Cause of high rents in cities

In recent years, the Swiss have become accustomed to the fact that housing costs in cities such as Zurich, Geneva and Zug continue to rise inexorably. A four-room apartment for 4,000 francs? No longer a rarity. But what is behind these exorbitant prices? Few people suspect that inflation is just beginning to gain momentum.

On the one hand, construction costs have become significantly more expensive since the pandemic. Even more alarming are the currently extremely high prices for building land in good locations. “There is a noticeable change,” says Robert Weinert, economist at Wüest Partner. The rents for new living spaces significantly exceed the average apartment rents in the respective districts.

Living space is becoming a luxury good

Let’s consider the city of Solothurn, where one square meter of land is around
Costs 1000 francs. If we combine these expenses with the construction costs and a permissible return under rental law, the net monthly rent for a newly built rental apartment with three to four rooms is around 2,000 francs. In Zurich Altstetten, on the other hand, the same apartment would cost more than twice as much, namely around 4,800 francs. In Zurich’s prestigious Seefeld, rents even climb to 5,700 to 6,000 francs, excluding additional costs (see table below).

The most important cost driver is the price of building land. Real estate expert Martin Hofer, who has accompanied many project developments in recent years, says: “In good locations in Zurich or Zug, a square meter of residential building land now costs around 10,000 to 15,000 francs.” Plots where condominium ownership can be realized are even more expensive. The consequences are clear: These costs are reflected one-to-one in higher rents and higher purchase prices.

The economist Robert Weinert cites several causes, especially the “shortage of building land and other spatial planning restrictions”. In cities, there are often strict restrictions when it comes to building heights. Demand also plays a role: According to Weinert, the prices for building land can only be so high because there is a corresponding willingness to pay on the rental housing market.

“Prices will go through the roof even more”

Martin Hofer sees the responsibility for this development in incorrect spatial planning. “When the Spatial Planning Act came into force in 2014, strong population growth was not an issue,” he notes. Since then, the priority has been on internal development in the cities. But this policy is now turning out to be a “public bourgeois prank”. In the past, it was comparatively easy for the construction industry to build 50,000 new apartments every year. But such a volume can hardly be achieved in the existing settlement area today.

“Inward development is a noble goal, but if we want to create living space for 10 million people in Switzerland, we also have to think about zoning.” Hofer suggests releasing open spaces near the city for housing construction and speaks of “outward densification”. Without such measures, says Hofer, prices in city centers “could soon go through the roof even more.”

Swiss cities under pressure

In the complex world of urban planning, Switzerland faces a major challenge, as Christian Hilber, Professor of Economic Geography at the London School of Economics and the University of Zurich, explains. “Spatial planning and the division of urban areas into different uses are essential,” explains Hilber. But when planning restrictions freeze growth and protect green areas at all costs, this drives up land prices and rents.

A study of English cities shows that property prices would be an average of 35 percent lower without any planning restrictions. The same phenomenon can be observed in cities like Zurich and Geneva. “If the settlement area cannot grow, prices rise. “It’s a universal principle,” adds Hilber.

Current developments show that building restrictions not only continue to exist, but are also being further tightened. In Zurich, around three quarters of the settlement area is under townscape protection.

What will the scenario look like if the population continues to grow and building zones remain limited? “If nothing changes, we will see even higher prices in Swiss centers than today,” warns Hilber.

Business as usual or strategic realignment?

Stefan Fahrländer, economist and managing director of the consulting company of the same name, foresees a persistent housing shortage in Swiss cities: “Switzerland will need around 522,000 additional apartments by 2040.” Demand could even be higher if the trend towards small households continues.

The future of Swiss urban development is therefore under scrutiny. According to real estate expert Fahrländer, the existing reserves of zoned building land are often located in suboptimal locations. And the zones in central locations are practically completely built over.

His data produces a critical conclusion: in the metropolitan areas of Zurich, Lake Zurich and Winterthur, the building zones are almost completely exhausted. The potential of the building zones is also coming to an end on Lake Geneva and in the heart of central Switzerland, including Zug. This development leaves little doubt about the need for accelerated densification in the existing zones – an undertaking that is increasingly reaching its limits.

Reserves are often theoretical planned values

In addition, the potential for densification and additions often represents purely theoretical planning values: “It is the owners who build and densify. But often they are in no hurry. You weigh up your own interests.” The experience of urban development also shows that the “low hanging fruits” are skimmed off first. Every square meter of additional living space has to be hard fought for in a delicate environment with objections, legal disputes and building restrictions.

It is simply the wrong “mantra” of current spatial planning and housing policy that under no circumstances should any more building land be zoned in large agglomerations such as Zurich. This policy has a price: if growth and housing construction are relocated to the periphery, the transport infrastructure comes under pressure. This is reflected in overcrowded S-Bahn trains and endless traffic jams around major economic centers. Stefan Fahrländer is convinced: “We have to create new offers where people would like to move and where commuter distances are shorter.”

The conclusion is clear: Switzerland is faced with the choice of shifting growth to peripheral locations or building more urban and densely close to the city. “The bottom line is that we only use half as much building land as with new buildings on the periphery,” says Fahrländer thesis.

How Zurich manages change

Are we facing a turning point in settlement development? For the responsible building department of the canton of Zurich, zoning of building land is currently not an issue, as its spokesman Markus Pfanner explains: “On the one hand, there are still sufficient reserves within today’s building zones, but on the other hand, the canton of Zurich is implementing residential development internally with targeted rezoning and upzoning. » Due to the current dynamics, the canton assumes that most of the expected growth up to 2040 can be covered in well-developed urban areas, particularly in the Glatt and Limmat valleys, but also in Zurich and Winterthur.

The “existing reserves would mathematically even be sufficient for the next twenty years,” says Markus Pfanner. Among the building land reserves that have not yet been exhausted, there are also many that are well developed and central, such as Niderfeld in Dietikon.