Vacation rental prices are skyrocketing

The prices for holiday apartments have risen more than twice as fast as those for condominiums in the past year. Not only Corona is to blame for this, but also the second home initiative. This is a problem for residents of tourism communities.

Snow-covered chalets on January 19, 2013 on the Belalp.

Maxim Schmid / Keystone

Only recently two new apartment buildings with a total of 30 holiday apartments came onto the market in Andermatt as part of the Andermatt Swiss Alps project. These are properties 18 and 19 of a total of 42 residential buildings that are planned on the site of the Andermatt Reuss part of the village.

Just three years ago it would have taken a lot of advertising to sell these apartments, which cost a million francs or more. And it would have taken a long time for the last apartment to find its owner. Now, however, it is enough to call the waiting list, as head of communications Stefan Kern says when asked: “Within a few weeks, all the apartments were gone. We haven’t even started construction yet.”

Price increases of more than 10 percent in 2021

Andermatt is no exception. Everywhere in the Swiss mountains, holiday apartments and chalets are extremely popular. This also causes prices to rise, and even more so than for first homes, although these are also known to increase sharply. According to the latest real estate study According to Credit Suisse (CS), condominiums used as second homes in tourist communities rose in price by 12.8 percent last year, and the price of holiday homes rose by as much as 18.4 percent. For comparison: The prices of condominiums and single-family homes rose by almost 6 percent on average in 2021.

Since Corona, holiday home prices have been taking off

Price development for first and second homes in Switzerland

Detached houses (primary residence)

Condominiums (primary residence)

Holiday homes (second homes in tourist communities)

Vacation rentals (second homes in tourist communities)

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Acceptance of the second home initiative

An important reason for the high demand for holiday properties is the corona pandemic. Not only has it brought the population closer to their own country as a holiday destination, it has also meant that many who have a home in the mountains use it more intensively – not only for holidays, but also for work. Then there is the buying argument that applies to all residential real estate: mortgages are cheap and wealthy savers can diversify their assets and avoid the growing pressure from negative interest rates.

As the CS writes, there are now only a few objects on offer at all. Specifically, according to the bank, at the end of 2021 there were 42 percent fewer condominiums and single-family homes advertised in tourist communities than the average for 2018/2019. The so-called supply figures, which include all apartments advertised for sale or rent, are now significantly lower than in the rest of the country, as is the vacancy rate.

First too many, now too few second homes

The fact that the market is more or less “bought empty” is not only due to the strong increase in demand. It is also a consequence of the adoption of the second home initiative ten years ago. Because of this initiative, with a few exceptions – including the project by Samih Sawiris in Andermatt – no second homes can be built today, unless they are so-called managed second homes that are attached to a hotel. For potential buyers of holiday homes there are practically only existing properties available on the market.

The situation was very different just a few years ago: after the second home initiative was accepted in March 2012, there was a last-minute construction boom in many places because the initiative only left a small window of opportunity for the realization of second homes. The market was overwhelmed with new objects.

The second home initiative has temporarily led to a construction boom

Building applications and permits in second home communities*

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Acceptance of the second home initiative

At the same time, demand was subdued. On the one hand, the Swiss franc appreciated sharply at that time, and on the other hand, there was great legal uncertainty because it was not clear exactly how the initiative would be implemented. It was not clear until 2015, when the definitive Second Homes Act was passed, which then came into force on January 1, 2016.

This combination of strong construction activity and subdued demand led to the available supply almost doubling between the end of 2013 and 2018 and accordingly to prices that hardly rose any more or even fell in a few years. A gap thus opened up between the development of prices for first homes and those for holiday homes.

However, according to Daniel Steffen, lecturer at the Institute for Financial Services (IFZ), this price gap has been closed for a little over a year. At the end of 2020, the prices for second homes in the communities affected were back to where they would be without the second homes initiative, according to Steffen’s model calculations. And since then, as mentioned, they have risen even faster than the prices of first homes.

Locals are pushed out

If the demand for living space in the Alps continues, which is entirely plausible, prices in the communities there are likely to continue to rise significantly. Because the offer of so-called old-law apartments, which can be used freely as a first or second home, was frozen by the second home initiative. It includes all first and second homes that legally existed on March 11, 2012 or were already legally approved.

This is a problem for the locals. If they want to continue living in these properties, they are increasingly in competition with the solvent national demand. In contrast to foreigners, they can also switch to (cheaper) so-called new legal apartments, which were only built after the initiative was accepted. But this market is still very small. In addition, the new buildings are usually not in the center, but a little further out.

The second home initiative thus has the absurd effect of causing exactly what it actually wants to prevent. The locals are pushed out of the centers. And if you create new living space for them outside the centers, the urban sprawl that you wanted to stop will continue – instead of second homes simply with first homes. A loophole in the law that allows locals to sell first homes under the old law as second homes at high cost and build an additional home under the new law as a replacement even creates an additional incentive for urban sprawl.

In view of these undesirable effects, the question arises for Steffen as to whether the will of society, which was expressed by accepting the initiative, could not be met with other, more effective and efficient instruments. In his view, one possibility would be a tax on second homes, which would on the one hand curb demand and on the other hand give something back to the communities in the form of tax revenue.

The same conclusion is In 202o the Swiss economic geographer Christian Hilber also came, who teaches at the London School of Economics. According to Hilber, it is not too late for such a tax. This should not be introduced in addition to the ban, but as an alternative – i.e. the municipalities could choose between the previous ban and a tax. And if they don’t choose anything, the second home ban will continue to apply.

Sawiris’ plan works

In Andermatt there is no need to worry about such alternatives for the time being. Because there are more than 20 other apartment buildings waiting to be built. Since the entire development of Andermatt Swiss Alps was approved before 2012, the apartments can be used both as first homes and as holiday homes, and thanks to an exemption, even foreigners can buy them. Samih Sawiris’ foresight and staying power are paying off. Not only for the investor himself, but also for the village.

source site-111