Very few baby boomers leave their paradise voluntarily

Switzerland is one of the richest countries in the world, but only a minority owns their own apartment or single-family home. At 36 percent, the ownership rate is about half as high as in the European Union or the United States. At the beginning of November, the “New York Times” was somewhat surprised to describe Switzerland as a “post-ownership society” in which being a tenant is not frowned upon.

The statement is only half true in this exaggerated form. But it completely applies to 25 to 64 year olds. Only slightly more than one in five households in this large age group lives in their own property. For those over 65, however, things are different. More than half of these households live in their own four walls.

Above all, the high ownership rate in the baby boomer generation (1946 to 1964) is the result of a time when there was still a lot of building land and the construction of new homes was booming. Many of today’s retirees made the investment of a lifetime by purchasing an apartment or single-family home over the past 40 years. The real estate price index of the real estate service provider IAZI has more than tripled from 62 to 222 points between the early 1980s and today.

But at some point in the next two decades, whether after death or due to the infirmity of the owner, each of the several hundred thousand homes owned by today’s retirees will change hands. This raises the hopes of the younger generation, who are currently financially unable to purchase their own property on their own.

According to a study by the Zurich University of Applied Sciences (ZHAW) this fall, many still see home ownership as the ideal. They hope for more supply and lower prices. However, exactly how the transfer between generations will take place depends on factors that are difficult to predict.

How quickly will the baby boomer generation leave their apartments and single-family homes?

Probably not so quickly. According to the ZHAW study, the willingness to move decreases with increasing age. Only a small minority of homeowners can imagine switching to a rental apartment and leaving their paradise. Although people over 65 actually have more space than they need, with an average of over 70 square meters per person, very few people can imagine moving to a smaller property after their children move out or after retirement.

Moving is associated with stress, which is harder to cope with as you get older. There is also the emotional component: “You like to grow old in your own four walls,” says Fredy Hasenmaile, real estate expert and chief economist at the Raiffeisen Group. Home ownership is a social status symbol that one would have to give up. Renting an apartment brings with it uncertainty; you are at the mercy of the landlord’s goodwill.

Those affected are also, on average, more advanced in paying off their mortgage than younger homeowners. “It’s a generation that doesn’t like being in debt,” says Hasenmaile. When older people move into a rental apartment with comparable comfort, they often pay a new rent that is often significantly higher than the mortgage interest they previously paid.

Christian Kraft, professor of real estate economics at the Lucerne University of Applied Sciences (HSLU), speaks of an actual “lock-in effect”: “It may be that you tend to have too much space. But why should you sell if you are fundamentally satisfied?” This also applies to tenancies where the difference between new and existing rents is particularly pronounced.

What speaks in favor of switching from home ownership to renting after retirement is that you have more liquidity available again through the sale. There is more money left over for vacations and other nice things.

How will generational transfer affect the supply and prices of home ownership?

In a study a year ago, Credit Suisse expected that the number of homes that will be inherited or sold will “increase with the probability of death” of the baby boomer and silent generation from currently less than 10,000 per year to up to 50,000 per year will increase in 2045.

However, not every one of these properties comes onto the market automatically. The desire for home ownership to remain in the family is still widespread. In cases where it is financially possible to divide the inheritance or donate it among the descendants, it should never be sold.

The high level of net immigration speaks against a sudden supply surplus. In 2022, the net migration was over 80,000. If the number of workers coming to Switzerland remains as high as it is today, the demand for home ownership will also remain high.

A few people believe that immigration to Switzerland could soon decline sharply due to the aging demographic in Europe. In Germany, the population between the ages of 20 and 64 is expected to shrink by 14 percent by 2040, and in Italy by as much as 18 percent.

If the largest cohort in terms of population retires at the same time from 2029, this could lead to falling prices for residential property on the Swiss real estate market, said Hendrik Budliger, founder of the Basel Demographics Competence Center, this spring.

But the majority of experts see it differently. Real estate professor Kraft is convinced: “There will be a bit of room in the market. But the effect will not be as dramatic in Switzerland as in other European countries, where the overhang of baby boomers is larger and the expected drop in demand is more drastic. Raiffeisen chief economist Hasenmaile also expects at most a little more movement on the market, but by no means a sharp correction.

The owners themselves also remain calm. In the ZHAW survey, 68 percent of those surveyed said they were confident that they would be able to sell their home profitably in the future. Only 13 percent of older respondents said they were worried about declining demand.

What other factors influence prices?

The densification desired by politicians in Switzerland is making slow progress. Lengthy approval procedures delayed by objections hamper construction activity. However, anyone who is thinking about selling their home should keep an eye on possible zoning changes in the coming years.

Those familiar with the matter can determine from building and zoning regulations where zoning and densification are more likely to take place in the future. A higher utilization rate not only results in a higher sales price. “A family can, for example, build an apartment building that can be lived in by several descendants or rented out,” says Kraft.

You should also keep an eye on interest rate developments. The days when very cheap mortgages fueled demand have been over since the interest rate turnaround at the beginning of 2022. Buying is no longer cheaper than renting.

According to Raiffeisen, condominium prices have fallen slightly for the first time this year in the Bern and eastern Switzerland regions. The number of search subscriptions for home ownership, an important indicator of demand, has declined. If you expect interest rates to continue rising, you should sell sooner rather than later.

What should you consider if you want to increase your mortgage again as you get older?

First the good news: According to Hasenmaile, anyone who needs to renew their mortgage for their home after retirement will receive this even if, strictly speaking, they no longer meet the affordability requirements. “You often have known the customer for decades and there is rarely a reason to intervene.” Media reports about older homeowners who were evicted from their home by their bank because their income was too low turned out to be false, says Hasenmaile.

It only becomes difficult if you need a new loan to renovate or even purchase a new property. In these cases, the banks also insist on affordability requirements for pensioners. “We recommend that affected households make any necessary increases in their mortgage loan as early as possible, i.e. before retirement.”