How is the housing stock booming right now?

Austria's market for second homes is booming - to the chagrin of the locals

The flight of investors into real assets has triggered a great demand for second homes. Buyers from Switzerland are also present. The boom is causing displeasure among the population. Politicians are desperately looking for solutions.

Wolfgang Schnöll, head of the Bad Hofgastein community in Salzburg, meets with a detective once a month. Its task was originally to collect the visitor's tax from defaulting hotels; in the meantime he is also hunting down second home owners who have not correctly registered their domicile with the municipality as a secondary residence. Bad Hofgastein is fighting against the excesses of the second home business.

This is booming in Austria more than ever. The lively demand from Germans, Czechs, Russians and Dutch for a vacation home is fueling property prices. In view of the low interest rates and the high share prices, wealthy savers are looking for solid material assets - they will find what they are looking for in Austria's lovely tourist regions in Tyrol, Salzburg and Carinthia.

Buyer from Switzerland

The local lawyer Siegfried Kainz says there has recently been a strong increase in demand from Switzerland. "It's going pretty well right now." Real estate agents suspect that the high prices in Switzerland and the restriction on the construction of second homes are causing buyers to look for a property in Austria.

According to the Austrian National Bank, real estate prices in this country rose by an average of 10% in the past year. However, the development of holiday homes cannot be measured with a single number - the market is too heterogeneous. As in Switzerland, there is a whole range of second homes in Austria - from the luxury villa to the neglected "dive bar", as the head of the department Schnöll says. However, he estimates that the prices of properties close to the center in Bad Hofgastein have almost doubled in the past eight years.

Doubled prices

Real estate prices excluding Vienna, indexed, 2007 = 100
Condominiums, used

This development is causing displeasure among the local population in many places. In view of the rising prices, she fears that she will no longer get a chance on the housing market.

Tourism experts are also concerned. The discussion hardly differs from that in Switzerland: The second home boom is damaging tourism, they say. Hotels are being converted into apartment buildings, many holiday apartments are vacant for a large part of the year, and local businesses such as butchers, bakers and restaurateurs also suffer as a result. "The communities die when a large part of the apartment owners is almost never there," says Daniel Fellner (SPÖ), Provincial Councilor of Carinthia, in an interview.

Austria's holiday regions

In the southern federal state, emotions are currently particularly high. "It's burning," says Fellner. This also has to do with a displacement effect. In the two western federal states of Tyrol and Salzburg, which are particularly popular with Germans and Swiss, the governments have taken tough measures against the construction of second homes.

Second residences may no longer be approved in a municipality if their share of the housing stock is already 8% (Tyrol) or 16% (Salzburg). These relatively low limits mean that hardly any new second homes will come onto the market. Almost only existing properties are on offer, for example when heirs sell their parents' second home in order to turn it into money.

Many buyers therefore switch to the federal state of Carinthia, which is known for its lovely lake landscapes. To the great annoyance of the locals, the banks are already largely closed. "Buyers are therefore pushing into the surrounding mountains," says the Provincial Councilor Fellner. And that is fueling the indignation of the population.

This has created a threatening situation for many mayors: The residents of the municipalities expect the local administration to do something about the excessive prices and the concretion of the landscape. If the mayors hesitate, the community quickly suspects that they are in league with the real estate industry. "Habitation" is what they call it in Austria. Various public officials have recently felt the displeasure of the population and have been voted out of office.

It is not that easy to stop the boom in second homes. Austria's municipalities have already tried various recipes, but none have been a resounding success. “At the national level, there is simply no consistent spatial planning policy in Austria,” says engineer and consultant Richard Resch.

In any case, the Carinthian Provincial Councilor Fellner does not want to copy the measures taken in Tyrol and Salzburg. “They are far too rigid,” he says. It could make perfect sense for the number of second homes in a municipality to exceed a certain limit - second home owners also stimulate the local economy. In addition, the limitation of supply in Tyrol and Salzburg has resulted in high book profits for property owners, which many consider to be unfair.

Low property taxes

Tourist communities would like to skim off some of these profits to finance their infrastructure. After all, because of the second home owners, this is geared towards a population size that sometimes far exceeds the number of permanent residents.

Unlike Switzerland, Austria has no imputed rental value taxation. There are local taxes on second homes, but these are relatively low and have an upper limit.

Local politicians have therefore repeatedly tried to raise taxes. But this request also meets with diverse resistance. Influential owners of second homes complained to the state government when the municipality was playing with the idea of ​​increasing taxes, complains a Vorarlberg hotelier.

At the same time, the municipalities shy away from a tax increase because it would also affect locals who have moved away but have inherited a house in their old home and use it for vacation stays.

So the situation is tricky. Whatever Austria's municipalities and federal states do, evokes protest. Most politicians are well aware that the pressure on the real estate market will remain high. For a few months now, economists have been speaking with remarkable frequency of the inflation dangers that loomed over the next few years as a result of the loose monetary policy. Such prophecies startle wealthy savers. More than ever, they will strive to secure their assets by purchasing property. The demand for second homes should therefore remain high - in Austria and elsewhere.

Managed resorts as a way out

In Carinthia in particular, the government wants to keep a close eye on the real estate market. Since trading in second homes in Austria has become more and more difficult, real estate investors are increasingly relying on so-called managed holiday apartments (buy-to-let). There are various types of this. For example, home buyers must commit to renting out their apartment for a certain period of the year.

The Carinthian government wants to make sure that this happens. Buy-to-let properties are considered to be susceptible to circumvention transactions, for example if owners deliberately demand so much money for a stay that the apartment cannot even be rented out.

However, buyers do not have to worry too much that they will be bothered by the detectives. Even Bad Hofgastein's resolute head of department Schnöll shies away from the escalation with fallible second home owners. Rather, the detective should have a deterrent effect, he says.

In any case, it is controversial whether the use of “snoopers” is compatible with data protection and basic rights. The Salzburg municipality of Zell am See, for example, once used the services of detectives. The legal proceedings then fizzled out. Employing a detective is also a kind of cry for help from the community, says lawyer Kainz.