In Switzerland, most people rent for life
nytimes.com
nytimes.com
> The catch is that in order to become a homeowner, “you need wealth to get more wealth,” as Ms. Kuhn put it.
We're approaching a Neo-Feudalism society where the only people who will be able to afford to buy homes are those whose parents and grandparents were able to buy homes.
Tbh if you replaced "Switzerland" here with "Canada" this article reads the same as many other articles I've read recently. This is becoming a very common problem in many jurisdictions.
I think the spiking costs of housing and incredible rent seeking is/will have really bad impacts on the economy as more and more wealth is devoted purely to housing and unavailable for anything else.
I'm lucky enough to have been able to buy property and to have stability of housing tenure, but as a result, despite posting this comment on an entrepreneurial tech forum, I couldn't imagine being able to create a startup right now or ever. Where would the money come from? All my money is going toward housing costs.
This is the big problem as rents (both from landlords and other oligopolies) take up a bigger and bigger share of people's income. No money for creating a new business, and no money for customers to spend at a new business. Everyone suffers.
I don't see a crash coming, I see stalling economies as all the well just locks itself up in housing for a generation.
If you’re paying 6%/year in property taxes, a home is no longer an “investment”, and the house hoarding (especially by the likes of investors buying single-family housing) will cease. People will buy homes to have a place to live, and the market will cool off.
This comes with the additional benefit of progressively taxing wealth instead of solely income. Wealth discrepancy is orders of magnitude worse than income discrepancy, and currently we’re doing almost nothing about that.
There are heaps of advantages to this approach, like no capital flight (can't take land overseas with you), no economic inefficiencies (taxing land doesn't get rid of land, whereas taxing pretty much anything else reduces the supply of that thing, taxing land doesn't reduce house-building the way property taxes do).
There's nothing in society that says we need to "compensate" new taxes by getting rid of older ones. If we as a society decide that someone's speculative actions are harmful, there is no good reason not to tax them into oblivion
Yet now the correct choice is supposed to be made in regard to property ownership social "harm", using taxes as the specific tool to correct it?
If the government, or "we as a society", can't directly justify their goal being enforced via restrictive law then enforcing the goal via taxation isn't democratically justified (ie: an incentive provided for the tax collecting gov).
>no more of these halfbaked tax reform ideas.
Why would US citizens be in favor of tax reform? What a crazy idea that has zero historical precedent.
But I don't feel like having this discussion with someone who by all likely hood wouldn't be affected by this issue since they don't own any rental properties to begin with, wouldn't be affected by this in any way, and is just making an argument from an ideological reflex
Not every country is a corrupt failed state and plenty of western representative democracies have acted on behalf of their constituents best interests
If you dont make a good faith argument but instead throw your hands up saying "they're all crooks anyway" then what's the point of even trying?
It wouldn't accomplish that. The big investors would just shrug, keep buying houses and renting them out, passing your 6% to the renter to pay. Meanwhile regular people would be priced out of their home by taxes, reducing home ownership even further and those big investors would snap up those homes. Repeat cycle until those corporations own 100% of all properties.
You want to incentivize owning and living a home, so I would do 0% tax on primary residence (up to some value limit), maybe 5% on a second home and ratcheting steeply up from there on each additional property owned by a person or entity.
That would wipe out the corporations owning hundreds of homes since they would not be able to profitably rent them out if they're paying 100+% tax on each. Meanwhile regular people can live in the only home they own without tax.
Can’t just property tax a fixed amount.
We want most people to affordably own a primary home (their primary address) may be have a vacation or side rental at higher property tax and heavily discourage investors sitting on an array of homes primarily for rent seeking.
The correct solution is crush nimbyism and zone land and speed permitting to fulfill need rather than to create artificial scarcity. Japan and Germany, among other provide various flavors of this working. I prefer japans method of moving zoning to a national body (in north america this would be at stae or province level) and zoning for national interest, which means allowing lots more density than we have now and allowing substantially faster, easier, and cheaper permit approval. On the demand side we can get rid of subsidy programs like cmhc that provide a naive backstop to allow 5% or no money down buying.
This doesn't mean anything. It just states the obvious, which is that people who can afford super expensive houses tend to be rich.
Prices of homes vary greatly. If your parents owned an apartment in a unappealing town, that won't pay your bay area house. Conversely, you may not be able to afford a house in the bay area while working there, but save enough in one year to buy a house somewhere else.
Maybe I'm wrong, but I wouldn't be surprised if the parents and grandparents lived more frugally. Spending more than you earn will make you poor regardless of income.
And there is one thing the article is not mentioning: if you own a house, there is a fictional “rent” income on your own property, which is “income” on to of your real salary income and gets taxed… there were many approaches to get rid of the law, but it never went through.
Also, in the last years the interest rates were crazy low for loans in Switzerland. 0.6% (!!) you read right was normal. It changed recently as the Swiss national bank increased its the reference interest rate to about 2.5% - still low compared to other countries. Which means, if you have 1m in load it meant 1m0.006 =6000/year of interest rate! Today 1m0.025=25000/year
Is this essentially a Swiss equivalent of property taxes/council taxes?
I've literally had to explain to like 5 people the amount of risk they were taking on by holding on to a 0.8% Saron adjustable instead of getting something like 0.9-0.95% fixed rate for 15! years. It's unfortunate that most people simply don't intuitively understand that when interest rates go from 1% to 2% your payments double.
But of course, if had gotten the chance to get a <1% 15-year deal, I'd have done it :) I'm slightly late to the party.
1) Fully tax deductible mortgage interest
2) Full value of mortgage goes against your assets, essentially removing wealth tax for most people.
3) Within any given year, you can either take a 10% * Imputed rental income deduction for maintenance or a specific fully itemized amount against your tax bill. Except that nothing prevents you from taking the 10% and not doing any renovations, and then slamming all the renovations in one year and removing the add on entirely.
4) The first 66% of the home collateral value are under an interest only mortgage, so if you were smart enough to get the 15yr fixed rate you basically be getting a huge loan for like 1% interest payment per year to control a house which you need to live in anyway.
5) Last but not least, local tax offices have a lot of discretion in most cantons to determine what the imputed rent is. The legal requirement is that the imputed rent must be at least 60% of market rent, but there is basically no consistency between cantons as to what number they shoot through, anywhere from like 65 to 90%.
The end result is that high bracket earners are super incentivized to lever up and get the biggest house they can, since they would essentially be investing into a growth asset that reduces their tax income. Since Switzerland is a small country and not a lot of space the end result is that eventually the high earners overbid normal houses.
IMO, being able to do a long term and safe rent is the biggest win for the financial planning and personal finance you can get:
- people can become independent as soon as they find their first job (living with a roommate is an option to get a bigger place -- valid even for decades if that fits ones lifestyle)
- high personal wealth liquidity (invest in financial markets, move to a cheaper place if the situation asks for it, move to a bigger place if the family grows)
- if the place that costs 2M to buy, an be rented for 3k, that's 50y of rent! (or even more, as the maintenance, tax & mortgage cost outperform the rent increase, not to mention a loss from not investing that money) and, think how the place will look after 50y...
But the renting must be very well regulated -- to make it a comfortable living. That's something worth (politically) fighting for.
(a happy renter)
Really, the answer is for things that need a delicate balance to be handled by an arms-length public corporation.
Frankly though, I rented for a long time and if the economics of it would have continued to work out for me, I could have done it for life, in principle.
That's if I thought I could afford to keep doing it rather than get squeezed with accelerating rent increases and decreases in service that have come to define every aspect of our economy over the last 4 years. But things are in a bad spiral.
There are also non-financial tradeoffs but some degree of stability is probably desirable if there is no reason to think you'll want to pickup and move across the country.
It seems that what almost all homeowners actually do is take out long mortgages, reset their paydown clocks by refinancing, finance equity back out in second mortgages and liens, etc, never actually reaching the "no monthly bill" stage.
So if people are honest about probably being in the same cohort when the time comes for themselves, then there's not so much distinction between paying a landlord forever and paying a bank forever.
You may know better about yourself, and people may have other reasons to prefer homeownership, but it doesn't seem to be about security in retirement. At least not in practice.
It looks to be close to 38% in the U.S.?
https://financialcomplete.com/how-many-homes-are-paid-off-in...
https://www.forbes.com/sites/brendarichardson/2019/07/26/nea...
I wonder if this is true? It feels true to me as well, but I keep reading that the actual numbers tell a different story. I believe rents have actually decreased the last few months, for instance. My grim joke is that everything seems to be increasing faster than inflation.
This is poor reasoning. Land ownership wealth is ill-gotten zero-sum. More homeownership won't build more wealth, it will just distribute the land rents differently. Taxation can also redistribute land rent, and far more fairly than "mass homeownership" which isn't really a sustainable system anywhere.
> which is advantageous from a tax perspective because mortgage interest is tax deductible.
Not good! Especially given the high VAT.
A Georgist land value tax would do that job admirably, though it will probably never happen in any jurisdiction, since it would hurt wealthy landowners the most. That could be why "mass home ownership" is a more politically palatable flavor of the same base concept; both will spread land rents among more people.
That's fine. We'd rather have better distribution of the land and social wealth in general, than "building more wealth".
Looks like Switzerland is doing a good job of the former. The rent control is more important to make renting lower risk (avoiding rent increase risk and building land wealth are two different goals of homeownership, the first is much more laudable).
Curtailing rental incoming is similar to an LVT, except it doesn't have the incentives for densification. Europe could probably use a bit more of the latter so there is less immigration vs cheap housing going on.
* Inability to make changes to the building
* Constant fear of eviction for the flimsiest of reasons
* No tax reduction on rent payments (but often on mortgage interest - a gobsmacking reality)
* Arbitrary rules imposed on you long beyond your childhood years: Pets/no pets, smoking/no smoking, rug surface area requirements etc.
> Inability to make changes to the building
Who cares? What are you people dreaming of doing to buildings? I sleep, watch TV, shower, and cook dinner in my apartment. Doesn't take a lot to satisfy me, I guess.
> Constant fear of eviction for the flimsiest of reasons
A good argument for governmental protection of renters.
> No tax reduction on rent payments (but often on mortgage interest - a gobsmacking reality)
Don't care. My rent is so much lower than a mortgage that I don't mind missing out on the tax benefits.
> Arbitrary rules imposed on you long beyond your childhood years: Pets/no pets, smoking/no smoking, rug surface area requirements etc.
There's arbitrary rules imposed on nearly every aspect of modern life. I'm not particularly bothered by a few more.
Air conditioner lacks any airflow in leading to huge CO2 levels? Too bad, you get the same one everyone gets.
Electrical outlets in insane places? Tough.
Take zero baths a year but still need to stand in one? Too bad, no real shower for you.
No one, apparently
> Many Swiss rely on perpetual refinancing to afford their homes. Switzerland is the land of luxury watches, fine chocolates — and lifelong mortgages. It’s not uncommon for borrowers to extend their loans until their deaths, which is advantageous from a tax perspective because mortgage interest is tax deductible. It also gives a lot of business to Switzerland’s vaunted banking industry.
How is this possible? I can't imagine any bank giving me a loan knowing there's a good chance I won't be alive to pay it back.
Some statistic about ownership: https://www.bfs.admin.ch/bfs/de/home/statistiken/bau-wohnung...
Also interesting: https://www.bfs.admin.ch/news/de/2022-0072
Translated: For the owner types of rental apartments, there are now cumulative results over three years (2019-2021). They enable analyses at cantonal level and for the six largest cities in Switzerland. At around a quarter (26%), the canton of Geneva had the lowest proportion of rental apartments owned by private individuals. In the cantons of Valais (68%) and Ticino (70%), on the other hand, this proportion was significantly higher. The owner category "Other limited company/ limited liability company/cooperative", which mainly comprises institutional investors such as insurance companies, pension funds or investment funds, accounted for half (50%) of all rental apartments in the canton of Geneva. In the cantons of Valais (23%) and Ticino (21%), on the other hand, less than a quarter of all rental apartments fell into this category. The Swiss average was 33%.
The most detailed table i found: https://dam-api.bfs.admin.ch/hub/api/dam/assets/20784986/mas...
It lists privat, public, Cooperatives, investors, separated investors returning most gains to the public again(social security, insurances, …)
It's unfortunate (for me) that owning a home is some key component of the American Dream. I see so many people who prioritize owning a home over everything else and it just doesn't make a ton of sense to me. The more people who see renting for life as a great option, the better our society would be, IMO.
Renting currently has disadvantages too (nothing's perfect), but I think a lot of people would have higher quality of life if they looked beyond home ownership. Think about all the people who claim they wish they didn't have to drive so much and how they wish they could walk more. They could easily do this if they hadn't bought a house in the suburbs! Rent a small apartment and walk wherever you want. It's great!
Another interesting article from the NYT on the topic of renting for life:
https://www.nytimes.com/2023/05/23/magazine/vienna-social-ho...
The way I see it I'm going to be paying a mortgage either way. I'd rather it be my own than my landlord's.
I'm fine with paying for someone else to own the roof over my head. I've just prioritized keeping that cost as low as possible so I can do other things with my money.
1) you own a valuable asset. 2) your cost of living falls dramatically.
I guess this one is a matter of perspective. I don't see a house as an asset in my life.
> 2) your cost of living falls dramatically
My cost of living was dramatically lower the whole time leading up to the point where the drop-off occurs for the homeowner. They only start catching up after decades.
Whether renting is cheaper than buying varies. In the short term it often is, but not always. There is generally a long term point where buying is cheaper - but again, not always! If you can do something else with the money you save renting, then good for you.
To put this on context, to rent a house in my street is only a tiny bit cheaper than a mortgage on it. So it would not make long term sense to rent unless you had no choice.
But you do! You said you are paying rent, thus you attach value to having a place to live.
> My cost of living was dramatically lower the whole time leading up to the point where the drop-off occurs for the homeowner.
In the other response you acknowledged this is from comparing rent on a tiny apartment to mortgage on a house, which cannot be compared.
If you don't need a house you could buy a tiny apartment. That gives you the benefit of a low mortgage now and zero mortgage when you're older.
I mean obviously it’s an asset in that it adds value to my life b/c without it I’d be homeless. Thx for pointing that out.
> Why exactly?
Because if it is your mortgage, it has an end date. After that your housing costs drop dramatically. If you time it so that your housing costs drop dramatically near the time your income drops dramatically in retirement, it's a good combination.
I've prioritized finding the smallest and most affordable apartment I can in an area that I want to live in (very nice walkable/bikeable non-rust-belt city).
For the past ~12 years my rent has been less than 33% of the mortgage payments for the smallest home in my area (not including property taxes and other costs of homeownership).
Investment gains on what I've saved are good enough for me to feel like I can keep renting relatively comfortably until I die. What else do I need?
I will concede that if you're comparing renting and buying equivalent properties that buying generally makes financial sense. But that's not what I'm doing.
If you concede that buying makes sense when comparing like for like, why not do that?
Buy a tiny studio apartment of the size you prefer and then you can own it.
If you're comparing rent on a tiny apartment to mortgage on a larger single family home, of course the tiny apartment is cheaper. It doesn't conclude that renting is cheaper, only concludes that a tiny apartment is cheaper than a house.
Not everyone wants to live somewhere long enough to pay off a place though. It’s no different than other financial choices. The best decision for the individual isn’t always the most rational.
I grew up with a sibling and 2 parents in a house with 800ish square feet of living space in a very rural area. To some people that’ll sound like a lot of room and to some it’ll seem really tiny. To me it was just all I knew.
That's a non sequitur.
You could rent a farmhouse out in the boonies where you can't walk anywhere or you could buy an apartment in the same area you live in and walk as much as the renter does.
The point is that people don’t do the things they say they want to do.