A renaissance of small and medium-sized towns in Poland – is it possible?

The systemic transformation and the resulting economic changes of the 1990s brought far-reaching consequences for many areas of social and economic life. Unlike most large cities, which coped fairly well with the new challenges, many small and medium-sized towns found themselves in a very difficult situation. Rising unemployment due to the collapse of unprofitable businesses, a lack of new investments, and, most significantly, a population outflow, particularly among young people, are the main negative consequences of these changes, which are still perceptible today across the entire regions. After joining the European Union, Poland became one of the largest beneficiaries of structural funds aimed at reducing regional disparities, and a significant number of small towns successfully seized EU funds not only to improve infrastructure and attract investments, but also to enhance the quality of life for residents. However, despite significant progress, the most serious issue for the vast majority of small and medium-sized towns remains depopulation, with all its negative consequences – social and economic challenges, and problems with the functioning of local institutions such as schools, hospitals or cultural centres. Young people, seeking better educational and career prospects, are migrating en masse to the largest cities, such as Warsaw, Cracow, Wroclaw or Gdansk, or they choose emigration and starting a new life abroad.

So, is there a chance to reverse this unfavourable trend? It seems there are at least a few significant arguments in this respect.

The outbreak of the COVID-19 pandemic served as a catalyst for changing how people think about their place of residence. One of the most important changes influencing housing decisions during the pandemic was the widespread adoption of remote work. The remote or hybrid work model was implemented by the vast majority of companies and institutions, allowing employees to perform their tasks without the need to commute to the office daily. This forced “experiment” demonstrated that such a work system allows companies to operate efficiently without compromising productivity while significantly improving employees’ quality of life and reducing operational costs. Although some companies returned to traditional office work after the pandemic, many have continued with remote or hybrid work, enabling employees to live in smaller towns without being tied to a workplace in a big city. This is a significant qualitative change that is already having, and will continue to have, a lasting impact on the real estate market by increasing the attractiveness of small towns and suburban areas.

However, the impact of COVID-19 on the growing appeal of living in smaller towns extends beyond remote work. The pandemic has significantly accelerated the transition of commerce and services, including public services, to the Internet, as well as access to cultural goods. As a result, residents of small towns now have much easier access to products and services that were previously available almost exclusively in large cities. These changes have substantially reduced the advantages of living in large cities. Consequently, small towns and suburban areas have become increasingly attractive alternatives – places, where one can live more peacefully, in greater comfort, while incurring significantly lower costs.

Infrastructure investments, particularly those that reduce the travel distance (measured by commuting time) between small towns and larger urban centres, have been and continue to be a critical factor in increasing the attractiveness of small towns as potential places of residence. Thanks to the construction of road infrastructure and the modernization of railway lines, the commuting time to Warsaw from small towns like Łowicz, Żyrardów, and Siedlce has reduced by as much as half, making home-office commutes (assuming a hybrid work model) much less burdensome than before. When using rail transport, commuting times are comparable to those from peripheral districts or towns just outside the city’s boundaries.

In the context of relocating to a smaller town, the most tangible “pro” argument remains property prices. Apartment prices in Poland’s largest cities have remained at levels that virtually exclude homeownership for a significant part of the population, especially young people. The AMRON Centre’s Housing Affordability Index for the eight largest cities shows a clear decline in housing affordability due to both rising prices and increased interest rates since 2021. While this decline also affects smaller towns, housing affordability in smaller centres, despite previous price increases, remains high. A comparison of housing affordability indices for Warsaw and five towns of varying sizes located within about an hour’s commute to Warsaw or less (i.e. Ciechanów, Siedlce, Skierniewice, Łowicz, and Warka) illustrates this difference well. In Warsaw, rising prices and credit costs have reduced housing affordability to levels last seen in 2011. In smaller towns, despite a noted decrease, housing affordability still exceeds the IDM for Warsaw noted during the last boom in 2021.

HOUSING AFFORDABILITY INDEX FOR WARSAW AND FIVE SMALL TOWNS IN Q1 2020 – Q2 2024

source: AMRON Centre

It’s easy to imagine the potential benefits of such a choice for both young and older individuals. For the latter, relocation allows for freeing up part of the capital tied up in their current property, which can be used for other purposes, such as investing in a second apartment to generate additional rental income or passing it on to the younger generation “for a start.” Lower living costs in smaller towns are also significant for retirees. For younger people, choosing a smaller town nearby the big city is an opportunity to purchase a larger apartment or take on a smaller mortgage.

Buying an apartment in a small town does not necessarily have to be for personal use. Apartments in small towns can also serve as a potential investment, not burdened with excessive risk and offering quite decent returns. An analysis of price dynamics in recent years shows that price increases in smaller towns have not significantly differed from those in the largest cities. This means that an apartment in one of the five analysed smaller towns over the last 10 years was as good investment, as the one in Warsaw.

PRICE DYNAMICS OF 1 SQM OF AN APARTMENT IN 2014 – 2023

source: AMRON Centre

Investing in an apartment in a smaller town is not just speculation. In recent years, the significant growth was observed on the rental market, including in smaller towns, and rent rates in such locations guarantee returns comparable to those in larger urban centres. Additionally, if the town, where you decide to invest, is located in mountainous area, seaside or simply culturally or naturally valuable areas, there is also potential demand for short-term rentals from tourists.

The growing importance of sustainable development is also not insignificant for the chances of revitalizing small and medium-sized towns. Sustainable development is an idea that aims to foster societal growth without compromising the prospects of future generations. In other words, it is a way of thinking about development that combines concern for ecology, social justice and economic efficiency while preventing the depletion of natural resources. These trends favour the development of smaller, more sustainable communities. “Work-life balance”, easier communication and environmental orientation are values increasingly important, especially for younger generations.

As you can see, there are plenty of reasons to consider when considering investing in or simply purchasing a  in smaller town for personal use. Certainly, small towns differ greatly from one another, offering potential investors varying levels of opportunities and risks. However, it seems that for many people, including young ones, such an investment or life choice regarding their place of residence may be entirely rational.

Jerzy Ptaszyński
Research and Market Service Director