29.12.2025The appeal of real estate economics

Hardly any social development fails to influence the real estate market. The range of topics addressed by real estate economics is correspondingly broad. Even global economic and financial market trends must be kept in mind, as they influence interest rate developments, which in turn have a central impact on real estate valuation. Real estate also has a number of unique characteristics, ranging from its immobility to its dependence on a non-renewable resource such as land. Only those who understand these characteristics are able to adequately assess changes in the real estate markets and make informed forecasts.

For over 15 years, warnings have been issued about a real estate bubble bursting. These warnings were exaggerated from the outset and remain so today. Certainly, valuations on the Swiss real estate market are very high, but as long as the housing shortage remains so pronounced, something unimaginable would have to happen to bring real estate valuations to their knees. Even the sharp rise in interest rates following the recent surge in inflation, which has doubled or even tripled mortgage costs in Switzerland, has not been able to push price growth into negative territory. The shortage acts as a floor, a lower price limit, for real estate. Historically, oversupply, the opposite of scarcity, has always been a necessary prerequisite for real estate crises. Warnings of a collapse in real estate prices must therefore address the danger of oversupply if they are to be taken seriously.

Switzerland has maneuvered itself into a self-inflicted housing shortage. Warnings about insufficient housing production were not taken seriously for years. There are many reasons for this. These include negligent implementation of new spatial planning, which reduces building land reserves, a flood of laws and regulations that make construction more expensive and create planning uncertainty, and misguided federal court decisions that have opened the floodgates to objections. There are no quick solutions in sight. In order to ensure sufficient housing production again, several undesirable developments need to be corrected simultaneously. This has already worked in the case of noise legislation. Nevertheless, patience and restraint are needed when it comes to well-intentioned but market-distorting interventions, which often have negative consequences in the long term.

Buying is currently 15 to 30 percent cheaper than renting. With the elimination of the imputed rental value, home ownership has become even more attractive. Since we also expect interest rates to remain low in the long term, home ownership remains the most cost-effective form of housing. Not only that, but home ownership is also a recommended investment that can easily compete with stock returns. The question is therefore not so much whether, but how. For those who have savings and are willing to use them to reduce their mortgage debt in the long term, entering the home ownership market is clearly recommended.

The key lies in unused living space. If existing space could be distributed more efficiently, the housing shortage would be solved at a stroke and no new apartments would need to be built for years. This grotesque misallocation results from the large discrepancy between existing rents and new rents. Many tenants have no incentive to return oversized apartments to the market because they benefit from low existing rents. These misguided incentives are an unintended consequence of strict rental laws, which were originally intended to protect tenants from unjustified rent increases after signing a lease. However, the long-term consequences of this were not taken into account. The resulting two-tier society now makes any reform difficult – because those who benefit from the status quo have little interest in change.

Fredy Hasenmaile has been Chief Economist of the Raiffeisen Group since 2023. Prior to that, he spent 20 years in various management positions in the Economic and Real Estate Research department at Credit Suisse. He holds a master's degree in economics from the University of Zurich.

Source: Oec. Magazine #24

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