Croatia’s Housing Crunch: New Rent Scheme and Law Aim to Cool Prices — What Buyers and Investors Must Know
Croatia’s housing market is outpacing incomes — and the state is moving to intervene
Croatia’s real estate Croatia market has become a test of whether public policy can catch up with rapidly rising housing costs. Prices have outstripped wages for years, leaving many young families unable to access home ownership. Our analysis shows the government is shifting from incentives for buyers to active market management, with measures that will affect owners, renters and investors across the country.
Quick snapshot (what you need to know right now)
- Property prices have risen by an average of 8% a year over the past three years.
- New-build prices are up about 11% annually.
- Average net monthly salary in April 2025: €1,439.
- Zagreb new-builds: from €3,300/m2; exclusive areas from €4,500/m2.
- Split: €4,500–€5,500/m2; Osijek: €1,600–€2,000/m2.
- Registered long-term rental agreements in Zagreb: 14,000 (2023), 20,300 (2024), plus 5,000 by mid-March 2025.
These figures explain why policymakers feel compelled to act. But the proposals carry trade-offs that property buyers and investors should weigh before reallocating capital.
Rising prices and shrinking affordability: the data and what it means
From a regional perspective, Croatia has diverging submarkets. Coastal cities and capital-area neighbourhoods record the highest price growth, while inland and eastern cities remain comparatively affordable.
- Annual price growth (three-year average): +8% overall; new builds +11%. That gap means new housing is becoming relatively more expensive than the existing stock.
- Wage vs price mismatch: With an average net salary of €1,439 in April 2025, the ratio of income to property price in cities like Zagreb and Split makes mortgage serviceability challenging for many first-time buyers.
Why this matters for buyers and investors
- For first-time buyers, rising prices raise the deposit and monthly repayment hurdle. Even with favourable mortgage terms, monthly serviceability depends on a salary base that has not kept pace with housing inflation.
- For investors, rapid price growth can mean capital appreciation, but it also draws political scrutiny and policy risk. Measures aimed at cooling prices can change rental returns and capital gain assumptions.
Our view: the imbalance between price growth and wage growth is the single biggest factor pushing the government to intervene. Without addressing rental availability and credit conditions, affordability will worsen.
The Affordable Rent Programme explained: how it would work and who it helps
The headline policy is the Affordable Rent Programme, soon to enter public consultation. The measure is designed to expand long-term rental supply and provide below-market rents for households that cannot qualify for mortgages.
Key design features reported by the ministry:
- The state will manage privately owned apartments for long-term affordable rental, offering landlords fair compensation for leasing properties through the programme.
- State-owned flats will also be included, increasing the pool of units available for affordable lease.
- Target group: households who are not creditworthy and cannot afford to buy on the open market.
Practical implications for stakeholders
- Landlords: the government’s offer of compensation is intended to reduce the incentive to place units on short-term platforms. Landlords will need to compare guaranteed, potentially lower, but more stable income from the programme against higher but volatile short-term returns.
- Renters: qualifying households could gain access to long-term leases at reduced rates and greater tenure security.
- Municipalities: local authorities will likely play a role in identifying eligible households and coordinating state-owned units.
Policy risk and implementation challenges
- The success of the programme depends on the attractiveness of compensation to private owners. If compensation is set too low, landlords will keep pursuing short-term lets.
- Administrative capacity is needed to manage a mixed portfolio of private and state-owned properties. Poor management could erode trust and reduce participation.
Our read: the programme is promising as a demand-side stabiliser when combined with supply-side measures, but it will need clear, timely rollout rules and transparent landlord compensation formulas to gain traction.
Tax changes to separate short-term and long-term rentals: winners and losers
A major thrust of the policy package is tax differentiation between short-term rentals (STRs, e.g., Airbnb) and long-term rentals. The ministry views STRs as a factor that reduces long-term supply and drives up rents in city centres and tourist hotspots.
What the tax changes aim to do
- Make short-term letting less attractive relative to long-term leases by changing tax treatment and potentially increasing compliance checks.
- Incentivise landlords to register and sign long-term rental contracts by linking tax benefits to duration and registration status.
Early signals suggest the approach is working: according to unofficial tax administration data, registered long-term rental agreements in Zagreb increased from 14,000 in 2023 to 20,300 in 2024, with a further 5,000 contracts by mid-March 2025. That surge indicates landlords are shifting some stock back to the long-term market.
Who stands to gain and who may lose
- Long-term tenants and households seeking housing will win if the trend continues and rents stabilise.
- Short-term rental operators and investors focused on holiday lets may see returns compress or face higher compliance costs.
- The tourism sector could feel friction in high-season supply, but policy designers seem focused on balancing housing needs with tourism revenue.
Our assessment: tax policy is a blunt tool but effective when enforced. The observed jump in registered long-term leases in Zagreb implies landlords respond quickly to incentives or enforcement signals.
Supply-side measures: POS, municipal partnerships and a new housing law
The government is not only adjusting demand; it plans to increase supply through construction and credit reforms.
Planned supply measures include:
- Expansion of the POS (Subsidised Housing Construction) programme to build residential units with below-market rents or purchase prices.
- Collaboration with local authorities to develop housing in rural and underdeveloped regions, where costs are lower and family housing can be delivered more cheaply.
- Drafting of a new Law on Affordable Housing aimed at improving lending conditions for those looking to build or buy family homes, with a focus on depressed areas.
How this affects the market
- Building new units via POS adds supply targeted at lower-income households, reducing pressure in some segments.
- Public–private collaborations can accelerate delivery, but require clear allocation rules to avoid local opposition.
- Improved lending conditions could make mortgages more accessible, but only if banks are willing to lend under the new terms.
Risks to delivery
- Construction timelines and cost inflation are persistent risks. Subsidised projects can face delays due to planning, procurement or rising material costs.
- If lending improvement is too narrowly targeted, it may not address the core affordability gap in urban centres where prices are highest.
Our view: supply measures are necessary to complement rental policy. The emphasis on underdeveloped regions is sensible from a social policy perspective, but it will not solve affordability in Zagreb or coastal hotspots in the short term.
Regional picture: where to buy, rent and invest in 2025
Croatia is a multi-speed market. Prices and rental dynamics vary sharply by region.
- Zagreb: new-builds from €3,300/m2; exclusive areas €4,500+/m2. The capital remains the most competitive and contested market for buyers and renters.
- Split: €4,500–€5,500/m2 for new builds — high demand from both local buyers and holiday markets pushes values up.
- Osijek: €1,600–€2,000/m2 for new builds — offers more affordable entry points and lower price volatility.
Investor considerations by region
- Coastal and capital locations deliver higher short-term rental yields during high season, but policy changes and taxation of STRs increase regulatory risk.
- Inland and smaller cities offer lower purchase prices and may benefit from targeted POS projects and improved lending. Yield profiles are steadier but with lower upside on capital appreciation.
Practical advice for buyers and investors
- Calculate rental yield both on a long-term lease basis and on a short-term seasonal basis, then stress-test returns under tighter STR rules.
- For owner-occupiers, compare the mortgage repayment on a typical loan to the local average net salary of €1,439 to assess serviceability.
- Watch public consultations on the Affordable Rent Programme — it will reveal which neighbourhoods and building types are likely to be enrolled.
Risks, unknowns and red flags
No policy package is risk-free. Stakeholders should watch for the following:
- Political risk: measures announced by one administration can be revised by the next, altering landlord incentives.
- Implementation risk: delays and bureaucracy can reduce the effectiveness of state-managed rental schemes.
- Fiscal cost: subsidised rents and compensation to landlords require government funding; budget constraints may limit scale.
- Market distortion: guaranteeing returns to landlords who enrol could prop up prices elsewhere if poorly designed.
We advise investors to model downside scenarios where STR income falls and long-term yields compress while accounting for potential compensation from state schemes where relevant.
What buyers and investors should do now (practical checklist)
- Review your portfolio exposure to short-term rentals and evaluate the financial impact of tighter STR taxation.
- If you are a first-time buyer, monitor the new Law on Affordable Housing and POS openings; these could improve mortgage access or offer subsidised purchase opportunities.
- For those pursuing rental income, prioritise properties that qualify for stable long-term leases in areas with demonstrated tenant demand.
- Consider regional diversification: Osijek and other inland locations offer lower entry prices that reduce monthly financing pressure.
Our bottom-line advice is pragmatic: prepare for lower STR returns and assess long-term rental fundamentals before buying.
Frequently Asked Questions
Q: Who will benefit most from the Affordable Rent Programme? A: Households that are not creditworthy and cannot afford to buy will benefit most, since the programme focuses on long-term affordable leases and includes both private and state-owned flats.
Q: Will the new measures force landlords to give up short-term lets? A: The measures aim to make long-term leasing more attractive through tax differentiation and compensation, but participation by landlords will depend on the level of compensation and enforcement of STR rules.
Q: How likely is it that housing prices will fall in Zagreb or Split? A: Short-term price falls are not guaranteed. Increased long-term lease registration suggests stabilisation may be possible, but price trajectory depends on how quickly supply is added via POS and how lending conditions change.
Q: What should foreign investors consider when buying in Croatia now? A: Foreign investors should factor in potential tax changes on STR income, local demand for long-term rentals, mortgage access if using leverage, and the higher entry prices in coastal and capital markets.
Final assessment: policy is shifting from incentives to active management — outcomes will depend on execution
Croatia’s housing story in 2025 is one of government intervention aimed at bringing supply and long-term rental availability back into balance with incomes. The Affordable Rent Programme, tax differentiation of rentals, expansion of POS, and a new housing law are coherent pieces of a package that address both demand and supply.
Yet the challenge is practical: delivery depends on convincing private owners to participate, on accurate and fair compensation, and on speeding up construction while controlling costs. For buyers and investors, the next 12–24 months are a period of transition. Reprice assumptions for rental returns in light of tighter STR rules and keep a close watch on the public consultation and legal text for the Affordable Rent Programme and the new Law on Affordable Housing.
A concrete fact to finish with: as of April 2025, the average net monthly salary was €1,439, while a square metre of new-build in Zagreb started at €3,300/m2 — a simple comparison you can use today to test whether buying in a given neighbourhood is affordable for your household or client.
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