Brief Review

Swiss Housing Market Overview

During the 1980s, Swiss apartment prices rose by an average annual rate of 8.8%. The boom expanded in the early 1990s, with apartment prices rising 18% in 1990 and 12% in 1991.

According to the Global Property Guide, in order to tame what it considered run-away inflation, the Swiss National Bank increased mortgage interest rates to 7.9% in October 1992, up from 4.9% in January 1989. Most people hold variable term mortgages, so the impact was severe. From 1993 to 2000, apartment prices fell by an average of 6% yearly. By 2000, apartment prices were back to their 1987 level, the crash having wiped out a decade’s gains.

Swiss house prices in 2006 continued the modest upward movement that had started in 2000. From 2001 to 2006, the price index of rental apartments in Switzerland rose only 18.7%, while owner occupied apartment prices rose 21%. This is tame in comparison to the five-year rise in housing costs of 100% in Spain, 86% in the UK, and 78% in France.

According to the report Statistical Data on Switzerland 2008 from the Swiss Federal Statistics Office, the number of apartments is growing faster than the population. Between 1990 and 2000, apartments increased by 8% and the population by 6%, bringing the average number of persons per inhabited apartment down from 2.4 to 2.3. At the same time, the average per capita living space increased from 39 m2 to 44 m2. Nevertheless, there is still an extremely low vacancy rate of 1.2%, resulting in high rental costs. Single-family houses as a percentage of total building stock rose from 40% to 56% between 1970 and 2000. 70% of newly constructed buildings for housing purposes, as of 2006, were single-family homes, despite the efforts of town and country planners to counter this trend and the fact that building land is becoming increasingly scarce. Approximately 61% of all households in Switzerland are rentals. Among the oft-cited reasons are the efficiency of the rental market, and the fact that about 20% of the population are not Swiss nationals, who, until recently, were prohibited from buying real estate. In addition, most homebuyers need to come up with a 20% down payment to obtain a mortgage, which is out of the financial range of many people. For example, the average mortgage cost associated with buying a 120-m2 apartment in Zurich is €5.534 per month. The average rent for a 120-m2 apartment in Zurich is €2.656 per month. The average home costs most Swiss eight times their average annual income, in comparison with the U.K. where it is still only 5,5 times their annual income.

Owner-occupancy, however, is slowly gaining in popularity. In 2006, for example, 36.5% of housing units were owner-occupied, compared with 30.3% in 1990. More units are being constructed for ownership, with only 26 rental apartments for every 100 new houses. While house prices fell in the 1990s, the rents did not fall correspondingly. So now owner-occupancy is cheaper than renting. Over the past two decades, from 1986 to 2006, rents have increased 70.4%, the price of an apartment has increased 42.7%, and the price of owner-occupied housing has increased 43.6%. The taxation system slightly favours buying over renting, as mortgage payments are tax-deductible. Owner-occupancy is encouraged now by low mortgage interest rates, which were at 4.86% for a fixed-rate 10-year mortgage as of July 2008, much lower than the peak rates of 6 to 8% in the 1990s. With the recent provision allowing EU/EFTA nationals to buy property for their primary residence, owner-occupancy is expected to increase in the future.

Vacancy rates have inched up slightly from 2005’s 1% to 1.7% in 2006, very low by international standards. The low vacancy rate reflects a severe housing shortage, to which the market is responding. About 45,000 homes were completed in 2006, higher than the 42,000 units built in 2005, and the highest figure in ten years.