the city land it is not interested in for exchange or purchase, in general Prague has no preferential right to them. The city can thus easily find itself in a situation where it has to match the highest offer made by a private entity or participate in an auction.

The state already announced at the beginning of autumn that it will get rid of surplus houses and land, from which it promises to get billions for the public budget. How many of them end up in private hands and how much the city can get will be crucial for the development of the city. According to representative Kristýna Drápalová (Praha Sobě), who is a member of the property committee, the sales of land owned by state-owned companies were perhaps even more fundamental than those belonging to the city, as they were larger development locations. “A typical example is Bubny, which belonged to SŽDC. It is a failure of the state and the city that the parcels ended up in private hands,” he states.

There is no list of all the parcels the city has lost in previous years. Witnesses of Prague politics agree that the most sales took place during the mayorship of Pavel Bém.

Our current data analysis shows that there are roughly eight thousand empty plots of land in Prague with an area of ​​more than two thousand square meters, on which residential housing can be built according to the spatial plan. However, the overall potential will be even greater, as the data does not include land where a building already stands — that is, for example, old industrial sites.

Who owns the vacant lots and why aren’t they built on? We will try to answer this in the “Ground Control” project series.

The article was created as part of the “Urban journalism network”, a project supported by the Arena for Journalism in Europe. The network includes media that deal with topics relevant to European cities and was created as a follow-up to the European Journalism Award-winning Cities for Rent project. The investigative series “Ground Control” was financially supported by Journalismfund Europe, Investigative Journalism for Europe (IJ4EU) and Stars4Media.