“My house is just a huge expensive brick weighing me down”, writes a homeowner on a Swiss political blog. His attitude is common in Switzerland, a country where levels of home ownership are almost half that of Australia. Switzerland is a wealthy nation of renters. In light of housing affordability being at 22-year lows here in Australia, it might be time to pick up a few tips from the conservative Swiss.
The Swiss share the Great Australian Dream of home ownership. They are just more cool-headed about the cost of realising the dream. At the moment it doesn’t make a whole lot of economic sense for them to buy their own home, despite interest rates that Australians would salivate over. The tax system in Switzerland does not currently favour homeowners, and the rental market is highly regulated, so cost effective, high quality properties and long-term tenancies are the norm. There is also no social stigma attached to renting.
The Swiss like to live well. They love to travel, enjoy owning nice cars and the latest gadgets. Mortgages eat into their disposable incomes. And it can also take some time to save the 20 per cent minimum deposit required by Swiss banks, in contrast with Australia’s paltry 5 per cent requirement. Since the early 90s the Swiss government has offered guarantees to buyers that don’t have a 20 per cent deposit; demand for these has been almost non-existent. It appears the Swiss don’t like to commit to a mortgage that they are not in a position to afford comfortably.
That’s not to say the Swiss avoid mortgages so they can spend, spend, spend. They are a nation of savers and generally live well in retirement. They invest heavily in bank deposits, pension plans, investment funds, shares and even property portfolios (investment properties, unlike owner occupied properties, can provide steady returns due to different tax treatment and the regulation of rental markets). The Swiss also show great restraint with the use of credit cards - definitely a trait we would be wise to emulate.
While there are certainly market differences between our two nations, we can learn some valuable lessons from the Swiss approach to home ownership, such as their ethos of sensible borrowing. We should only take the plunge into home ownership if we can afford it without having to live on baked beans for the first ten years of the mortgage.
Removing our nesting instincts from the equation, we should borrow only when the market is favourable, rather than at any time and cost; and rent in the meantime while cultivating savings habits and investing (rather than gambling!) in line with our long-term financial plans.
We should cut up the credit cards and not dismiss the idea of living on the city fringes - the Swiss routinely move out of urban areas to purchase more affordable housing.
Our newly elected federal Labor government can also pick up some tips from the Swiss. It should stop pandering to our home ownership dreams with demand swelling incentives such as the First Home Owners Grant, which drive up house prices and interest rates in a self-defeating cycle. Instead our government should deliver on its pre-election promises to increase the supply of dwellings and build infrastructure in suburban areas where home ownership is more affordable.
Our tight unregulated rental market could also benefit from government intervention to make it a more attractive alternative to home ownership.
Labor’s pre-election home deposit savings scheme is a step in the right direction in terms of encouraging diligent savings habits. But it should be supplemented with pressure on lending institutions to raise minimum deposit requirements so homebuyers can avoid mortgage stress down the track. This will delay home ownership, but the benefits are a downward pressure on interest rates and lower unemployment as people can more easily move to where the jobs are. Switzerland’s unemployment rate was an enviable 2.6 per cent in October.
The moral of the Swiss experience is that we need to stop living beyond our means and revive some good old-fashioned saving habits. It is also a reminder that there are plenty of effective investments out there, a “home” being not always one of them.
Susanne, a well-off Swiss renter in her late 30s sums up the Swiss’ attitude - she says that buying a home is a risky investment and for now she prefers the flexibility of renting. “Maybe when I’m older I’ll think more about buying” she says. There’s none of that urgency that home ownership is the be all and end all.
Maybe slow and steady can win the race after all.
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