Housing shortage looming due to declining construction activity

Spatial development in Switzerland – residential construction declining

Due to a decline in construction activity in recent years, a dire housing shortage is looming. This means that Switzerland is headed toward a housing shortage of a magnitude not seen since the end of the 1980s. Spatial planning in recent years is also a contributing factor.

Two factors responsible for the accelerating housing shortage

Supply is becoming increasingly scarce in the domestic real estate market. The lack of available apartments is now no longer affecting only the large centers. This trend is caused by the following two main factors:

1. Not enough residential property is being built
Construction activity in Switzerland has been declining since 2016. Between 2015 and 2018, 54,000 apartments were being built each year. The equivalent newbuild figure for last year was just 45,000. We anticipate housing production of only 42,000 units for 2023 and 2024. As a result of this development, the vacancy rate is expected to fall below 1% in 2024.

2. Demand has increased
Influenced by the increased demand during the pandemic and by rising immigration, the demand for housing increased in 2022. The Swiss Federal Statistical Office (SFSO) is anticipating an annual increase of 45,000 households. By 2024, the shortfall of apartments will therefore rise to 15,000. However, given the actual development of household growth, which has recently been significantly higher, there is likely to be a shortfall of around twice as many apartments – or even more if the approximately 62,000 refugees from Ukraine are also included as a demand factor.

Fewer planning applications and building permits in Switzerland

The number of newly built apartments is steadily declining 

Source: SFSO, Baublatt, Credit Suisse
Last data point: 11/2022

Trigger for the decline in construction activity 

Both the number of planning applications and the number of building permits have decreased sharply in recent years. This began to feed through into the number of completed homes from 2019 onward.

The question of why housing construction has failed to react to the impending housing shortage is not easy to answer:

  • One factor could be the pandemic acting as a drag. However, this justification for the decline is not particularly plausible since the pandemic actually increased the allure of the home.
  • Vacancy rates, which had been rising until 2020, are also likely to have slowed down residential construction. While vacancies have been significantly reduced over the past two years, the number of new homes planned remains low to this day.
  • There is a suspicion that it is primarily structural factors that are slowing down housing construction: In 2014 there was a paradigm shift in spatial planning in the form of Switzerland’s revised Spatial Planning Act. 

Change in spatial planning and spatial planning policy

The revised Spatial Planning Act (SPA) of 2014 has direct repercussions for the availability of building land in the cantons and municipalities. The paradigm shift was intended to slow urban sprawl and therefore "growth by spread."

Building zones for residential use have therefore not expanded further over the last ten years. Accordingly, the building zone reserves have recently fallen significantly, although the decline differs depending on the region. In some cantons, there were even times when it was not possible to rezone building land.

Building land reserves are therefore shrinking. At the same time, these are often to be found outside of the major urban areas that need them most. Furthermore, numerous building zones are still "off the beaten track": Around 40% of building zones in rural and peri-urban municipalities do not have public transport access, or such access can only be described as marginal.

There is also a further problem when it comes to building land: hoarding. In some cases, attractively located building land is deliberately not being built on by the landowner, for example, because there are no funds for development or the land is intended to remain in family ownership. 

Building zone reserves in Switzerland are declining

Decline in building zone reserves throughout Switzerland

Source: Federal Office for Spatial Development, Credit Suisse, Geostat
Last data point: 2022

Solutions to the housing shortage 

There is only one option to ensure sufficient housing – densification.

A turnaround in per-capita consumption of developed land has become apparent in recent years. This is indicated, among other things, by the growing number of apartments and the continuously increasing number of stories per building.

However, the resulting conflict with aims to preserve cultural heritage and nature, and protect against noise, plus the laborious approval processes, indicate that residential development projects are facing ever-higher hurdles.

Increasing number of apartments per building

No. of apartments per building by year of construction

Source: Swiss Federal Statistical Office, Credit Suisse
Last data point: 4/2022

This means that densification cannot take effect quickly enough, or on a big enough scale, to resolve the scarcity of housing. In order to ward off an impending housing shortage, the following areas for action have been identified:

  • Combat the hoarding of building land
  • Align building laws in urban centers more closely with densification
  • Defuse conflicts of political interest
  • Encourage use conversion
  • Accelerate construction approval process 

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