EXPLAINED: How Switzerland plans to keep rent prices from rising
Rent prices have increased in Switzerland in the past year and even more hikes are on the horizon, prompting the government to devise cost-curbing measures.
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Many tenants in Switzerland have been impacted by climbing housing costs.
Among the reasons for this upward evolution is the general housing shortage, with the demand far outstripping the available supply.
Another major factor is the reference interest rate, which is based on the average mortgage rate in Switzerland and plays an important role for current leases.
In 2023, tenants experienced their first increase since 2008: the rate went from 1.25 to 1.5 percent in June, and then climbed to 1.75 percent in December.
Each increase of the reference interest rate has given landlords the right to raise the rent by 3 percent.
That doesn’t bode well for tenants: according to government calculations, they could face — depending on the further evolution of the interest rate — rent increases of between 10 and 15 percent by 2026.
READ ALSO : Switzerland sees new rent hike but will yours go up?
Faced with this possibility, the Federal Council devised some measures to curb rents from soaring, at least in the immediate future, which it announced on Wednesday.
What plans are they talking about?
The government strategy is based on four measures:
Removal of the flat-rate fee on general cost increases
Currently, in addition to the increase in the reference interest rate, landlords are allowed to add a lump sum for other items mentioned under ‘general cost increases.’
The new plan would ban this lump sum in favour of the amount based on actual costs.
Lower compensation rate
The Federal Council also wants to reduce, from 40 to 28 percent, the rate intended to compensate for costs of equity capital that landlords can presently offset through rent hikes.
This measure, however, would provide only a minimal relief for tenants: the government conceded that for a rent of 2,000 francs, this reduction – in the event of a 2-percent increase — would only be 4.80 francs per month.
Notification of rent increases
When increasing rents, landlords will have to inform tenants of their right to contest higher rent on the grounds that it will generate ‘excessive yield’ or that the rent is higher than others charged for similar apartments in the same neighbourhood.
Additionally, landlords will have to disclose to prospective tenants the reference interest and inflation rates determining the old rent.
Procedure for communicating rent increases
During its autumn 2023 session, the parliament decided to modify the procedure for communicating staggered rent increases and rent instalments.
In the latter case, the extent of the increase, which occurs on fixed dates, is defined in advance.
What happens next?
The plan will be under consultation of cantons, tenant associations, and other interested parties until July 11th.
Are there any other rent-reducing proposals on the table?
The one making news currently involves not rents per se, but measures to improve housing shortage which, in turn, could lower rents.
The Liberal-Radical Party (PLR) is suggesting creating additional living space on top of current residential buildings.
To that end, “building and zoning regulations in Swiss cities must be adapted so as to systematically integrate the raising of one or two floors into urban plans,” the party said.
READ ALSO: Why there is a push in Switzerland to make buildings higher
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Many tenants in Switzerland have been impacted by climbing housing costs.
Among the reasons for this upward evolution is the general housing shortage, with the demand far outstripping the available supply.
Another major factor is the reference interest rate, which is based on the average mortgage rate in Switzerland and plays an important role for current leases.
In 2023, tenants experienced their first increase since 2008: the rate went from 1.25 to 1.5 percent in June, and then climbed to 1.75 percent in December.
Each increase of the reference interest rate has given landlords the right to raise the rent by 3 percent.
That doesn’t bode well for tenants: according to government calculations, they could face — depending on the further evolution of the interest rate — rent increases of between 10 and 15 percent by 2026.
READ ALSO : Switzerland sees new rent hike but will yours go up?
Faced with this possibility, the Federal Council devised some measures to curb rents from soaring, at least in the immediate future, which it announced on Wednesday.
What plans are they talking about?
The government strategy is based on four measures:
Removal of the flat-rate fee on general cost increases
Currently, in addition to the increase in the reference interest rate, landlords are allowed to add a lump sum for other items mentioned under ‘general cost increases.’
The new plan would ban this lump sum in favour of the amount based on actual costs.
Lower compensation rate
The Federal Council also wants to reduce, from 40 to 28 percent, the rate intended to compensate for costs of equity capital that landlords can presently offset through rent hikes.
This measure, however, would provide only a minimal relief for tenants: the government conceded that for a rent of 2,000 francs, this reduction – in the event of a 2-percent increase — would only be 4.80 francs per month.
Notification of rent increases
When increasing rents, landlords will have to inform tenants of their right to contest higher rent on the grounds that it will generate ‘excessive yield’ or that the rent is higher than others charged for similar apartments in the same neighbourhood.
Additionally, landlords will have to disclose to prospective tenants the reference interest and inflation rates determining the old rent.
Procedure for communicating rent increases
During its autumn 2023 session, the parliament decided to modify the procedure for communicating staggered rent increases and rent instalments.
In the latter case, the extent of the increase, which occurs on fixed dates, is defined in advance.
What happens next?
The plan will be under consultation of cantons, tenant associations, and other interested parties until July 11th.
Are there any other rent-reducing proposals on the table?
The one making news currently involves not rents per se, but measures to improve housing shortage which, in turn, could lower rents.
The Liberal-Radical Party (PLR) is suggesting creating additional living space on top of current residential buildings.
To that end, “building and zoning regulations in Swiss cities must be adapted so as to systematically integrate the raising of one or two floors into urban plans,” the party said.
READ ALSO: Why there is a push in Switzerland to make buildings higher
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