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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. This Working Paper relates to the 2015 OECD Economic Review of Switzerland

Economics --- Switzerland

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Switzerland --- History.

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Despite having low government spending, Switzerland scores highly in various public policy outcomes, including health, education and transportation. But, as the population grows and ages, efficiency of public spending will have to rise to maintain low tax rates. Given its high returns, the provision of early childhood education and care should be boosted, especially for children from disadvantaged socio-economic backgrounds, including those from immigrant families. Cantons should avoid oversupplying baccalaureates, thereby lowering university dropout rates. Policies will also need to adapt to structural changes in the labour market, by boosting the supply and attractiveness of fields of study that are facing high demand on the labour market, and by further clarifying study streams across tertiary education. Health-care efficiency could be raised by further developing managed-care networks. Enforcing systematic data collection for the quality of care would also help patients and providers make better informed choices. Generic drugs’ prices are too high due to a poorly designed price-fixing mechanism. Transportation suffers from congestion that could be reduced by implementing peak-load pricing on roads and trains. But efficiency in public spending is also about allocating public funds optimally. Switzerland’s rapidly rising social security entitlements and its fiscal equalisation system constrain public spending and risk crowding out important expenditures. Fast-rising social security entitlements could be addressed via indexing the retirement age to life expectancy. Fiscal equalisation weakens tax-raising incentives for some cantons; this could be addressed by allowing them to keep a larger part of their increased revenues. Efficiency in allocating public expenditure could also be raised by increasing the share of public spending allocated by tender and harmonising procurement regulations across all levels of government. This Working Paper relates to the 2015 OECD Economic Review of Switzerland

Education --- Economics --- Switzerland

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Nidwalden (Switzerland) --- History.

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Antiquities --- Coin hoards --- Switzerland