Switzerland has one of the highest rates of renters in Europe, with nearly 60% of the population renting their homes rather than owning them. This is quite different from many other Western countries where home ownership is more common. There are several key factors that contribute to Switzerland’s high percentage of renters.
High Cost of Home Ownership
The most significant reason why most people in Switzerland rent is the extremely high cost of home ownership. Swiss real estate prices are among the highest in the world, especially in popular cities like Zurich, Geneva, and Basel. Even smaller Swiss towns have very expensive housing markets.
For example, the median house price in Zurich is over 1 million CHF (around $1.1 million USD). In Geneva, it is even higher at 1.3 million CHF ($1.4 million USD). These home prices are over 10 times the median household income in Switzerland. High demand combined with limited housing inventory keeps pushing real estate prices upwards.
The down payment required to purchase a home is typically at least 20%. So buying a 1 million CHF home in Zurich requires having 200,000 CHF ($220,000 USD) in cash for the down payment. On top of that, buyers need to qualify for a mortgage of 800,000 CHF ($880,000 USD). The high cost creates a significant barrier to homeownership.
High Mortgage Requirements
Swiss banks have stringent mortgage requirements that many buyers fail to meet. First, you usually need a minimum down payment of 20% of the purchase price. Banks also limit the amount you can borrow to around 4-5 times your annual income. This income threshold prices many middle-class residents out of homeownership in the country’s expensive property market.
There are also strict debt-to-income rules to receive a mortgage. Your monthly mortgage payment cannot exceed one-third of your gross monthly income. It is difficult to find properties that meet these stringent mortgage requirements in Switzerland’s competitive housing market.
Low Homeownership Subsidies
Unlike some other advanced economies, Switzerland offers very limited subsidies or tax breaks to promote homeownership. For example, there are no tax deductions for mortgage interest payments in Switzerland. Other countries like the US, UK, and Canada use mortgage interest deductions to incentivize home buying.
There are also minimal public housing programs or grants to help lower-income households purchase homes in Switzerland. With little government aid for buyers, it can be incredibly difficult to gather enough funds for the down payment and to meet the strict income requirements.
High Renting Costs Also
Although renting is relatively more affordable than owning in Switzerland, rental prices are still quite expensive compared to other European countries. Rents have risen rapidly in the last decade, especially in Switzerland’s urban centers.
| City | Median Monthly Rent for 85m2 Apartment |
|---|---|
| Zurich | 2,468 CHF ($2,700 USD) |
| Geneva | 2,120 CHF ($2,320 USD) |
| Basel | 1,748 CHF ($1,915 USD) |
| Bern | 1,748 CHF ($1,915 USD) |
| Lausanne | 1,585 CHF ($1,735 USD) |
These rental rates are comparable to expensive cities like New York and San Francisco in the US. Rents above 2,000 CHF per month are unaffordable for many families or individuals in Switzerland.
Shortage of Rental Properties
High demand also pushes rental prices upwards in cities like Zurich and Geneva. Switzerland has a shortage of available rental apartments, especially in central locations. It is common for prospective renters to compete with dozens of other applicants for an open unit.
Landlords can be very selective and often choose tenants with higher incomes or those willing to pay more than the asking rent. Supply has not kept up with the rising population and number of households seeking rental housing in these economically vibrant Swiss cities.
Stable Economy and Low Interest Rates
Switzerland has enjoyed decades of economic and political stability. The country has very low unemployment, steady GDP growth, and relatively low inflation. When conditions are this stable, it encourages high real estate prices as property is seen as a safe long-term investment.
Swiss interest rates have also remained at ultra-low levels in recent years. The Swiss National Bank has kept its policy rates negative since 2015. Low interest rates allow buyers to qualify for larger mortgages. But it also drives up housing demand and prices at the same time.
Preference for Renting
Culturally, Swiss households tend to be more open to long-term renting than buying. Homeownership rates in Switzerland have historically been low compared to the rest of Europe. The high costs and regulations today reinforce this preference for renting one’s housing.
Renting provides more flexibility if you need to relocate for work. Switzerland also has strong tenant protections like mandatory minimum lease terms and limitations on rent increases. These provisions provide stability for renters.
High Population Density
Switzerland has a high population density with nearly 500 people per square mile across the country. But the density is far higher in the urban areas where most Swiss live. The Zurich metro area has over 1.3 million residents in just 2,000 square miles. Geneva has nearly 500,000 residents in just 175 square miles.
The combination of high demand and very limited land constrains housing supply. Urban centers like Zurich and Geneva simply lack the space to build enough new homes to meet demand. Scarcity of available land drives up costs for both renters and buyers.
Strong Foreign Investment
Wealthy foreign investors have increasingly purchased property in Switzerland as an investment and a haven for capital. Many foreign buyers acquire Swiss real estate as vacation homes or simply as assets to store value. Unlike other countries, Switzerland does not impose significant taxes or restrictions on foreign property owners.
Cash inflows from foreign investors can exacerbate housing shortages. Investors sometimes purchase property and leave it vacant rather than renting it out to local residents. Cities like Geneva have enacted vacant property taxes to limit this issue.
Conclusion
In summary, homeownership is simply out of reach financially for most average Swiss residents today. The combination of extremely high real estate prices and strict mortgage borrowing rules prices out the majority of buyers. Renting is the only viable option for most people, although rental prices are also quite expensive in urban areas due to high demand.
Culturally, Switzerland has never had a very high homeownership rate. But costs today are so prohibitive that ownership levels have dropped even lower. Significant reforms to real estate taxes or mortgage rules would be required to substantially boost ownership. But even a surge in new building may do little to improve affordability in Switzerland’s tightly constrained housing market.
For both social and financial reasons, Switzerland is likely to remain a country where renting one’s housing is far more common than owning it. Policies that improve protections for renters and promote construction of affordable apartments for the middle class are needed.
The dream of homeownership will remain out of reach for a large share of Swiss residents without significant changes. But a well-regulated rental market can provide acceptable housing options for most households. Expecting to rent rather than buy is simply the reality in Switzerland’s challenging housing market.
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