Why is home ownership so low in Switzerland?

Question

According to Wiki and OECD data, only 42% of Swiss people own their home. This indicator is the lowest in Europe and the third lowest in the World. But why is this the case? Switzerland is one of the richest countries in the world and local income inequality isn't too bad by European standards. It's also one of the few countries placing any restrictions on secondary home ownership, so I'm surprised primary home ownership isn't at a higher rate.

Answer 1

I think there are several factors:

Urbanization

In rural areas, where many people live in single-familiy homes, homeownership is quite high.

However, 74% of the Swiss population live in urban areas, where single family homes are rare, and most live in appartment buildings, which creates challenges for owning your home, especially since the legal instrument for owning part of a building (Stockwerkeigentum) was only introduced in the 1960s (which still lingers because ownership splits usually only occur when a building is new or totally renovated), and is rather cumbersome in practice. Specifically, while you own your appartment, you only own a share of the house, and everything that affects the house entire (everything from lawn care, utitilies, to the outward appearance of the building) is decided by a share holder meeting, and may, depending on the statutes of your association, even require unanimous consent. As such, a good relationship with your neighbors is recommended ...

Indeed, statistics show that the home ownership ratio is very location sensitive, ranging from 58% in the rural canton of Appenzell Innerrhoden down to 15% in the urban canton of Basel Stadt.

Real Estate Gains Tax

To reduce volatility of the housing market, all Swiss cantons collect Real Estate Gains Tax (Grundstückgewinnsteuer). Specifically, if you sell real estate at a higher price than you bought it at, part of the difference goes to the state, with the tax rate getting lower the longer you have owned the property. For instance, if you sell a property in the canton of Zürich after less than a year, you may have to pay up to 60% of the value gained as tax, but if you wait 20 years, you'd only have to pay up to 20% of the value gained.

That is, selling real estate can have rather severe tax implications, particularly if you haven't owned it for long. For those seeking to own their homes, this creates two challenges:

1. Since people tend to hold onto their real estate, comparatively few properties are available for sale, which makes it harder to find a suitable one.
2. Once you do found a suitable one you better hope the suitability does not change, either due to changes in your own circumstances (new job in a different location, marriage, divorce, more or fewer children than expected) or changes in the environment (those new neighbors who hate you with a passion).

In contrast, renting carries no such risks. If you don't like it, you can move without any tax implications. Also, in most areas, far more properties are available for rent than for purchase, so you have a greater selection.

As a consequence, most people opt to delay putting down roots until they are ready to start a family.

Availability of Capital?

The relative prosperity, growing population, and land use laws in Switzerland combine to cause rather high land prices, particularly in urban regions. As a consequence, a single-family home costs about 2 million there (in more rural regions, it's more like 1 million).

Swiss banks will loan you only 80% of the value of a home, the other 20% you must provide yourself. That is, you need 200k to 400k in assets to buy a single-family home. Even at Swiss salary levels, saving up that much money will likely take a decade, unless wealthy relatives give you a loan. For instance, OECD reports that it takes 11.3 years of average income to outright buy an average house. That is, an average couple setting aside 10% of their income will be able to afford the 20% downpayment for an average house in 11.3 years.

Indeed, home ownership ratio correlates strongly with household size (single person: 22%, couple with children: 46%, couple without children: 48%) and age (working age: 23%, working age and children: 41%, retirement age: 50%).

I could imagine that a nation with a lower population density, laxer zoning laws or less stringent requirements on downpayments, would make housing affordable earlier in life, and therefore allow a somewhat greater proportion of the population to own their home. However, this effect is likely minor compared to the other causes.

Answer 2

To buy a house, you must contribute at least 20% of the purchase price. Without this, it is impossible to buy an apartment or house, even if your income allows you to just pay the interest rate for the bank credit you took for buying that property. This is a rule applied by all banks and in all cantons (source). This limits the number of possible buyers, as a house often costs at least few millions.

Also, there are some laws that make renting attractive. The landlord cannot raise the price significantly just because the "market price" is now higher (they can a little bit, but this is very constrained). Many families benefit from old renting contracts with fixed prices below the today's market value that cannot be easily raised.

Answer 3

Aside from the other answers that are quite detailed, there is also an additional factor that comes to play:

Additional taxation

After purchasing a property in Switzerland, you will be taxed on it as if you were renting it to a third party. Meaning that, if you could rent out your property to someone else for CHF2,000 / month, the revenue taken into account in your wealth tax will then be increased by CHF2,000 * 12. Note that you can deduct some items from this sum such as the mortgage interest but in my opinion this is a major deterrent to purchasing a property for Swiss residents.

Answer 4

It's not a full answer but too answer-y for a comment:

Especially compared to the US, home ownership isn't as necessary for a decent, stable life.

Given the low renter protections in the US (and compared to Switzerland many other countries), it is paramount to own your home to have any sense in security or feeling of home about your living conditions.

In the Swiss market, thanks to culture and regulations (both empowering each other) this is not necessary. You can make your rented flat your home. Average rental terms (and expectations) are long, so it makes sense to invest into your place (even though technically it's not absolutely yours).

This is a stark contract to the US where - at least on social media - any minute change to the structure is countered with "but what about the landlord"

Answer 5

A big factor is urbanization. It is no coincidence that many of the poorest countries — typically with a lower urbanization — in the world are on top of the Wikipedia list, and many of the richest ones — typically highly urbanized — at the bottom. City dwellers tend to live in condominiums which traditionally are rental properties. Farmers, by contrast, often own their property.

I find real estate prices and interest rates which are mentioned by others not very convincing because in an equilibrium market, rental prices must have adjust accordingly to provide a return of investment. If real estate is cheap, both ownership and renting will be cheaper as well.

Since Germany and Austria have comparatively little home ownership as well even relative to other highly urbanized countries, there may be a cultural reason.