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OECD Economic Surveys: Switzerland 2015

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This 2015 OECD Economic Survey of Switzerland examines recent economic developments, policies and prospects. The special chapters cover: Policies to tame the housing cycle and Raising public spending efficiency.

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Policies to tame the housing cycle

Since 2000, real estate prices in Switzerland have risen rapidly. By some measures, between 2000 and 2014 apartment prices almost doubled, while those of single-family homes increased by around 60%. Price rises have varied considerably across cantons. Transactions activity in the sector has been robust, with growth in mortgage volumes strongly outpacing disposable income. As a consequence, Switzerland’s residential mortgage debt-to-GDP ratio, at 120%, is the highest in the OECD. This is despite a private ownership rate of only around 40%, one of the lowest in the OECD. Banks’ exposure to the mortgage market is the sixth highest in the OECD, with mortgages making up over 80% of domestic (non-interbank) bank loans. That said, high house prices are being supported by very low interest rates, immigration-fuelled population growth and smaller family units, while demand is being bolstered by mortgage interest tax deductibility and institutional investors. Restrictive planning regulations have also damped the supply response. These factors have contributed to low rental yields, although high compared to other assets and very low vacancy rates. A number of measures have been taken by banks and authorities over the past three years to shore up banks’ exposure and to take the heat out of the market. These include a minimum down payment of 10% of the collateral value of the property from the borrower’s own funds, which may not be obtained by pledging or early withdrawal of second-pillar pension assets, and compulsory amortisation of loans. A counter-cyclical buffer (CCB) was activated at the beginning of 2013 and obliges banks to hold additional common equity Tier 1 capital based on their risk-weighted mortgage positions secured by residential real estate in Switzerland. In January 2014, the CCB was increased from 1% to 2%. Despite these measures, house prices remain high and the risk to the banking sector elevated.

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