Why Housing in Switzerland Keeps Getting More Expensive

On a countrywide level, the cost of housing in Switzerland is currently going up by around 1 to 3 percent per quarter, as the Swiss Residential Property Price Index published by the Federal Statistical Office shows. But there are huge differences between urban and non-urban regions. In some rural areas, the cost of housing is actually decreasing.

Interest rates, inflation, the economy: This guide explains six of the most important fundamental factors which determine price changes in the real estate market. These factors affect the market as a whole – rather than the prices of individual properties. You can find out which factors affect the cost of a specific home in the guide to finding the value of a property.

1. Mortgage interest rates

Of all of the factors listed here, mortgage interest rates have the biggest impact, as a 2022 study by Wüest Partner shows. The interest rate of a mortgage determines how much it costs you to finance a property. You can compare the current guide interest rates of Swiss mortgages here.

When mortgage interest rates go up, the prices of property go down. When interest rates are low, the prices of real estate go up. This effect is almost identical for both houses and apartments, as the study shows (based on data recorded between 1985 and 2021).

2. Inflation

During periods of inflation, consumer prices become more expensive. Put differently: The value of your money shrinks. When consumer prices go up, rents and property prices also go up. As the value of your money shrinks, it takes more money to buy the same property. The prices of houses tend to be more heavily affected by inflation than those of apartments.

The effect of inflation on property prices is one of the reasons why many investors transfer their wealth to real estate during periods of strong or long-lasting inflation. If the monetary value of properties goes up, the gain may compensate for the loss in the value of money.

3. Economic growth

Switzerland’s economic situation is measured by its gross domestic product (GDP). This shows the value of all goods and services produced or consumed in Switzerland in the current year.

When the economy grows quickly, the population’s purchasing power goes up as well. Residents are more likely to be able to afford property purchases. So growth in real GDP fuels demand for real estate. The prices of houses react to economic developments much more strongly than those of apartments.

4. Unemployment rates

The unemployment rate indicates how many people are currently unemployed. In recent years, the portion of the working population in Switzerland which is unemployed has moved between 2 and 3.5 percent.

People who are unemployed normally cannot afford to buy real estate. Resultingly, when the unemployment rate is high, demand for properties goes down. Sellers have to adjust their prices downwards in order to find a buyer. So raising unemployment has a dampening effect on growth in real estate values. Unemployment particularly affects the prices of apartments, which are more dependent on subjective expectations than those of houses.

5. Population growth

Switzerland’s current population is around 8.7 million residents. The population has grown almost every year, and has doubled over the past 80 years. The annual growth rate can vary hugely: In the year 2000, Switzerland’s population only grew by 0.55 percent, but the 1.25 percent growth rate in 2013 was more than twice as high.

When more people live in Switzerland, demand for housing increases. The higher the annual population growth rate is, the bigger the increase in property prices is. The result is that real estate properties tend to continue climbing as long as Switzerland remains a particularly attractive destination for immigrants. The prices of apartments react more strongly to population growth than the prices of houses.

6. Home vacancy rates

The home vacancy rate indicates how many apartments and houses are not currently lived in. Overall, Switzerland’s home vacancy rate has climbed dramatically since the 1980s. But there are always years in which the trend reverses. For example, the vacancy rate fell during the financial crisis of 2007 to 2009.

The more homes are uninhabited, the more properties are available on the housing market. A high number of offers normally results in lower prices. The Wüest Partner study confirms this: When the number of vacant homes goes up, property prices come down. However, real estate prices react much more strongly to other economic factors than they do to home vacancy rates – so much so that housing has gotten more expensive in recent years even though home vacancy rates have gone up.

More on this topic:
How to find the value of your property
Property prices in Switzerland: What does building land cost?
Compare Swiss mortgages now