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The Housing Market Impacts of Constraining Second Home Investments

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  • Christian A. L. Hilber
  • Olivier Schöni

Abstract

We investigate how political backlash against wealthy second home investors in high-amenity places - tourist areas or superstar cities - affects local residents. We develop a general equilibrium model and exploit a quasi-natural experiment -the 'Swiss Second Home Initiative' (SHI) -to test the key predictions of the model. Consistent with theory, we find that the SHI, which banned the construction of new second homes in desirable tourist locations, lowered transaction prices of primary homes in affected areas by around 12 percent but did not adversely affect prices of second homes. Our findings suggest that the negative effect on local economies dominated positive amenity-preservation effects. We conclude that constraining second home investments may reinforce rather than reduce wealth inequality.

Suggested Citation

  • Christian A. L. Hilber & Olivier Schöni, 2016. "The Housing Market Impacts of Constraining Second Home Investments," SERC Discussion Papers 0204, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:sercdp:0204
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    Cited by:

    1. Blouri, Yashar & Ehrlich, Maximilian V., 2020. "On the optimal design of place-based policies: A structural evaluation of EU regional transfers," Journal of International Economics, Elsevier, vol. 125(C).
    2. Somerville, Tsur & Wang, Long & Yang, Yang, 2020. "Using purchase restrictions to cool housing markets: A within-market analysis," Journal of Urban Economics, Elsevier, vol. 115(C).
    3. Daniel Steffen, 2017. "The Effect of a Second Home Construction Ban on Real Estate Prices," Diskussionsschriften credresearchpaper18, Universitaet Bern, Departement Volkswirtschaft - CRED.

    More about this item

    Keywords

    second homes; wealth inequality; land use regulation; house prices; homeownership; real estate investments;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations

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