It is a phenomenon that defies logic: home ownership in Europe is highest in the poorest countries. And Switzerland, with one of the highest ranked GDPs per capita in the world, ranks absolute last in Europe in terms of home ownership – at around 42%.
There are several cultural differences facing workers moving to Switzerland to live. One of the first ones to confront new arrivals, is that most people in Switzerland live in rented accommodation, and mostly in apartment houses.
Switzerland is known as a land of renters, where most of the population lives in leased accommodation. Home ownership rates in Europe point to Switzerland as clearly at the very bottom of the list. In this post, we look at the reasons for this and if the situation is likely to change in future.
Fig 1: Home Ownership % Rate in Switzerland (source: statista.com)
Rationale would point to people in well-off countries more likely to afford, and want to live in their own homes. But in Europe, exactly the opposite is true. Albania and Romania, which lie at the bottom of the GDP per capita rankings in Europe, have the highest home ownership rates for all of Europe – at over 96%. Other European countries such as Portugal, Spain and Greece – all with relatively low earnings per capita ratios, also have high own-home ownership figures at around 75%. The lesson to be learned in these examples, is that people in the poorer countries tend to want to own their own homes for financial security and possibly because of lower pension plans available in their jurisdictions.
In Switzerland home ownership is highest in rural regions
The highest home ownership rates in Switzerland are in rural areas such as Appenzell Inner Rhodes at 58% and Valais at 54% respectively. In the economically strong cantons of Basel City and Geneva, homeowners only account for 15% and 18% of the population respectively. Instead, most people rent their living accommodation. So what are the reasons behind low home ownership in Switzerland?
There are several theories out there – here are some:
- Lack of building land – A high amount of residents living in apartment blocks, means more people able to live in a smaller area. One prominent Swiss architect and (green) politician, Benedikt Loderer – a fierce critic of the extensive detached-housing developments, is quoted as saying. “If Switzerland’s entire 8.5-million population lived in detached houses, we would have no countryside left.”
- A high proportion of people renting – (expensive) accommodation is a sign of wealth and that the country is doing well. And proponents to home ownership, claim that most homeowners are not really homeowners anyway, with their houses effectively belong to the banks issuing (their) mortgages.
- Renting in Switzerland is a model that works and it often cheaper than owning your own home. A recent study from the Credit Suisse bank showed that “Purchasers of an owner-occupied home have to pay more than for a comparable rental apartment.” One reason for this is that the cost of housing – like the cost of living – tends to be very high in Switzerland compared to other countries.
- Life as a tenant can be more varied than if you own your own home. Switzerland has a high level of residential mobility and one in ten people moves home every year. But it is not about moving huge distances. In 2020, the average relocation distance in Switzerland was only 12.5 kilometres. However, 75% of all moves involved upsizing into bigger or downsizing into smaller accommodation.
- The renting system in Switzerland is still quite in favour of the renter with protections in place for tenants. Landlords can still terminate tenancy agreements if they wish, but legal safeguards mean that affected tenants usually have a good chance of having their stay extended.
- By law, the cost of renting in Switzerland is linked to mortgage rates. However, often renters do not engage with property owners asking for lower rents when the mortgage rate drops for fear of clashing with them. In reality, interest rates have fallen since 2008, but rents have continued to rise.
- Taxation deters private home ownership. A private owner is taxed on the rental value of their home, on its net capital value, and finally on any gain when sold.
Switzerland is different to many countries in Europe in several aspects, not least because of the cost of living and the fact that the majority of people (surprisingly) live in rented accommodation. The likelihood of Switzerland following the home ownership model of other European countries is low.
Initial downpayment deposits for a property are high at 20% typically and property prices are high. The banks also operate a two mortgage system in Switzerland. The first mortgage has no maturity limit and doesn’t have to be paid back after a specific number of years. The second mortgage, however, includes compulsory repayment and must be paid back within 15 years or by the time the property purchaser reaches retirement age – whichever comes first.
Although there is a customer preference for Swiss to rent rather than own their own property, researchers Kuhn and Grabka are of the opinion that a major reason for the low home ownership rate in Switzerland is the fact that it has always been that way. Switzerland has a high level of wealth inequality, with those on the higher end of the scale far more likely to own their own home than those who are not.
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