After a period of slowing growth, rents will rise again at a faster pace in Switzerland, Raiffeisen bank predicts in a study published on Thursday.
As the weakening effects on rents from the fall in the base interest rate are about to disappear and the increase in energy prices due to the war in Iran increases construction prices, price stabilization in the rental housing market is expected to end soon, argue the bank's experts.
“The very low vacancy rate and the growing number of search subscriptions continue to point to strong excess demand in the market,” Fredy Hasenmaile, the institute’s chief economist, was quoted as saying in a statement. “Historically, such a low vacancy rate has gone hand in hand with significantly higher rent increases than are currently being experienced.”
Despite many signs of a housing shortage, housing construction in Switzerland remains at historically low levels, the study said. A large part of the challenges in the housing market are related to new spatial planning, which, although intended, has not been sufficiently implemented.
In addition to densification efforts, which are progressing slowly, one of the main factors behind this trend is increasing regulatory complexity: in recent decades, requirements for new construction in areas such as energy efficiency, climate protection, noise pollution reduction, accessibility and the protection of historical heritage have been tightened significantly, swissinfo reports, albinfo.ch reports.
However, regulation is also increasing outside spatial development laws: technical standards issued by private professional associations are becoming increasingly important, as they are often declared legally binding. The consequences are an increase in technical requirements, a lengthening of authorization procedures, an increase in planning risks and an increase in construction costs, which ultimately restrain construction activity.
“Most of the new social and technical expectations regarding housing construction are largely politically desirable and widely supported: taken individually, certain regulations certainly seem appropriate,” comments Hasenmaile. “However, taken together, they contribute to increasing the complexity, risks and costs of housing construction to such an extent that technical progress and efficiency gains can no longer compensate for these effects.”
Meanwhile, there is still little reaction from homeowners, about eight months after the removal of the rental value. "Neither from renovation applications nor from the turnover of small businesses, there are no signs so far of an increase in renovation activity, which still benefits from tax breaks in the transition phase," the expert notes.
Since the rental value will only be removed starting in tax year 2029, homeowners have room to maneuver to carry out tax-deductible renovations or optimize their future financing strategy.
"To be able to exploit the tax saving potential in good time and to avoid losses in the value of owner-occupied housing in need of renovation, the work must be planned quickly, as many measures require long preparation times. In addition, capacity constraints for craftsmen can be expected once the expected renovation boom begins," says Hasenmaile.
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