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"Housing Affordability and Spatial Planning: Switzerland versus UK"
Christian Hilber has been appointed as a part-time (20%) Full Professor of Real Estate Finance and Economics at our department. He holds a doctorate from the University of Basel (1998) and completed postdoctoral work at the Wharton School. Since 2003, Hilber has been at the London School of Economics (LSE), where he is currently a Professor of Economic Geography and Deputy Head of his department. He is also an Associate of the Centre for Economic Performance.
On Monday, 16 September 2024, the Department of Finance hosted Professor Christian Hilber's Inaugural Lecture, addressing the timely topic: "Housing Affordability and Spatial Planning: A Comparative Analysis of Switzerland and the United Kingdom."
Professor Harald Gall, Dean of the Faculty of Business, Economics, and Informatics, introduced Professor Hilber, highlighting his extensive international experience and expertise in real estate economics, as well as his significant previous contributions to the University of Zurich in research, teaching, and executive education.
In his lecture, he provided a comparative analysis of housing affordability in Switzerland and the UK, with a particular focus on the effects of country-specific spatial planning and tax policies. He explained that the revision of Switzerland's Spatial Planning Act in 2013 led away from decentralized planning decisions towards more centralized and restrictive planning, while in the UK, various regulatory constraints—including "green belts" surrounding major cities, height restrictions, preservation policies, or protected “view corridors”—and a lack of fiscal incentives to permit development, have severely restricted housing construction, significantly impacting housing affordability.
Christian Hilber noted that Switzerland currently constructs approximately three times as much housing per capita as the UK. However, he cautioned that increasingly restrictive spatial planning policies in Switzerland could potentially lead to similar challenges in housing affordability.
The lecture concluded with a discussion of potential solutions, including the relaxation of building regulations in central and desirable locations in order to enable urban densification and to create housing that is both economically and environmentally sustainable.
For those interested in viewing the full Inaugural Lecture, a recording is available here.
Thank you very much for the warm welcome. I have always maintained strong connections to Switzerland, its’ institutions and academic life.
Swiss particularities such as fiscal federalism and direct democracy offer great data for research. For example, I studied the economic impacts of the Swiss Second Home Initiative (read paper here).
Since 2006, I have taught the MAS course at UZH’s Center of Urban & Real Estate Management (CUREM), and I have served on the Center’s Executive Board since 2019.
My research is motivated by the desire to understand “the causes of things,” which also happens to be the motto of my other home institution, the London School of Economics (LSE).
In the area of Real Estate, I aim to understand the functioning of housing and land markets within urban settings, how these markets are influenced by policies and regulations, and in turn, what determines these policies and regulations.
What and where we build today determines urban form and urban living for decades, in fact, centuries to come. Urban planning and land use regulation are first-order policy relevant. Land use regulations have the power, in principle, to correct market failures like externalities.
For example, we have shown that in England, tight land use regulation lies at the very heart of the country’s housing affordability crisis. It has substantially increased the cost of office space, local housing vacancy rates, and commute times. Switzerland collects income taxes at the local level with competing municipalities. This system gives strong fiscal incentives to local policymakers (and their residents) to zone large parcels of land at the outskirts of municipalities for residential use.
Research in Real Estate Finance and Economics speaks to so many urban challenges. For example, our research demonstrates the importance of institutional settings: a local tax system with strong fiscal incentives to develop, combined with relatively lax zoning (i.e., the case of Switzerland), leads to sprawl. A development control planning system with few fiscal tax incentives (i.e., the case of Britain) leads to a massive housing affordability problem. These findings provide guidance on how to design planning and tax systems to achieve densification without triggering a massive affordability crisis.
Our research also provides policy advice. By understanding the consequences of existing housing policies, we can learn how to design policies that benefit society. To give a very Swiss example, it would be more sensible to replace the current ban on the construction of second homes in tourist areas with a local annual tax on second homes.
In one ongoing research project, we want to understand the causal long-term effects of housing investment decisions. What we show is that whether you buy or rent, and crucially, where you buy if you buy, has a massive effect on accumulated individual total net wealth. In high-regulation environments, homeowners accumulated 56% more net wealth than renters between 1999 and 2019, explaining 59% of the owner-renter wealth gap. However, in less regulated places, no such gap emerges.
One of our projects in planning - for which we are still seeking funding - focuses on Switzerland. There is a general perception among the Swiss population that the country suffers from urban sprawl, triggering a flood of initiatives and referenda aimed at tackling the problem. The 2013 revision of the Spatial Planning Act marked a move from decentralized to centralized land use planning. Instead of being able to zone additional agricultural land for residential purposes, municipalities now have to do the reverse and rezone land back to agricultural use to meet centralized provisions. In our research project, we aim to exploit the variation in timing and intensity of the implementation of the Act across cantons to explore the economic impacts of this paradigm shift, especially the impact on house prices and rents.
Another project in planning aims to explore to what extent the restrictive British planning system may be responsible for the very slow productivity growth in the country. The working hypothesis is that the restrictive planning system prevents employees from working in the most productive places due to extremely high housing costs in these locations. Restrictive planning may also prevent the optimal allocation of land to its most productive use, hindering structural change towards more productive industries. We aim to employ a structural model to help us quantify the adverse impacts of restrictive land use planning on economic output in Britain.
Real estate is the most important asset for many households. The decisions of whether to buy or rent and where and when to buy are among the most important financial decisions that many households make over their lifetime. Given this, it is surprising how little most people, even students of finance and economics, know about real estate markets.
Students can look forward to gaining a thorough theoretical and empirical understanding of the functioning of real estate markets, with a particular focus on price determination in housing and land markets. We cover topics such as the role of the government in real estate markets, the economic impact of land and housing market regulations (i.e., “land use planning”) on housing market outcomes, estimating supply and demand price elasticities, theoretical explanations of real estate cycles (including “bubbles”) and corresponding empirical evidence, the role of credit conditions, price vs. rent dynamics, commercial vs. residential real estate cycles, determinants and consequences of homeownership, and policy evaluation of mortgage subsidies.
The seminar will be quite applied. Apart from the “input lectures” and discussions, groups of students will work on their projects. Projects will be policy-relevant and focus on Switzerland but with an international outlook. One sample question could be: How can Switzerland most effectively deal with its sprawl problem? Or: How affordable is housing in Switzerland compared to other countries? How has relative affordability changed in recent years? How do systems of land use regulation or property taxation differ across countries?
