Raiffeisen has bad news
There is a threat of further strong price increases on the tight rental market. High demand, declining new construction and, above all, further expected increases in the reference interest rate are driving the development.
The increase in rents in Switzerland is likely to continue to gain momentum. The increases following the hike in the reference interest rate at the beginning of June will take effect at the beginning of October. But that was just the beginning, according to a study by Raiffeisen on Thursday.
There is “fire in the roof” for rents, the real estate experts write. The next increases in the reference interest rate are already in sight. “The reference interest rate is expected to rise to 1.75 per cent in December. This would mean that the majority of Swiss tenants would be threatened with another rent increase on 1 April 2024. According to the interest rate scenario, a further increase would then only be possible at the end of 2024 or beginning of 2025.
Two-thirds affected in second round
While in the current round of increases, it is estimated that just under half of all tenants are potentially affected, after the second reference interest rate increase, there should be potential for increases in around two-thirds of all tenancies, it continues.
And the increases will be clearly above the planned 3 per cent. The landlords also pass on part of the accumulated inflation to the tenants and claim the general cost increases. An exact forecast is fraught with great uncertainty in the absence of experience with such a situation. But the experts expect that in the course of the next year, with the second increase in the reference interest rate, the rent increase throughout Switzerland is likely to climb to 8 per cent at times.
But it is not only the increases that are driving rents. The prerequisite for landlords being able to push them through at all is above all the continued high demand and the scarce supply. “The demand for rental flats continues to increase strongly in rapid steps due to dynamically growing immigration,” the study states.
Recordnetimmigration
The experts believe it is possible that net immigration this year will even break the previous recordbalance of2008. “By May 2023, the net migration of the foreign resident population in Switzerland was a quarter higher than in the comparable period of the previous year.” And this does not include the Ukrainian refugees in the country, who are often supported by the municipalities in their search for housing on the open market.
In addition, there are other effects, such as a high number of new households or the influence of the trend towards home offices. This increases the demands on the housing situation.
No improvement in supply in sight
The rental housing market is increasingly drying up. Vacancy rates are low, especially in urban centres, and asking rents are rising.
There are hardly any signs of supply-side relief of the housing shortage. Although the number of building applications submitted for flats has at least stabilised in recent quarters, the urgently needed construction offensive is still a long time coming. “The thin project pipeline is far from sufficient to satisfy the current strong additional demand for housing.
Subsidies for housing construction or individual subsidies
In this context, the Raiffeisen experts also take a critical look at the demands for stronger subsidies for non-profit housing construction. This also costs a lot of money, they say, and needy tenants do not always live in municipal or cooperative housing. According to the authors of the study, about half of the residents of cooperative flats have such a high income that they do not need the subsidies.
The strong reduction in the price of these flats leads to certain false incentives. Households that benefit from these low rents have little interest in leaving this flat later, even if their living conditions change. Raiffeisen writes that the question is whether subject-specific support – i.e. direct support for households in need – would not ultimately achieve more desirable results.