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|Title||An Analysis of Price Development in the Real Estate Market in Switzerland|
|Other Titles||The Effect of the Agreement of Free Movement of Persons (FMP) on Real Estate Prices|
|Institution||University of Zurich|
|Faculty||Faculty of Economics, Business Administration and Information Technology|
|Zusammenfassung||Not only do significant changes in real estate markets influence our living and individual wealth, it bears a constant risk for whole economies since the value of real estate (housing and commercial real estate) is the largest part of most nations’ stock of wealth (Lambiri & Rovolis, 2014). The market consists of three segments: residential, commercial and public property. The residential market that is in focus in this thesis, accounts for roughly half of the real estate market in Switzerland and showed the most severe price changes across all markets in the last decades. Three important sub segments can be identified: rental apartments (40.8%), single-family houses (32.0%), and owner-occupied apartments (condominiums) (27.2%). (Berlemann & Freese, 2013, p. 473) Especially with recent international crises, an increase of interest in real estate mechanisms and dynamics can be determined on many levels. Nevertheless, since it is such a broad field, it presents various interesting research opportunities that are not (fully) explored yet. Additionally, real estate markets are highly influenced by regional specialties. Even on a national level only limited homogenous housing markets exist, yet, these differences are smaller than across countries. (Kasparova & White, 2001, p. 387) Thus, empirical research for one region or area might present coherent results, but then again are not generalizable. Only limited academical research was published focusing solely on Swiss real estate markets. Consequently, the author tries to fill this gap and concentrates on factors influencing residential real estate prices in Switzerland. The study is set out to explore the influences on residential real estate prices in Switzerland with a special focus on two economic centers – Zurich and Geneva. The dataset used in this thesis is a novel combination of statistical data retrieved from the national and cantonal statistical offices, the Swiss National Bank (SNB), the Eurostat database and Wüest & Partner. In a first step, an identification model is built where the identified factors are tested for the time from 1980-2013. A simple model is introduced testing for several macroeconomic factors. Since the international macroeconomic models and factors for the whole economy can also be applied for Switzerland, the author bases his analyses on factors that were found significant in national and international studies. Interest respectively mortgage rates, the development of the population in an area, vacancy rates (derived from the total number of buildings, newly built apartments, number of households, etc.) and variables representing the state of the economy are all included in the framework. The model can thereby be used as a roadmap to understand basic macroeconomic impacts on residential real estate prices in Switzerland. In a second step, the main hypothesis of the thesis is empirically tested with help of difference-in-differences approaches. The hypothesis asks if there is an effect on real estate prices in economic centers in Switzerland resulting from the agreement of Free Movement of Persons (FMP) with the European Union in 20021 (Freizügigkeits Abkommen mit der Eidgenossenschaft SR 0.142.112.681, 2013). The idea is that since the FMP-agreement provides exogenous variation (as it further unseals the labor market to foreign workers), immigration is expected to increase, demand for real estate would grow, and therefore prices would increase as a result. The different regions’ and sub-markets’ results showed different problems regarding the significance of variables and expectations regarding the influence on prices. Furthermore, it is difficult to detect a pattern throughout all regions and sub-markets. Yet, this supports the assumption of real estate markets being very region specific and sub-markets having their own dynamics. Especially no homogenous significant influence regarding the development of the population is detectable, that would have had an effect on residential real estate prices in all markets or regions over time. Furthermore, the other variables present mix-results not allowing for a conclusive statement. However, it was apparent that the rental-apartments show very different results within the regions, but also compared to the homeownership markets (owner-occupied apartments and single-family homes). Further, Geneva and Zurich does not show strong communalities across the regions. However, within the regions there is a slight pattern between the two homeownership markets. The difference-in-differences analyses do not confirm that the FMP-agreement had an explicit effect (treatment effect) on residential real estate prices that can be incontrovertibly attributed to the agreement. Neither could be found that prices are affected by an increasing population mainly stemming from migration. Yet, some macroeconomic factors are influential and it is plausible to assume that prices were affected in some extent as shown in the absolute value DID-approach, where several explanation and price drivers were disclosed. Additionally, it has to be assumed that rational and irrational expectations and the lack of other investment options during some periods had an influence on residential prices. The author suggests conducting further analyses to strengthen the results. Furthermore, the author proposes to use different estimation techniques due to assumptions and restrictions implied by the methods in this thesis. Nevertheless, the author is confident that a sound picture of the past decades in residential real estate markets in Switzerland is presented and the findings prepare grounds for further relevant and interesting research in that and adjoining fields.|