Housing Policies in the United Kingdom, Switzerland, and the United States: Lessons Learned

41 Pages Posted: 11 May 2016

See all articles by Christian A. L. Hilber

Christian A. L. Hilber

London School of Economics (LSE) - Department of Geography and Environment; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP); Spatial Economics Research Centre (SERC)

Olivier Schöni

University of Bern

Date Written: May 11, 2016

Abstract

We provide an analysis of the housing market and current housing policies in three developed countries: the United Kingdom (UK), Switzerland, and the United States (US). We focus on these three countries mainly due to the marked differences in their institutional settings. The UK is characterized by fiscal centralization and an extraordinarily rigid planning system. The consequences of this setting, which make housing supply extremely unresponsive to changes in house prices, are a high degree of urban containment, a severe housing affordability crisis, and a housing shortage, particularly for the young. The key UK policy, Help-to-Buy, which focuses on stimulating housing demand, fails to address the affordability crisis, because increasing demand only pushes up house prices further without expanding housing supply. Fiscal decentralization and a lax zoning system, both encouraging residential development and an extraordinarily low homeownership rate explain why Switzerland’s main political concerns are sprawl and rent stabilization. The country’s key policies aim to tackle these two concerns but they themselves have some important unintended consequences. The US is characterized by fiscal federalism and an enormous variation in the tightness of land use restrictiveness across metropolitan areas. The key policy concern across the country is homeownership attainment and the key policy to tackle this issue is the Mortgage Interest Deduction (MID). This policy backfires in prosperous and tightly land use regulated metropolitan areas — “superstar cities” — because in these places the policy-induced demand increase mainly pushes up house prices. The MID only increases homeownership attainment of higher-income households in metropolitan areas with lax land use regulation. The net effect of the policy on homeownership attainment across the country is essentially zero. We conclude that the assessment of housing policies crucially depends on the fiscal and regulatory environment in local housing markets. Policies that stimulate housing demand such as the MID or Help-to-Buy are doomed to fail in markets with tight regulation or otherwise tight supply.

Keywords: Housing policy, Help-to-Buy, housing affordability, fiscal decentralization, urban containment

JEL Classification: H2, H31, H7, R21, R28, R31, R38, R51, R52

Suggested Citation

Hilber, Christian A. L. and Schöni, Olivier, Housing Policies in the United Kingdom, Switzerland, and the United States: Lessons Learned (May 11, 2016). ADBI Working Paper 569, Available at SSRN: https://ssrn.com/abstract=2778463 or http://dx.doi.org/10.2139/ssrn.2778463

Christian A. L. Hilber (Contact Author)

London School of Economics (LSE) - Department of Geography and Environment ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Spatial Economics Research Centre (SERC) ( email )

United Kingdom

Olivier Schöni

University of Bern ( email )

Gesellschaftsstrasse 49
Bern, BERN 3001
Switzerland

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
182
Abstract Views
1,110
rank
210,589
PlumX Metrics