Swiss Housing Market Flashcards
Structure and Challenges - PD Dr. Frank Bodmer
What are the two peculiarities (Eigenheiten) of real estate markets?
1 limited supply of land
- new land is the exception
- building land has to be obtained by using agricultural land or forests
2 RE asset that provides a service to a costumer
- RE held by investors, which expect an adequate ROI
- dwellings used by hh (shelter basic need)
Which two markets exists according to Bodmer in RE?
- Asset market
- Space market
Which are the fundamental challenge for the Swiss housing market?
1 Providing a growing population with affordable housing of good quality
while
2 protecting the natural environment
(both are political goals)
Which are the 5 goals for public policy?
- sufficient supply
- affordable prices and rents
- limitation of land use
- promotion of private ownership
- financial stability
How does the market mechanism works?
- supply and demand
- in the most liberal version, state just:
-> is providing a secure legal environment
-> stable economic conditions
What kind of State interventions exists in RE?
1 Rules and limitations for land use and buildings
2 Intervention in segments of the housing markets
- rental market
- home ownership
- foreign ownership
- touristic use
3 Public supply
4 income support for lower income households
What kind of tradeoffs can appear by try to reach a goal in RE?
- Limiting land use for housing: protects the natural environment -> reduces supply of building land -> higher prices for building land and for housing
- Rent regulation: protects rentners but might hinder supply for new housing or segmentation of the market -> lower rent for tenants -> higher rents for many hh looking for new housing
- Promoting home-ownership reduces the average cost of housing and increases demand.
How many cantons and municipalities does Switzerland have?
26 cantons
2’000 municipalities
Which are the largest cities in Switzerland?
Zürich, Geneva, Basel, Lausanne and Bern
What are the challenges of urban sprawl (Zersiedelung)?
- high land use, high infrastructure requirements, high energy use
- aesthetically unsatisfactory
- single-family houses still preferred
- in practise, most hh rent appartments
Can you tell me some kind of land use in CH?
- agricultural area
- forest area
- uproductive area
- settlement area (Bauland)
- residential area
Which kind of land use did increase strongly at the cost of another kind of landuse?
(aggricultural, forest area, unproductive area, settlement area, residential area)
settlement area at cost of aggricultural land
dwellings vs. households
The difference of dwellings and households is made up of second homes (= dwellings for the non-resident population and tourist accommodation).
How did the m2 per person in CH evolve? and how many m2 is it currently?
- increased, but after year 2000 only slightly
- ca. 45m2
There are 3 figures:
- living spaces
- gdp
- population
Which of these three had the biggest growth?
living spaces
Market of building land:
why is the supply of land more or less limited?
due to zoning regulation
Market of building land:
Why among other things is land held by owners who don’t want to use it or sell it?
expectation of further price increase
Market of building land:
How can additional land be made available? and who is responsible?
- additional land through rezoning
- mostly responsibility of municipalities
Market of building land:
If there is more land made available, where does it mostly come from in:
- rural areas (ländlich)
- urban areas (städtisch)
- rural areas: agricultural land
- urban areas: deindustrialisation
Market of building land:
Why does even a fixed supply of building land not mean that the supply of housing is fixed?
- Densification (Verdichtung) provides elasticity: higher buildings, closer together
- smaller apartmens further increase the elasticity
What might be the sources of price differences in RE?
- closeness to big cities
- transport facilities to big cities
- taxes
- lake view
- etc.
What is the difference of
asset market and space market
asset market:
- investor trade properties based on expected return
- resutls are equilibrium prices and quantities
space market
- demand space based on rents and
- number of hh characteristics (f.e. income)
- supply provided by investors in the asset market
- results are equilibrium rents and quantities
-> quantities/ vacancies identical in the two markets
How is the equilibrium in asset markets and space markets showed?
How do you calculate the price of a property?
sum of the discounted future rental income
P = Price
R = Rent
Ret = desired real return in percent
T = lifetime
How do you calculate the desired real return (Ret)?
Ret = r + rp
r = i - infl
r = real interest rate on risk-free investments
rp = risk premium
i = nominal interest rate
infl = inflation
How do you calculate the price of a property with a very long life, constant rent and a constant interest rate
P = R/Ret
P = price
P = R / Ret
Ret = desired real return
Price and Rents: which one does determine the other?
Rents determines the price, not the other way round
What kind of Ratio is used to assess (bewerten) overall valuation levels and bubble risks?
P/I Ratio (Price income ratio)
Trends and cycles in the Swiss housing: Economic development, resident population - how’s the development since 1900 and 1945
1900 - today: almost trippled
1945 - today: doubled
Empty dwellings are usually an indicator for crisis, as in the 1970 and 1990. Why was 2015 an exception?
because of high construction
The role of interest rates: what impact did low interests have?
low interest rates led to search for return, mostly by pensions funds and insurance companies “Anlagenotstand”
Market shares in CH: what is more dominant? Renting or owning?
still renting (since 1970 betwen 55 - 60%) - the share of owner-occupied housing increased steadily until 2015 and since is falling again
Market share: renting vs. owner-occupation, CH vs. European countries?
Switzerland is a renting country -> it is quite the exception in Europe (more owners)
Market share: Who are the owners of rental property?
Private persons: more than 50%
public and cooperative owners the rest
Why are rents adjusted only very infrequently?
Because of usual long term contracts
rental market and rent regulation: what is the difference between
“moderate system” vs. strict system and which systems is in CH characterized?
moderate system
rent for new contracts reflects market conditions
strict system
rent falls signifcantly below market levels over time
-> in CH moderate system
What does limit the purchase of residential property by foreigners?
Lex Koller
What are the effects of “Lex Koller”
- Limiting foreign assets demand alone will lower prices and increase rent
- Limiting foreign space demand will lower prices and rent
What did the second-home initiative change?
limitation of the construction of second homes in municipalities - with a share of second homes of 20% or more
housing policy: what wants the political left and the political right?
political left
- rent regulation stricter
- limit rent increase
- limit the possibility to tear down, to avoid a loss of cheaper flats
political right
- lower barriers for housing development, by limiting the possibility of stopping building projects through court action
