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This way of analysing the property market is not unique to
Poland. Those involved in Western European property have
been using the same foundations for their calculations and
getting it wrong for decades. The truth is the link between
average salaries, the supply of new homes and
prices themselves is weak. Very weak.

ARE THERE ENOUGH HOMES NOW?

Lets turn first to supply. A degree educated school
teacher once turned to me in all sincerity and said,
"There must be enough homes now." He had been spending
some time looking at new developments to find an apartment
for himself and there were hundreds of them. Their cranes
litter the skylines of almost every Polish city and town.

On the surface there does seem to be a great deal of
building going on but this is not large scale for Poland
when considered historically. In the late 1970s the
construction industry was delivering nearly 300,000
residential units per year. They did not build just blocks
and complexes, they built entire neighbourhoods and
suburbs, and that was stil not enough.

>From a European perspective Poland still has some of the
most overcrowded accommodation on the continent. According
to the United Nations there are 308 dwellings per thousand
inhabitants compared with 425 in Great Britain and 471 in
Bulgaria.

Depending who you talk to estimates of the current housing
shortage in Poland varies between one and two million
homes. At the current rate of build it will take at least a
decade before there are actually "enough" dwellings.

But let's take a magic wand and give Poland tomorrow the
same housing density as Great Britain. What would happen to
prices then? Well in the United Kingdom developers have
been delivering between 170,000 and 200,000 new units a
year since 1997 and despite this prices rose 276% over the
last decade according to the Nationwide Building Society.

This apparent contradiction has been noted in a report by
Rednet - The Situation in the Residential Market. The
authors warn of price decreases during 2008 because of
better supply both from developers and investors that
bought in 2006 in order to sell the apartments closer to
completion. At the same time they admit to being
"surprised" that prices in Wilan*w, the upmarket Warsaw
neighbourhood, rose 30% in 2007 despite having some of the
highest supply rates in the city and a lowering in unit
sales. This apparent contradiction is not unique among
speculators.

The bottom line is there is little to support a connection
between the supply of new build units and property prices.
The Rednet report ends by saying, "both more moderate sales
and satisfactory supply rates in comparison with reported
demand, does not have to result in a decrease of an average
price in the short term." More accurately, as the UK has
shown, it does not have to result in a decrease of the
average price in the long term either.

DO AVERAGE SALARIES MAKE ANY DIFFERENCE?

Now comes average salaries. The logic goes that if the
average person earns 35,000 zloty per year and the average
mortgage is three times this (with a 20% deposit provided
by the buyer) then the average price of property
shouldn't rise far above 130,000 zloty.

All too often I see this used by commentators who then
state "City X is reaching its maximum level" or "buyers can
no longer afford the asking prices in City Y" and then go
on to forecast decreases in the value of real estate.

It all makes sense but it is flawed; in Poland especially
so. Work and pay on the black market is still rife, it may
explain why nearly half the adult population is not active
on the labour market. There is an unknown amount of "money
under the mattress" caused by a lack of faith in the banking
sector, especially among the older generations, because the
currency has been devalued a number of times including once
in the nineties. Finally there is money coming in and coming
back with Poles who work abroad.

A BBC article in January 2008 noted that doctors who were
commuting from Poznan to Scotland for weekend work were
earning as much in one shift abroad as they did in one
month in Poland. The actual total figure for this type of
employment is anyone's guess as so much is moved in cash
and not declared. The Scotsman newspaper estimates it to be
21 billion zloty per year, the TVP television station
suggests it could be as high as 55.5 billion zloty in 2008.
If they are right the average salary is double what most
believe it to be.

But once again let us take out the magic wand which lets
us see all the unknowns. We are able to find out how much
people earn on the black market, how much is under their
beds and how much they bring into the country from working
abroad. Would this help?

Not really. And once again the history of Britain shows
why. Over the last decade average earnings have risen 39%
while average property prices increased nearly 300% despite
the fact that most banks will not lend more than three and
a half times the salary of a borrower.

Average salaries have not explained the changes in real
estate value in London for over sixty years. On average
property prices rise 100% every ten years and this has
always been higher than salary increases in the city. If it
has not worked there for over half a century why should a
similar method be valid in any Polish city or even Poland
as a whole.

SO WHAT SHOULD YOU DO?

So if average salaries do not point the way and supply
does not always seem to have an affect on property prices
how can anyone make a forecast about the Polish real estate
market? Here lies the biggest problem, if there were
another way then analysts and journalists would be using
it. But there isn't and so time and time again they are
drawn back, in desperation, to average salaries and supply.
Many commentators should know better, and some probably do,
but what else can they use to justify their points of view?

The real answer lies in getting out there, assessing what's
really happening now and considering the growth of Poland
overall before making your decisions. A comment from Michael
Jones, Managing Director of The Right Move Abroad, has it
right when he says, "It is important to look at the country
as a whole, and not just the property market. What state is
the local economy in? Is there room for further growth? Find
the answers to these questions." The richer a country gets,
the more house prices will rise.

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