Interventions in the rental housing market slow down renovations and new builds
Published: Thursday, Apr 11th 2024, 14:20
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Increasing government intervention in the rental housing market is slowing down renovations and new builds. Rising bureaucracy and an ever-increasing number of building regulations are making housing production more expensive, UBS found in a real estate study.
In addition, stricter tenancy law would be detrimental to investors in most cases, which would reduce the incentive to create more living space. There is a threat of a wave of regulation, UBS real estate expert Matthias Holzhey told the media in Zurich on Thursday.
Overall, around 30 percent of the Swiss rental housing stock is currently subject to regulations such as cost rents, pre-emption rights and rent controls. If all the additional policy measures currently planned are implemented, this proportion would increase to almost 50 percent of the housing stock.
Diving real estate values
Rent brakes prohibit rents from being raised to the market level after renovations or new builds, which limits higher income. This puts pressure on property values. The "residential protection" regulation introduced in Basel in 2022 is likely to have led to value corrections of at least 10 to 15 percent so far, said Holzhey.
In the city of Zurich, a rent cap comparable to the Basel "Wohnschutz" regulation would result in even more significant value corrections of up to 30 percent. This would be due to the fact that the previous higher surcharges on rents after renovations could no longer be implemented in future.
Extensive renovations are unprofitable if the conversion costs are not passed on to the tenants and rents are not allowed to be adjusted to market rents for several years. As a result, investors would sell their properties or only carry out the most necessary maintenance work. As a result, the condition of the property deteriorates continuously, which makes it difficult to increase rents even when tenants change.
This would also hinder the implementation of climate protection targets by slowing down the energy-efficient renovation of houses. The housing shortage would also be exacerbated because less would be built, it said.
In Basel, the number of planning applications has collapsed since the introduction of "residential protection" regulations, said Holzhey. Investors had switched to the neighboring cantons of Basel-Landschaft and Aargau.
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