Switzerland has the right to build

Luke Malpass
Insights Newsletter
8 March, 2013

Most New Zealanders probably know little about Switzerland. Until this week, my own knowledge certainly didn’t extend far beyond cheese, watches, and knives.

The housing market here is a well of contradictions. On the one hand, Swiss houses are of excellent quality and thus very expensive. On the other hand, until the past five years house prices here have been among the most stable in the world.

The overall homeownership rate is around 40%, up from 20% in the early 1980s. However, in the big cities the ownership rate is around 10%. If you want to live in town you rent; later in life when a quieter life or family beckons, you move outwards.

This makes Switzerland a nation of renters; the average rate of income spent on all housing has remained flat at around 20% for many decades.

The ability of the Swiss housing market to respond to demand shocks is impressive. The latest figures show 48,000 units were completed in Switzerland in 2011; some 75,000 new units were under construction at the end of the third quarter of 2012, according to a new report from Credit Suisse. New Zealand’s current rate is in the 14 – 17,000 units – about a third less by population.

These figures sound very impressive compared to New Zealand’s build rates, and yet, the Swiss are facing a housing shortage. The Swiss economy is chugging along reasonably well compared to the rest of Europe and is attracting some 100,000 immigrants a year – mostly from Germany, France, and Italy. On the basis of population growth and current construction rates, there is still a shortfall in the construction of 20,000 units per year. This shortfall will likely see house prices for ownership continue to rise.

One explanation for some of the high building rates in New Zealand is its ‘right to build’ concept. Provided a building complies with the local plans (size, height, use), permission is quickly obtained and very little can be done legally to stop development.

The planning system in Switzerland is complex and restrictive in many ways, but it has a high level of transparency. Innovating or moving outside the defined plan can be a long and costly process with no guaranteed outcome. But, provided a building fits with the plan, new development or building can be achieved at a low regulatory cost and little fear of 'not-in-my-backyard-ism' or political opportunism.

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