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SERC/Urban and Spatial Programme Discussion Paper
The Housing Market Impacts of Constraining Second Home Investments
Christian A. L. Hilber and Olivier Schöni
August 2016
Paper No' SERCDP0204:
Full Paper (pdf)

JEL Classification: D63; G12; R11; R21; R31; R52

Tags: second homes; wealth inequality; land use regulation; house prices; homeownership; real estate investments

We investigate how political backlash against wealthy second home investors in high-amenity places – tourist areas or superstar cities – affects local residents. We develop a general equilibrium model and exploit a quasi-natural experiment –the ‘Swiss Second Home Initiative’ (SHI) –to test the key predictions of the model. Consistent with theory, we find that the SHI, which banned the construction of new second homes in desirable tourist locations, lowered transaction prices of primary homes in affected areas by around 12 percent but did not adversely affect prices of second homes. Our findings suggest that the negative effect on local economies dominated positive amenity-preservation effects. We conclude that constraining second home investments may reinforce rather than reduce wealth inequality.