Less investment in flats due to rate hikes

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Less has been built over the years. And this despite the urgent need for living space. Reuters news agency wrote that a study by the European Central Bank (ECB) concluded that interest rate hikes by central banks further slowed down housing construction. And this applies to the entire eurozone, including Switzerland.

The effects of the slowdown are likely to increase over time, as monetary policy comes into effect with a lag, the ECB announced on Wednesday. When interest rates are higher, less investment is made in new homes because long-term costs rise and profit expectations decrease.

According to research by the ECB, a one-point increase in short-term interest rates will lead to a decrease of around 5 percent in construction investment after three years. In the USA, the effect on construction investments is up to 8 percent.

The effect can be huge

Since the outbreak of the Ukraine war, the Swiss National Bank (SNB) has increased its key interest rate from -0.75% to 1.5%. That’s a 2.25 percent increase! If the ECB’s model calculation is correct, construction activity could drop more than 10 percent in about three years.

The SNB has already raised interest rates four times to combat inflation. This fell to 2.6 percent in Switzerland in April. However, inflation is still above the SNB target range of 0 to 2 percent.

More rate hikes expected

Then, on June 22, the time came again: the SNB decides whether to raise interest rates again. The main interest rate is currently 1.5 percent. Schwyzer Kantonalbank expects the SNB to raise interest rates again by 25 basis points. The financial portal Vermögenszentrum.ch also expects further increases. Market participants assume that interest rates will peak around 2 percent in December 2023.

ECB boss Christine Lagarde (67) also signaled that the end of the increases is not in sight after the latest interest rate decision.

Source :Blick