In a nutshell: These value-added compensation payments have been due in the canton of Zurich since 1.1.2021

Anyone who deals with the subject cannot avoid the terms MAG and MAV. These are the two new regulations that have come into force. The MAG is the Cantonal Value-Added Compensation Act, which states that 20% of the added value is due as a levy at the communal level in the case of zoning. The MAV, the Ordinance on Value-Added Compensation, regulates value-added compensation at communal level in the case of rezonings and upzoning. This must be defined by the municipality in the BZO building regulations and approved by the canton. This compensation for added value may amount to a maximum of 40%. This is a hefty sum, which, as one would expect, is to be fully utilised by the city of Zurich, for example. If a municipality waives the compensation for added value, this must also be stated in the BZO by 1 March 2025 at the latest. In any case, an amendment to the BZO must be voted on, and the corresponding municipal bills will come before the people in the next few years.

If you would like to take a closer look at this process, we recommend this explanatory video (available in german) by the Canton of Zurich's Department of Construction, which explains the complexity of the topic well, or the PDF at the end of this article:

The purpose of this article is merely to point out the direction of travel and to draw attention to the fact that a levy is being introduced here that will lead to significant difficulties in the construction of new housing, that will be passed on to tenants and buyers for obvious economic reasons, and that will place high technical and time demands on the canton and municipalities. And one that can be effectively countered with the right decision at the ballot box.

The determination and due date of the value added

Cantonal officials determine the added value using a computer-based platform with an added value forecast. A hedonic method where individual adjustments can be made by the officials. The landowners can subsequently comment on this proposal. If the municipality, which is responsible for determining the added value, and the owner do not agree, an elaborate procedure begins that is fraught with high costs and legal trouble. The landowner can then request an appraisal from a pool of appraisers compiled by the canton, which he or she undertakes at his or her own expense. In each individual case, the appraiser is appointed exclusively by the canton and the further process is then up to the municipalities. If there is still disagreement, the only option is to take legal action. And since there are still many ambiguities and all the boundaries must first be sounded out with the practice, the jurisdiction will be strongly challenged. A development that must also be observed with a keen eye and which, in terms of trickiness and possible pitfalls, is similar to the difficulties of determining the real estate gains tax, which is also regulated at the municipal level and thus often differently from municipality to municipality.

"Those who want to prevent the value-added compensation from making urgently needed housing in the canton of Zurich significantly more expensive will have the opportunity to do so at the ballot box."

What happens with all that money?

The added value compensation "earned" by the municipalities is transferred to a fund for financing spatial planning measures. This fund finances measures of planning law up to expropriation and measures for the design of public space, which is of course irrelevant with regard to the origin of the money. In other words, the money that is indirectly paid into this fund by the creators of residential or commercial space can be used for the design of parks, green spaces or the creation of social infrastructures such as meeting places for young people or senior citizens or extracurricular facilities.

The bottom line: poor prospects for affordable housing

This cross-financing unnecessarily increases the creation costs of urgently needed space, and a pass-through to rental and purchase prices is clearly to be expected. The last chance to minimise or prevent these levies now lies with the individual municipalities, which can do without them. The only option left to each and every individual is to intervene at the municipal level and, when voting, to take a close look at what compensation is actually provided for in the respective bills.

PDF of the Construction Directorate
"Value-added compensation briefly explained"