The impact of increased inflation on residential real estate investment in the Czech Republic

Purpose This research paper aims to examine the impact of increased inflation on residential real estate investment in Prague, Czech Republic, over the period 2019–2024. The objective is to measure the relationship between inflation and housing prices and to evaluate the influence of monetary policy on market dynamics. Design/methodology/approach Quantitative time-series analysis was applied to inflation and housing price data. Correlation and regression models were used to assess direct and lagged effects (including a one-quarter lag). The asset-based valuation method was implemented to detect property overvaluation, while the delayed effects of the Czech National Bank’s (CNB) monetary tightening were also analysed. Findings A strong positive relationship between inflation and housing prices was identified (r = 0.75), which strengthened with a one-quarter lag (r = 0.80). In 2022, residential property prices were overvalued by up to 10% relative to their fundamental values. Monetary tightening by the CNB led to a temporary decline in investment activity and a delayed correction of market prices. Research limitations/implications The analysis is limited to a five-year horizon, a single urban market (Prague) and partial qualitative data. Future studies should extend the time frame, include additional Czech and Central European regions and integrate behavioural and spatial aspects of investment decisions. Practical implications The findings provide evidence for investors and developers of inflation-driven overvaluation and policy-induced market corrections. Policymakers gain insights into how monetary tightening affects housing markets in small open economies. Social implications The results contribute to understanding housing affordability and market stability during periods of economic uncertainty, relevant to households, regulators and financial institutions. Originality/value The study establishes a novel empirical link between inflation, valuation and monetary policy in Prague’s housing market, providing actionable evidence for both academic research and professional practice.