Government intervention in the real estate market – or how to learn nothing from experience.

Geneva has a controversial social housing obligation. In Berlin, an attempt was made to influence the market with a rent cap, but this was retroactively banned by the Federal Constitutional Court.  And what is Zurich doing? Unfortunately, they are increasingly influencing the real estate market. And precisely in such a way that the largest city in Switzerland is moving itself into a housing shortage for its citizens and especially the middle class. This is pushed out of the city. The important basis for long-term tax security, balance and attractiveness of the city is at risk. So it’s time to take a look at the mosaic pieces of this disastrous development.

Factor no. 1: It is more difficult to create new living space.

Even though living space has increased by 23% since 2000, the trend has already reversed. While 3,380 apartments were built in 2018, only 1,772 were built in 2020. One reason for this is that large-scale projects are only approved by the city if they include a proportion of social housing. What the investors call “blackmail”, the city council calls “deliberate examination and promotion of new construction projects”.

No matter what you want to call it, building in Zurich is no simple matter. Another limiting factor for healthy building activity is the fact that greater importance is to be attached to the ISOS protection register in the zoning regulations. This inventories not only individual buildings, but also entire sites in Switzerland that are considered worthy of protection, of which there are many in Zurich. This makes it difficult to renovate existing buildings or can block or even prevent planned and urgently needed upzonings. The Heritage Society even blackmailed the city of Zurich into enacting the current BZO by blocking it: Whereas previously ISOS had to be observed for federal buildings, in every new BZO this protection register is to be given much greater importance or even a higher priority. be taken into account in the planning process. The courts are also increasingly taking ISOS into account, even though there has never been a referendum on this ISOS or it would have been enshrined in law. ISOS comes from Bern and no owner has yet been able to defend themselves against an entry.

If you decide to submit a planning application despite these adversities, you need a lot of patience and a thick skin. This is because the city is delaying the approval of construction projects and many permits are currently under review for much longer. An application can be answered after nine months instead of the usual three. If there are problems or an appeal, then another two years go by and if the city then again rebuffs the developers with questionable building decisions, after a further 3-8 months waiting time you are sent to the next closed meeting. Where other cities, such as Uster, for example, cultivate “New Public Management” and call developers quickly and in advance to draw their attention to potential problems before the building decision is made, Zurich prefers to make a questionable decision. Corona is also cited as the reason for delays. 

Once you think you are one step ahead, the question of noise protection comes up. Or as the NZZ aptly put it in 2020: “In the way noise protection is currently regulated by law and has recently been interpreted by the courts, it merely serves as an instrument to prevent residential buildings in urban areas. This also makes sensible solutions practically impossible.” It is therefore hardly surprising that the number of urgently needed new apartments has fallen by almost half in just two years.

Factor 2: Winning votes is more important than housing for the middle class.

Today, 27% of the city’s rental apartments are already unprofitable. The City Council plans to increase this quota to one third. This will make housing scarce for the middle classes, who will not be able to benefit from reduced prices and will have to look for an apartment on the open market. Furthermore, major projects are only approved with social housing. The social government’s plan is clear: they want to win the favor of voters who will continue to support this policy. Every tenant who is allowed to live in a subsidized apartment helps with this. In addition to the planned 33% social housing, around 10% is currently still available as condominium units or owner-occupied single-family homes in the city. In other words, the middle class only has access to 57% of the residential units in the city. And the market plays a role in these vacant properties, which are becoming increasingly unaffordable for the middle class. With the city-imposed shortage, you don’t have to be a clairvoyant to guess how prices will develop in the future.

In other words, a development that bodes ill and will lead to a social change in the city that is not welcome from any point of view. The current social government’s master plan, which sees every tenant of a discounted apartment as a voter, must therefore be critically scrutinized. In the long term, it will lead to a strange distortion in the population mix and to tax losses. If the chance of getting a cheap apartment increases by reducing one’s economic capacity, this is a questionable incentive for the city of Zurich.

Factor 3: Politicians are going one step further in the wrong direction.

The systematic interventions by the city in the real estate market will go much further. A decision is also planned as to whether the city council’s request to include a minimum proportion of affordable housing in new buildings should be granted. This becomes a mandatory requirement, for example, in the case of an upzoning or a site development with additional use, where only affordable apartments can be built. The requirements for the allocation of these apartments are then the rule “room – 1 = minimum number of residents” and the income and financial circumstances of the applicants must also be carefully checked. This turns the city into Big Brother and anyone who is promoted in their job, for example, must expect to have to move out of their home.

Another proposal by the municipal council, which was discussed a few weeks ago regarding the city’s master plan and which would make building even more difficult, seems creative: in future, private courtyards, gardens and roof landscapes would be made publicly accessible. A piquant encroachment on property rights that will probably keep the courts busy and will also certainly not lead to brisk construction activity of attractive apartments in the city of Zurich. The current summer closures of some neighborhood streets are intended to free them from traffic, even if the surrounding streets are burdened with more noise and traffic as a result. This is because increasing noise pollution has been identified as a constant that reduces construction and 30 km/h zones are also to be introduced on main traffic routes. The fact that cars are to be banned from the city in planning terms is also shown by the increasing number of residential buildings that are no longer even allowed to have one parking space per apartment.

Factor 4: Let’s make it a little harder for investors, please.

The law on the value-added tax for rezoning and upzoning is currently being drafted and provides for double the cantonal minimum rate of 20%, i.e. a whopping 40%, to be levied in the city of Zurich. This will be applied if the additional use is realized after a site development or an upzoning.

The big problem will certainly be calculating the added value. As is already the case with property gains tax, this new tax will also lead to all kinds of inconsistencies and unfair treatment. Real estate developers will consider more than once whether they want to build their next investment property in the city or somewhere else. What can be said for sure is that this regulation will not contribute to attractive rents for the middle class. You don’t have to have studied to come to this conclusion either. The situation is also unclear when condominiums are built instead of rental apartments.

The gloomy conclusion: 

The upward price spiral for rental and owner-occupied apartments in the city of Zurich is pre-programmed with all these adopted and planned measures. The middle class will no longer be able to afford home ownership and so the low-income earners will remain in the city with the state-subsidized apartments with the rich privileged. A public debate on this topic is urgently needed. After all, there should be an outcry from the middle class.

Finally, the good news: even if many things are already going in the wrong direction, it is not yet completely too late to turn the tide and ensure that Zurich remains a city for everyone by intervening and making the right decisions at the ballot box.