Impact of Supply and Demand on Rental Prices According to an analysis of rental prices and demand by Najuškalco, the largest online advertiser in Croatia, prices have skyrocketed the most in Split and Zadar by 17%, followed by Dubrovnik at 16%, and Osijek and Pula by 10%. All of these are student hubs, and the return of students to cities means a greater interest in long-term rental apartments. In combination with inflation and the lack of available housing that meets the criteria of future tenants, prices have increased, according to Najuškalco. Impact of Offer and Demand on Rental Prices The greatest demand for rentals is in Zagreb, where prices have risen by 6.63%. The average monthly rent per square meter now stands at 10.74 euros, while smaller apartments, which are in greater demand, have an average rent of up to 17 euros. On a jump in rental prices this year, the overall offer and demand ratio has also played a role. In Zagreb, there is a shortage of 17% of the offer, while demand has increased by about 10% this fall. As a result, more apartments in the price range of 450 to 650 euros per month are available on the market, while apartments under 350 euros make up only 10% of the overall offer. On the other hand, about 30% of renters in Zagreb are looking for apartments in the price range of 350 to 450 euros. Rentals under 300 euros, which are also relatively in demand, are in short supply, according to the statistics of this advertiser. Zagreb is the Most Developed Property Market Tamara Slišković, a docent at the Economic Faculty in Zagreb, emphasizes that it's a matter of the most dynamic and developed property market in Croatia. There is a constant growing demand for residential units on the Zagreb market due to positive migration movements, i.e., immigration to the capital, Slišković points out. She explains that due to the large number of students who enroll in universities in Zagreb every year, as well as limited and inadequate capacities of student dormitories, there is a great demand for rentals, which puts pressure on prices. "In other words, the rising demand for rented apartments raises their price," Slišković adds, emphasizing that this can be applied to the entire rental market, not just students. Tearing Apart the Quality of Student Life Bruna Bandula, a student council member at the University of Zagreb, warns that the rising prices represent a significant erosion of the quality of student life in Zagreb, especially since Zagreb is facing a long-standing shortage of student dormitory beds. The number of beds covers only about 10% of the total number of students at the University of Zagreb, Bandula said. She added that students who do not win a place in a dormitory and whose families cannot afford a rental apartment are forced to work during their studies to enable higher education. For this reason, "the overall quality of studies suffers, and some students are forced to abandon their studies," Bandula said. She emphasized that investing in students "represents an investment in the future, and student accommodations are an indispensable part of studying, so they must be available to all students." Increased Rent Associated with Changes in Square Meter Price Trends However, Slišković notes that the current increase in demanded rents is more closely related to the trend of square meter price changes in recent years. On the entire Croatian market, housing prices have increased by almost 16% over the past five years, with almost no exception, Slišković points out. She explains that the strongest growth is present on the Zagreb market, and this is reflected in housing prices, which were 16% higher in the first quarter of 2022 compared to the same quarter the previous year. If we only consider new-built apartments, the growth is even greater, and it has a twice-as-strong impact on rental prices, Slišković says. The owner of a newly built property, purchased recently, buys it at a relatively high price. Taking into account the price increase in the previous period, the landlord gives the property for rent to secure a quick return on investment and thus demands a higher rent. On the other hand, there is something called the "wealth effect." The rise in prices on the housing market makes property owners perceive their property as more valuable and thus demand a higher rent from tenants, Slišković adds. Dubai Effect Economist Andrej Grubišić believes that the increase in prices is largely the result of expansionary monetary policy, tax discrimination, and state subsidies for the purchase of apartments. "In the last decade, it was a period of expansionary monetary policy, very many funds were pumped and put into the system by central banks, and we got a 2017-2022 rise in deposits from 74 billion to 154 billion kuna," Grubišić said. The number of savings, deposits, and currency deposits increased by an additional 15-20 billion kuna. The result is low passive interest rates of banks that no longer offer attractive returns on deposited funds, and relatively low willingness to invest in alternative financial instruments, Grubišić explained. Tax discrimination arises when someone renting out apartments pays a "symbolic price" of tax on those apartments, while other citizens pay 20% more or higher taxes on their properties compared to apartment owners, Grubišić mentioned. He added that this leads to a "Dubai effect" where people with more liquidity buy apartments that they neither rent out nor live in and which ultimately remain empty. The increase in prices will result in fewer square meters per family being sold, and this will have to be accepted by all who want to live in Zagreb, Grubišić pointed out. He recommends abolishing tax discrimination so that everyone can purchase apartments for their needs and so that they can control the effects of price growth. Trends in Prices Have Their Life Cycle Slišković holds that it's "hard to predict when such trends of square meter prices and rental prices will be reversed, but we need to know that every phenomenon goes through its life cycle." In this sense, the property market, which is currently on an upward trajectory, will have to experience a temporary peak followed by a slowdown. "Taking into account that we have had an exceptionally successful tourist season, which can be considered one of the generators of demand for investment apartments, it is unlikely that there will be any significant changes in prices on the housing market in a very short time," Slišković believes. Note: Dividers, lists, and other minor html elements were removed from the translation for brevity reasons.

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