Why Do the Swiss Rent?
48 Pages Posted: 22 Feb 2007
Date Written: December 27, 2006
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.
Keywords: Home ownership, Switzerland
JEL Classification: R21, R31
Suggested Citation: Suggested Citation