Over the past two years, the housing markets of Poland and the Czech Republic have experienced spectacular price increases. The drastic surge – which has driven property prices in Kraków and Prague to record highs – highlights the unique forces shaping the Central European real estate market. This analysis looks at the background of this extraordinary rise, from demand-supply imbalances and government subsidies to inflation and interest rates.
By Róbert Gönczi
In Poland and the Czech Republic, property prices have climbed to the top tier of Europe in the past year or two. While in many Western European countries house prices stagnated or fell due to soaring inflation and higher mortgage rates, Central Europe stood out with remarkable growth in both Poland and the Czech Republic. In 2023, Poland recorded price growth of over 12%, while in the Czech Republic it was close to 10%. The surge continued into 2024: Poland’s annual price increase remained in double digits, making it – along with Bulgaria – an EU frontrunner.
At the city level, the picture is even more striking. In Kraków, there were periods when the price of new-build flats rose by nearly 30% year-on-year. Other cities also saw two-stage increases of around 20%. Prague, meanwhile, has become one of Europe’s most expensive and least affordable housing markets: buying a 70-square-metre new flat requires more than 13 years of average income. Such dramatic increases have been fuelled by a combination of factors.
Demand-Supply Imbalance
One of the main drivers of the Polish and Czech housing boom is the persistent imbalance between supply and demand. Both economies have grown steadily in recent years, unemployment remains low, and rising wages ensure constant demand for property. Larger cities – Warsaw, Kraków, Prague and Brno – act as magnets for young workers and families seeking better opportunities, fuelling internal migration. This surge in demand puts pressure on supply: too few new homes are being built in cities to keep up with population growth.
Foreign Investors and Migration
The war in Ukraine has brought hundreds of thousands of refugees to Poland and the Czech Republic, creating extra demand, particularly in the rental market. At the same time, Western European property funds and wealthy private investors have been actively buying in these countries, especially in popular cities such as Prague and Kraków. This foreign demand has added further fuel to prices.
The Role of State Support and Subsidised Loans
Government measures have also played a significant role in the boom, especially in Poland. In 2023, the Polish government introduced the “Safe 2%” mortgage, offering first-time buyers fixed interest rates of 2%, with the state covering the difference from the market rate. The scheme immediately boosted demand: the subsidised loans attracted a wave of young buyers, sparking bidding wars for available properties.
The Czech Republic did not have such a wide-ranging subsidised mortgage scheme, so the price increases there were more market-driven. However, for years the Czech authorities curbed demand through strict lending rules – requiring high deposits and income thresholds – which were eased in 2023. This relaxation, combined with slowing inflation, gave fresh momentum to the Czech housing market.
Inflation and Interest Rates
The macroeconomic environment has also pushed prices higher. In 2022–23, both countries faced double-digit inflation, eroding savings and making property an attractive store of value. Many families and investors turned to housing as a safe haven against currency depreciation.
At the same time, the era of cheap loans came to an end. By 2022, central banks had sharply raised base rates: to nearly 7% in the Czech Republic and 6.75% in Poland, pushing mortgage rates to 8–9%. Normally such a shock would cool the market, but demand did not vanish overnight. Moreover, in Poland the 2% state-backed mortgage shielded buyers from high rates. As a result, the tough lending environment only partially slowed price growth.
Labour Market Pressures and Construction Constraints
Supply-side bottlenecks have also pushed prices up. The construction sector in both countries suffers from labour shortages: with record-low unemployment, there is little spare capacity, and some Ukrainian workers have been lost due to the war. At the same time, the cost of building materials has risen steeply in recent years, making new housing projects more expensive and slowing completions.
Regulatory and administrative hurdles further restrict supply. In the Czech Republic, obtaining building permits is particularly slow – in Prague it can take years to launch a project. In both countries, available land for development is limited in sought-after city centres. For years, the number of new completions has failed to keep pace with rising demand, resulting in a chronically tight market where buyers compete for scarce homes, driving prices ever higher.
Is the Boom Sustainable?
The winners of this process are homeowners, whose wealth has risen; the losers are young first-time buyers and lower-income families, for whom owning a home is becoming ever more unattainable. House prices cannot rise forever: if interest rates remain high and state support winds down, demand may cool. Yet as long as labour shortages, slow construction and population growth hold back supply, prices will remain elevated. The Polish and Czech experience suggests that instead of a correction, housing markets may lock into a new equilibrium of persistently high prices. Managing this will be one of the region’s key economic policy challenges in the coming years.