Productivity and long term growth

Economic Survey of Switzerland 2009: Lowering the high cost of housing and construction

 

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The following OECD assessment and recommendations summarise chapter 4 of the Economic Survey of Switzerland published on 15 January 2010.

 

Contents

 

Lowering the high cost of housing would raise economic welfare considerably

Among the mostly non-tradable services, the gap in prices of housing services relative to those in other OECD countries is particularly large. The negative impact on welfare is significant, as households spend almost 25% of their disposable income on housing services. Supply has responded little to demographic pressures on demand in recent years, particularly in some regions, which have led to large increases in rents for new housing. The heterogeneity of regulations and building laws set by cantons and local governments limit competition in the construction industry. These regulations should be harmonised. To reduce differences in technical standards set by cantons and local governments, private parties could be given the right to take legal action against the refusal of construction permit applications on the basis of the Internal Market Act.


Comparative dollar price levels in housing services
EU27=100

 

Note:  Comparative price levels are defined as the ratios of purchasing power parities to exchange rates. They indicate for a given aggregate the number of units of the common currency needed to buy the same volume of the aggregate in each country. Housing services includes data on rents and water, electricity and other fuel and maintenance charges.
Source: OECD Eurostat PPP Database.

 

Changes in rents for incumbent tenants are mostly indexed to changes in nominal interest rates, which may prevent rents from rising in line with inflation or reflecting supply and demand pressures. Even upon a change of tenants, restrictions on changing rents still apply. These regulations risk distorting the price of old housing relative to new housing, privileging settled tenants compared to more mobile population groups and likely distorts incentives to invest into maintenance of existing houses. Restrictions on the setting of a new rental price when a new tenant moves into a dwelling should be removed. In the longer term, adjustment to market prices should be achieved for all rental properties.


Density of residential building in suburban areas appears to be low. Municipalities face incentives to attract rich households, resulting from tax competition and funding responsibilities of social services for low and middle income households. A relatively small share of municipalities’ tax revenues consists of taxation of capital gains on residential property transactions and real estate taxes, weakening incentives to develop land for dense residential development. Cantons should ensure that demographic determinants of demand for social services are fully taken into account in intergovernmental transfers for municipalities. With a view to raising the supply of affordable housing, municipalities’ incentives to develop buildable land should be strengthened, for example, by further raising the weight of real estate tax revenues in municipalities’ budgets. Such changes in the structure of tax revenues would also shift the Swiss tax system towards a less growth-impeding structure.

 

How to obtain this publication

 

The complete edition of the Economic Survey of Switzerland is available from:

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations. 

 

Additional information

For further information please contact the Switzerland Desk at the OECD Economics Department at eco.survey@oecd.org.

The OECD Secretariat’s draft report was prepared by Andrés Fuentes, Charles Pigott and Eduardo Camero under the supervision of Pierre Beynet. Statistical assistance was provided by Patrizio Sicari. The survey also benefited from external consultancy work.

 

 

 

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