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Few tenants take advantage of rent controls

Less than 40% of households in Switzerland are occupied by the property owners – up from around 30% in 1990

Anyone who rents a home in Switzerland (more than 60% of households) could qualify for a rent reduction after the Federal Housing Office reduced the reference rate on June 1. However, not everyone bothers to ask, and not all those who do get a positive response from landlords.

The Swiss rental market is strongly regulated to protect tenants from unscrupulous landlords. Rent increases are carefully kept in check using a reference rate that is pegged to the average interest rate of current mortgage loans. As mortgage loan rates go up or down, they are followed by the rental reference rate.

On June 1, the housing office reduced the reference rate from 1.75% to 1.5%. Theoretically, all households that pay rent can now apply to their landlord for a reductionexternal link.

But only between 20% to 25% of renters actually get that reduction, the housing officeexternal link told the NZZ am Sonntag newspaper. Most don’t even bother, fearing rejection and arguments with their landlord – even though they could call on the free conciliation service offered by every canton.

Some renters, particularly foreigners living in Switzerland, might not even know about this rule, or mistakenly believe rent reductions automatically follow the reference rate sinking.

Some who do apply are turned down by landlords, who cite having to lay out extraordinary expenses to renovate or improve properties for the benefit of tenants. In some cases, this can prove a good enough argument to reject requests for rent decreases.

CHF5 billion give away

This has led to some odd developments, according to the NZZ am Sonntag article. The reference rate for rents has dropped from 3.5% to 1.5% since 2008, but according to official consumer price statistics, rents have increased by 13.5% in the last decade.

The Raiffeisen banking cooperative estimates that had rents followed the course of the reference rate, renters would now be paying a whopping CHF5 billion ($5.2 billion) less per year than they actually do at the moment. Instead of shelling out CHF35 billion a year, Switzerland’s 2.2 million renters should be paying CHF30 billion.

In the meantime, home owners have been taking advantage of falling mortgage rate charges. The monthly cost of servicing a mortgage has fallen from around CHF2,000 in 2008 to just over CHF1,500. In the same period, average rents have increased from CHF1,650 to just under CHF2,000, according to NZZ research.

The news does not get much better for tenants. Credit Suisse believes that the latest reduction in the rental reference rate will probably be the last for some time. It bases this forecast on the way the average mortgage rate is calculated.

This average rate includes long-term fixed rate mortgage loans set at a time of falling interest rates. Many are due to mature at a time when economists feel interest rates may start to go up again, which would lead to more expensive mortgages, Credit Suisse argues.

This might prove to be an academic argument as parliament is currently debating proposed changes to the reference rate system. Some politicians are demanding that rental reference rates become pegged to interest rates rather than the cost of mortgages.

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SWI – the international service of the Swiss Broadcasting Corporation (SBC). Since 1999, has fulfilled the federal government’s mandate to distribute information about Switzerland internationally, supplementing the online offerings of the radio and television stations of the SBC. Today, the international service is directed above all at an international audience interested in Switzerland, as well as at Swiss citizens living abroad.
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