Croatia cannot lower property prices while suppressing supply

Over the past few years, nearly every serious discussion about housing in Croatia has been reduced to one issue - the purchasing power of buyers. Subsidized housing loans, tax incentives, and the latest VAT refund schemes for buyers are all based on the same assumption: that the problem of high real estate prices can be solved by financially supporting demand.

The problem is that the real estate market does not function the way politics often presents it.

In a market where new supply is limited, additional money rarely leads to lower prices. In most cases, it leads to the exact opposite. Buyers gain greater purchasing power, but the number of quality apartments and houses remains unchanged. The market quickly absorbs subsidies through higher prices.

Croatia has already experienced this.

“In a market with limited supply, subsidies rarely end up benefiting the buyer. More often, they become embedded in rising property prices.”

The APN subsidy model and subsidized housing loans may have temporarily helped some citizens purchase their first property more easily, but they did not solve the core issue. Croatia failed to increase the system’s ability to produce enough new and organized housing supply.

And that is the subject that remains largely absent from the public conversation.

Today, the Croatian real estate market does not suffer from a lack of interest in development. Capital exists. Demand exists. Investor interest exists. The real problem is that the spatial planning and land management system struggles to produce serious, well-organized supply.

This becomes particularly visible in the way large parts of Croatia are currently being urbanized. Instead of developing larger, integrated urban areas, the country has spent decades relying on fragmented and piecemeal urbanization. Individual plots are rezoned for construction without serious consideration of broader urban logic, infrastructure, or long-term spatial development.

Such a model may satisfy the short-term interests of individual landowners and local politics, but in the long run it produces space without order, coherence, or sustainability.

Today, Croatia often develops individual building plots rather than complete urban environments.

The consequences are visible almost everywhere. Neighborhoods without sufficient transport infrastructure. Buildings without public amenities. Delayed utility infrastructure. A lack of green space. Poorly connected urban areas. And projects that become more expensive simply because of their fragmented and undersized nature.

In well-organized markets, space is developed first - buildings come later. Roads, utilities, public amenities, schools, sports facilities, and green areas are planned before residential construction begins.

Croatia has largely skipped that step.

Today, much of the market relies on small-scale projects, often on isolated plots, without a broader urban planning context. Such projects struggle to achieve the economies of scale found in properly planned urban zones. This is precisely why Croatia increasingly produces small, expensive projects that become less competitive over time - not only in the residential sector, but also within the second-home market.

The issue goes far beyond construction itself. After the transition period and the war years, Croatia largely lost the continuity of serious urban planning culture. Former urban planning institutes have practically disappeared, local governments often lack the necessary financial and professional capacity, and spatial management has become fragmented and politically burdened.

A large number of municipalities and towns simply do not have the capability to manage long-term spatial development. Instead of strategic planning, urbanism is frequently reduced to partial zoning changes driven by local political pressures.

“The problem of the Croatian real estate market is not a lack of buyers. The problem is that the system cannot produce enough quality supply.”

This is not only a question of housing prices. It is a question of the quality of the environment in which people will live over the coming decades.

Another major issue is that Croatia has almost no developed model of horizontal land development. In more mature markets, specialized entities work together with local authorities to develop larger zones - securing infrastructure, parcelization, and spatial organization - after which vertical developers construct the buildings themselves.

In Croatia, construction often begins before the space itself has been properly developed.

The result is a market that struggles to produce serious and sustainable housing supply. This is also why Croatia still lacks a developed institutional long-term rental market comparable to those found in more organized European markets. Large institutional investors do not enter fragmented markets without clear infrastructure, planned urban zones, and long-term predictability.

At the same time, the state continues trying to solve most housing issues through demand stimulation.

Of course, no country can change its entire spatial planning system overnight. But without serious urban planning reform, faster permitting processes, and the development of larger master-planned areas, it is difficult to expect any meaningful stabilization of property prices.

Because the core issue in Croatia is not simply that real estate has become expensive. The problem is that the system has spent years restricting the creation of quality supply, while simultaneously trying to solve the consequences of that problem through subsidies and demand stimulation.

As long as that imbalance remains unchanged, property prices are unlikely to become significantly more stable or affordable in the long term.

Blog author: Ivan Kovačić