Amid reports of housing shortages and sky-high prices for apartments in Zurich, it’s perhaps no surprise to read that there may be a bubble in the Swiss housing market. This has been confirmed by the new Global Real Estate Bubble Index by UBS, which found that Zurich has the third most overpriced housing in the world.
The UBS Global Real Estate Bubble Index looks into the cost of buying a house in 25 cities across the globe, in order to determine which markets are “mispriced.” This is calculated by comparing a city's house prices to salaries, average rent and the housing market in the country as a whole.
In the report for 2022, the Swiss bank found that there is an acute shortage of housing around the world, which has fuelled a significant rise in house prices. According to the study, an average skilled worker can afford around a third less housing space today than before the pandemic.
Long-term low interest rates imposed by central banks, coupled with high demand and inflation have seen global property prices increase by 10 percent since last year - the largest annual rise in house prices since 2007. The biggest rises were recorded in the United States and Israel, with property prices in Miami now 50 percent higher than they were pre-pandemic. Los Angeles, San Francisco, Tel Aviv and Boston made up the rest of the top five.
However, the report forecast that property prices are due to fall significantly - a phenomenon that has already been confirmed in the Netherlands. UBS predicted that rising interest rates and turmoil in the global economy will put renewed pressure on house prices in the near future.
In the 2022 report, UBS found that Zurich is “deep” in housing bubble territory, gaining two places to rank as having the third most overpriced housing in the world. The study's authors noted that home prices in the city have grown by 20 percent since the start of the pandemic and vacancy rates have fallen to a record low. Only Toronto and Frankfurt were found to be at a higher risk of a housing bubble.
The bank explained that Zurich’s sky-high prices are a result of a strong economy, the formerly negative interest rates set by the Swiss National Bank (SNB) in Bern and the continual demand for houses in the city and the wider canton.
In future, UBS predicted that the SNB's planned interest rate hikes will make buying a house even more unaffordable as rates for Swiss mortgages increase, which should drive house prices down in future. However, they noted that Zurich’s strong appeal as a city - being the home of expat-friendly jobs, international companies and a high standard of living - may mean prices stay much higher for longer.
In all, these are the cities that are most likely to experience a housing bubble in 2022:
For more information about the ranking was calculated, check out the UBS website.