Conference Agenda

The building sector is central to Switzerland’s decarbonization strategy. To reduce CO2 emissions, a levy on fossil heating fuels was introduced in 2008, increasing operating costs for fossil-heated buildings and aiming to accelerate the transition to renewable heating systems. While the levy applies to both owner-occupied and rental buildings, cost allocation between owners and tenants is more complex in the rental sector. This paper examines whether the 2018 and 2022 CO2 levy increases were capitalized into rental market outcomes and whether they altered the risk–return profiles of owners of fossil-heated rental properties. Using a difference-in-difference framework we compare net rents in newly signed rental contracts between 2016 and 2024 for fossil-heated and non-fossil-heated buildings held by institutional investors. We find no systematic evidence that higher levy-induced operating costs translated into lower net rent growth for fossil-heated dwellings, suggesting that the additional costs were largely borne by tenants rather than capitalized into net rents. However, heterogeneity emerges across rent segments: net rent reductions are concentrated in the middle rent quintiles, while the lowest and highest rent segemtns show no siginificant effects. Using a complementary property-level panel, we further analyze vacancy cost shares to assess changes in property-level risk. Some specifications indicate modest increases in vacancy costs for fossil-heated properties following the levy increases, but these effects are not robust across all model specifications and again vary across rent segments. Overall, the results suggest that the CO2 levy generated limited and segment-dependent short-run financial incentives for property owners to switch heating systems, underscoring the importance of complementary policy instruments to support decarbonization in the Swiss rental housing sector.