The abolition of home ownership would make home ownership much more attractive in the prevailing low interest rate environment. The housing cost advantage over rent is growing steadily and could rise to as much as 30% over the course of the year.
Now that Parliament has decided to change the system of property taxation, the people and the estates have the final say at the ballot box. If the proposal is adopted, homeowners would achieve significant tax savings, depending on the type of household, given the prevailing low interest rates. «Thanks to the high deduction for first-time buyers, newly-acquired couples would benefit the most from the reform. Households with a low level of debt, such as many pensioners, would also be among the winners of the reform», explains Fredy Hasenmaile, chief economist at Raiffeisen Switzerland. And he continues: «In contrast, owners of properties in need of renovation would be the least relieved. This is because value-preserving renovation work and lump-sum maintenance costs could no longer be deducted from taxable income.»
Unequal increase in the value of home ownership
In the current market environment, Hasenmaile is convinced that if the rental value were abolished, home ownership would become noticeably more financially attractive and thus also in value. However, homes in need of renovation are likely to lose value due to the elimination of deferred tax deductions as a result of the reform. «One of the potential losers of the reform is the construction industry, which is likely to benefit in the short term from many last-minute orders in the transitional phase until the reform comes into force, but in the long term, less money will go to the renovation of residential buildings due to the elimination of a large part of the tax deductions for maintenance», he explains.
If the prevailing interest rate environment persists, the tax authorities would also have to reckon with billions of diminished revenues for years to come as a result of the reform. «According to our calculations, tax relief and tax burdens only start to come into balance at an interest rate of just under 3%. However, it is difficult to assess the chances of success of the reform at the ballot box. Even though homeowners are clearly in the minority in this country, according to our analyses, their political participation in the past has been significantly higher than the average turnout of the Swiss population», says Hasenmaile.
Declining relocation mobility keeps tenants trapped
The continuing housing shortage is leaving its mark on the behavior of the Swiss population. Because suitable properties are hard to find and market rents are rising rapidly, many tenant households are forced to make major compromises. This manifests itself in clear evasions to peripheral communities or even in the waiver of relocations. The number of people moving within Switzerland each year has fallen by 74'000 people since 2020. These behavioral adjustments, as well as a recent somewhat weaker immigration, have slowed down the shortage of housing.
At the same time, the first impulses on the part of construction can be seen. In 2024, the number of dwellings for which construction applications were submitted rose by 8%. «This increase, however, is no more than a drop in the ocean. Even an expansion of actual construction activity on this scale would not be enough to make up for the deficit that has arisen in the last three years between the creation of new households and the creation of new dwellings», Hasenmaile continues. And he adds: «As long as construction activity does not increase sharply and the rental market does not balance, the burden of housing costs on tenants will continue to increase in the long term. In the short term, however, two reductions in reference interest rates, expected by the end of the year, will bring some relief, at least for existing tenants.»
Brilliant turnaround in the housing market
Recent interest rate cuts have further widened the home-cost advantage of home ownership, which has re-established itself over the past year. For a typical four-bedroom home, a buyer can currently save about 17% of his or her housing costs compared to rent, Raiffeisen says. With further expected cuts in key interest rates, this advantage will increase further over the course of the year, at least for money-market mortgages, to around 30%. «Thanks to this marked increase in attractiveness, demand for home ownership has recently picked up noticeably again. In the second half of 2024, changes in ownership increased by around 4% for single-family homes and by 6.5% for owner-occupied apartments.» Hasenmaile adds: «The price dynamics, which were clearly declining by mid-2024, are already picking up again. The slowdown in the housing market caused by the post-Covid interest rate hike has thus come to an end. The signs point to a brilliant change of direction.»
Hospitality industry trimmed hotels and restaurants with conversions and renovations
According to the analysis of the real estate market experts at Raiffeisen Switzerland, the pleasing sales figures in the hospitality sector are misleading about the true state of the hotel and restaurant industry. The persistently challenging market environment is also reflected in the corresponding real estate segments. The number of new construction projects in the saturated market is low, but there is a lot of investment in renovations and conversions. «With structural efficiency and scaling measures, the industry is trimming its building stock in order to keep the pronounced cost pressure in the industry under control with ever-decreasing staff numbers», says Hasenmaile.