Until the early 90s, Switzerland’s housing environment was exactly as you would expect it to be in a country that defines itself as mainly rural. A chalet surrounded by nature and not too far from the closest town, was considered by most, as the most desirable and more or less normal lifestyle. Although at the time, many people were working in the city and urbanization was already the engine of economic growth, the rural region was more than just a nostalgic place, and true love for the countryside essentially generated an urban exodus. This was true for the baby-boomer generation, who in their thirties at the time, turned their backs on the city. Cities became significantly smaller : from 1970 to 1990, Zurich suffered the loss of 60’000 inhabitants, Basel and Bern were close behind. During this time, the urban city and the country side experienced a construction boom. Thousands of single-family houses that were built in the 80s, and that currently surround the suburbs of the large cities, testify to this enthusiasm. In only a decade, the housing prices have doubled. For the first time, concerns about uncontrolled urbanization and land wastage, have reached a wider audience.
But this all belongs to the past. In the 90s, the wind turned and with it, the direction in which the population moved. Urbanism became fashionable again ; “going back to nature” turned into “going back to the city” and cities began to grow again. Urbanites had to fight against the growing pressure on urban space by way of regulations – and this is a trend that will certainly grow in the future.
Retired baby-boomers come back to the city
In general, we can assume that today, people would rather spend the next phases of their life in a central location. Although society is aging at a steady pace, we are nonetheless witnessing a concurring sociological rejuvenation. Baby-boomers aged 65 to 70 do not feel old at all ; they are in good health, active and dynamic, like no other generation of the same age has been before them. This next active phase in their life is only the beginning. This is why young pensioners look for consumption, infrastructures, culture, entertainment and above all, a number of social contacts. In one word, they are seeking urbanity. The baby-boomers’ increase in demand for central housing is not a temporary phenomenon. Easier access to infrastructures, doctors and social contacts will become more and more important for the elderly (80+ years old).
Sources : Federal Statistical Office, Union des villes suisses
Many baby-boomers who went to live to the countryside thirty years ago, are now returning to the city. They can easily afford it since they have a much higher purchasing power than any previous generation of pensioners. Most of them are financially secure ; throughout their career, they have benefited from occupational pension schemes, which became mandatory in 1985. They were at the peak of their careers during the very good economic context from 2003 to 2008 and during this period many households received two wages. Their home in the countryside has grown in value since 1980, despite a certain depreciation related to time. Some will buy real estate, but most will rent.
Unrestrained competition on regulated markets
Wealthy baby-boomers will be living in the city together with younger urbanites. The 25 to 40 age group is immensely over-represented in the six largest cities of more than 100,000 inhabitants. This phenomenon is also true in medium-sized towns of 50,000 to 100,000 inhabitants, but to a lesser extent. Conversely, baby-boomers are still under-represented in the cities : this is a consequence of the urban exodus of the 80s.
Sources : Federal Statistical Office, Avenir Suisse
On average, young urbanites do not have the same purchasing power as baby-boomers. Additionally, as a working population they suffer from the growing financial burdens and policies linked to the aging of the population. Furthermore, there is another group whose demand for urban housing will continue to rise : future immigrants arriving in Switzerland and who are expected to replace baby-boomers in the labor market.
However, from this tense urban housing market experiencing a shortage in accommodation, only a minor part will be subject to open competition via the price mechanism. Price competition will apply to 25% of the housing stock, which is nevertheless fluid and will be rented again at relatively short intervals. For these particular cases, rents will increase. Nonetheless, the majority of the urban population is protected from direct competition from newcomers. This is due to the Swiss tenancy law, which preserves rents based on historical costs, and protects existing tenants from rent increasing, even when there is a demand. This explains why tenants who have been living in the same accommodation for a long time, pay half as much as new tenants. Price competition for highly coveted housing cannot take place under this legislation. Besides, a significant part of the urban housing stock is allotted to non-profit housing, whether for private cooperatives or state-owned housing. In these cases too, price competition is generally excluded : the allocation of these accommodations is based on bureaucratic principles. This explains why newcomers are holding the worst cards.
Baby-boomers will take over the cities little by little. It seems very likely that changes brought upon the protected sector of the private housing market will occur through enforced reorganization. With a complete restructuring, owners will be able to kill two birds with one stone : they will be able to adapt their properties to the wishes of the wealthy baby-boomers and simultaneously legally bypass the provisions of the tenancy law, since renovated homes can be rented again freely (i.e. : at market conditions).
Young urbanites will protect themselves
The urban electorate, and consequently urban politics, will not stand idly by, merely observing this shakeup. We can expect them to attempt other interventions on the market, with the intention to support the protection of young urbanites above everything else. This will be politically justified in the name of beneficial diversity and the prevention of gentrification. At present, Geneva already represents a dissuasive example as to what this could result in : renovations are subject to prior authorization and related costs can barely be reflected on the renting prices. In new constructions, the potential returns are limited by the law. As a result, hardly anything is renovated and too few constructions are initiated.
Encouraging new constructions would be the most obvious solution and the easiest to calm the generational conflict that is under way. Construction in large and medium cities has slightly accelerated in recent years. But overall, an insufficient number of new accommodations have been built ; not only in relation to the current demand but especially in view of the future. In comparison with existing housing, three times fewer accommodations are built in big cities (0.5%) in comparison with rural areas (1.4%), and half as many in medium sized cities (0.7%).
We cannot avoid urban densification
Difficulties enabling new constructions in the cities are evident. First, land is scarce in urban areas; building zone reserves are exploited sooner or later. Second, as regulations are stricter in the city, construction activities tend to move to the periphery. More liberal construction standards would therefore be beneficial ; office space and retail space could also be more easily transformed into living accommodations. Thirdly – and this is by far the most important hindrance – a strong resistance to densification perdures in existing neighbourhoods. However, densification appears to be the only possible solution in order anticipate and deflate the incoming generational conflict related to urban space. It is important to remember that population density in Swiss cities is very low, especially in comparison with other countries. In other words, many Swiss cities aspire to be simultaneously urban and idyllically rural. Finally, a high urban density remains an important feature of an urban lifestyle that will be increasingly popular. If we fail to resolve this contradiction, we run the risk of having to face a new regulatory wave in the housing market, which if it occurs, will ultimately be to the detriment of everyone.
