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Cityscape: Volume 18 Number 3 | Housing Policies in the United Kingdom, Switzerland, and the United States: Lessons Learned



Volume 18, Number 3

Mark D. Shroder
Michelle P. Matuga

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

Christian A.L. Hilber
Olivier Schöni
London School of Economics

The views expressed in this article are those of the authors and do not necessarily represent the views of the Asian Development Bank Institute.

We provide an analysis of the housing market and current housing policies in three developed countries: the United Kingdom, Switzerland, and the United States. We focus on these three countries mainly because of the marked differences in their institutional settings. The United Kingdom 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 are 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 those same policies have some important unintended consequences. The United States 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 metropolitan areas that are prosperous and where land use is tightly regulated— “superstar cities”—because, in these places, the policy-induced demand increase mainly pushes up house prices. The MID increases homeownership attainment of only 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.

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