Cost rent and rising land prices
The cost rent is calculated from the total investment costs of a property. However, rising land prices and construction costs are causing the difference to the market rent to shrink. An analysis based on the example of Zurich Altstetten shows which factors influence affordability and how subsidies can be used in a targeted manner.
The cost rent model is based on the cost-covering return on the total investment costs of a new building. In many cities, building land now accounts for up to half of these costs. In Zurich in particular, land prices have risen massively in the last 15 years, from CHF 1,419 per square metre in 2007 to over CHF 5,800 in 2023.
Even with a conservative calculation, the share of land value in the total investment costs is currently just under 50 %. This means that a reduction or increase in the land price has a direct impact on rental costs. To compensate for a 10 % increase in the land price, the cost rent would have to rise by around 5 %.
Cost rent compared to market rent
An analysis of the Werdwies housing estate in Zurich Altstetten shows that construction costs have risen by 32.5 % since 2007. The cost rent of a newly constructed housing estate would currently be barely below the market rent.
According to a calculation with a gross yield of 4.25 %, the market rent for a 70 m² flat would be CHF 2,567 per month. Reducing the gross yield to 4 % could lower the rent, but without subsidisation it would only be affordable for 56.6 % of local households.
Subsidies as a control instrument
Various subsidy models are conceivable to reduce the rent burden.
Land subsidies: A public subsidy of 20% of the land value could increase affordability by 7.1 percentage points.
Subject subsidies: Direct subsidies to households could provide targeted relief to those who need it most.
Object promotion: A reduction in value-added taxes could promote the development of affordable housing, provided that clear control mechanisms are in place.
Spatial planning and planning certainty are key
A decisive lever for controlling housing costs is the early and transparent definition of building regulations. Uncertainty about future rental regulations or value-added levies can lead to bad investments.
In order to ensure affordable housing in the long term, municipalities should consistently use planning surplus values to reduce rents or subsidise subjects. In addition, measures must be aimed at getting a grip on rising land prices, as cost rents will increasingly rise to market levels without intervention.