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Why Do the Swiss Rent?

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  • Steven C. Bourassa

    (University of Louisville, School of Urban and Public Affairs)

  • Martin Hoesli

    (University of Geneva, HEC and Swiss Finance Institute)

Abstract

At 34%, Switzerland has the lowest home ownership rate in Western Europe. This is a puzzle given the economic strength of the country. We use 1998 household survey data for five Swiss cantons to explore some possible reasons for this. We estimate a tenure choice equation that allows us to analyze the impacts of a number of key variables on the ownership rate. We pay particular attention to the relative cost of owning and renting, which is a function of house prices, rents, and the user cost of owning. The latter is a function of income tax policy and expected house price inflation, among other things. We also measure mortgage underwriting criteria and consider rent control and other policies affecting rental housing. By simulating a number of hypothetical changes to taxation and other policies, underwriting criteria, and price levels, we assess the importance of these variables in explaining the ownership rate. We conclude that high house prices—relative to rents and to household incomes and wealth—are by far the most important cause of Switzerland’s low ownership rate.

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Bibliographic Info

Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 07-04.

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Length: 45 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:chf:rpseri:rp0704

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Web page: http://www.SwissFinanceInstitute.ch
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Keywords: Home ownership; Switzerland;

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References

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  1. Donald R. Haurin & Patric H. Hendershott & Susan M. Wachter, 1996. "Borrowing Constraints and the Tenure Choice of Young Households," NBER Working Papers 5630, National Bureau of Economic Research, Inc.
  2. Patric H. Hendershott & Joel Slemrod, 1982. "Taxes and the User Cost of Capital for Owner-Occupied Housing," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 10(4), pages 375-393.
  3. Chiuri, Maria Concetta & Jappelli, Tullio, 2001. "Financial Market Imperfections and Home Ownership: A Comparative Study," CEPR Discussion Papers 2717, C.E.P.R. Discussion Papers.
  4. Peter Linneman & Susan Wachter, 1989. "The Impacts of Borrowing Constraints on Homeownership," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(4), pages 389-402.
  5. Green, Richard K. & Vandell, Kerry D., 1999. "Giving households credit: How changes in the U.S. tax code could promote homeownership," Regional Science and Urban Economics, Elsevier, vol. 29(4), pages 419-444, July.
  6. Edward L. Glaeser & Joseph Gyourko, 2003. "The impact of building restrictions on housing affordability," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 21-39.
  7. Linneman, Peter, 1985. "An economic analysis of the homeownership decision," Journal of Urban Economics, Elsevier, vol. 17(2), pages 230-246, March.
  8. Steven C. Bourassa & Ming Yin, 2006. "Housing Tenure Choice in Australia and the United States: Impacts of Alternative Subsidy Policies," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(2), pages 303-328, 06.
  9. Goodman, Allen C., 1990. "Demographics of individual housing demand," Regional Science and Urban Economics, Elsevier, vol. 20(1), pages 83-102, June.
  10. Philippe Thalmann, 1987. "Explication empirique des loyers lausannois," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 123(I), pages 47-70, March.
  11. Philippe Thalmann, 1999. "Which is the appropriate administrative level to promote home ownership?," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 135(I), pages 3-20, March.
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Cited by:
  1. Berlemann, Michael & Freese, Julia, 2010. "Monetary policy and real estate prices: A disaggregated analysis for Switzerland," HWWI Research Papers 2-19, Hamburg Institute of International Economics (HWWI).
  2. Nicole Aregger & Martin Brown & Enzo Rossi, 2013. "Transaction Taxes, Capital Gains Taxes and House Prices," Working Papers 2013-02, Swiss National Bank.
  3. Bourassa, Steven & Hoesli, Martin & Scognamiglio, Donato, 2010. "Housing finance, prices, and tenure in Switzerland," MPRA Paper 45990, University Library of Munich, Germany.
  4. Renata Bottazzi & Thomas Crossley & Matthew Wakefield, 2012. "House prices and home ownership: a cohort analysis," IFS Working Papers W12/10, Institute for Fiscal Studies.
  5. Renata Bottazzi & Thomas Crossley & Matthew Wakefield, 2012. "Late starters or excluded generations? A cohort analysis of catch up in homeownership in England," Koç University-TUSIAD Economic Research Forum Working Papers 1215, Koc University-TUSIAD Economic Research Forum.
  6. Costello, Greg & Fraser, Patricia & Groenewold, Nicolaas, 2011. "House prices, non-fundamental components and interstate spillovers: The Australian experience," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 653-669, March.
  7. Karol Jan Borowiecki, 2009. "The Determinants of House Prices and Construction: An Empirical Investigation of the Swiss Housing Economy," International Real Estate Review, Asian Real Estate Society, vol. 12(3), pages 193-220.
  8. Karol Jan Borowiecki, 2012. "Dynamics of a Protected Housing Market: The Case of Switzerland," Urban Studies, Urban Studies Journal Limited, vol. 49(14), pages 3195-3210, November.

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