Mr. Schellenbauer, as Chief Economist at Avenir Suisse you have been speaking about the «Trilemma of Swiss land-use planning». What do you mean by that?
The three main objectives of the Swiss land-use planning, namely «slowing down sprawl», «enabling affordable housing», and «supporting economic growth», simply cannot be merged. There is a broad consensus on all three, but there are also multiple tensions between them, and unfortunately politics is not adequately addressing this conflict of objectives. Thus, growth means an increase in income and, associated with that, the rising demand for housing, but the space in Switzerland is limited. If, in order to keep the housing costs low, one accordingly builds on more area, this leads to more urban sprawl. If, on the contrary, one restricts the availability of the land, the high demand leads to higher housing costs due to the limited supply. Conversely, if you wanted low rents and less land use, you would have to forego growth and prosperity. We need to deal more openly with such conflicting goals.

Is there a solution?
Yes, the solution would be basically simple: it means condensation.

«High-density building» is an emotive term for many Swiss people …
Yes, and at the same time it is the magic word of many planners and politicians. There are a lot of successful examples of high-quality condensation measures - attractive site redevelopments, converted industrial wastelands, modern replacement buildings with higher utilisation rates. Nevertheless, in Switzerland we are far away from real density. Comparable city centres in Paris are built two to three times more densely than in the city of Zurich, as the study «Städtische Dichte (Urban Density)» by Avenir Suisse has shown. Another example is, one could accommodate the whole of Switzerland with 8.25 million people in the area of the canton of Zurich and then have a population density like Greater London. And even there one finds many parks and districts with detached houses.

What would be the impacts of concentration?
Less commuter traffic, lower infrastructure costs, higher productivity, more innovation and more nature in the periphery. Urban density has a lot of advantages, but the most important thing is that creativity thrives primarily in urban areas. And innovation is the foundation of prosperity and a good life.

Then how do you explain that in Switzerland too little is condensed, if this has only advantages?
Switzerland is increasingly urbanising, and almost 80% live in cities and their agglomerations. Moreover, land-use planning is a cantonal responsibility - the overall picture has little weight. And the soul of many Swiss people remains rural till today. It is the longing for the rural and the rural idyll that inspires many, even in the core cities. That's why we do not like density. Ultimately, you cannot aim to be a small metropolis and «downtown Switzerland» while at the same time daydream about the house with a garden. Add to that the NIMBY reflex - even advocates of higher density respond in this particular case by: Not in my backyard, please, do not concentrate under my nose; here it is just very inconvenient. Unfortunately, this attitude is common.

How could politics help to solve the rilemma of land-use planning?
First of all, a superordinate land-use planning and building rules make sense also from a liberal point of view. However, the planning and regulations are often too rigid and frequently stand in the way of condensation and a meaningful use of the tight conditions in Switzerland. It needs more freedom for the owners and builders, for example about easing the maximum utilisation and building standards. The incentive to build more densely results consequently from the high land prices.

In a nutshell, your recipe is deregulation. But there is no majority for that.
Moderate value added for zone expansion could help create acceptance if it is used to upgrade the district. We also have to break away from traditional thought patterns. In Japan, for example, permitted uses in a given zone are based on maximum emissions. Anyone who proves he/she does not exceed them may, for example, also build a commercial property in a residential district or vice versa.

What could that mean for Switzerland?
For a long time housing space has been scarcer than office space in Switzerland: flat rents are rising, while office rents are stagnating or falling. But flexible conversions of offices or commercial space into living space are hardly possible in the rigid zone corset. The idea of zoning originated at a time when industry and commerce were noisy and also stank, so living and work were separated spatially. Thus it served to protect the population. Today, it does more harm than good. We have long since become a service and knowledge society. No blast furnaces or factory chimneys smoke anymore.

So you prefer mixed building zones to separate ones?
Yes. If housing space can no longer be built in the cities, population growth will automatically lead to agglomeration and the periphery. People commute from there to work, and cities get increasingly out of hand. The rush hour affects the quality of life. If we condense cities to a reasonable extent, more people can live where they work. Due to shorter working distances they also have more leisure time.

And what do you think about condensing the new building quarter in the wealthy suburbs?
The largest concentration potentials lie dormant in the agglomeration. One needs to develop strategies to transform the inner agglomeration belts of a city. An interesting laboratory for this is, for instance, the Limmattal. Instead of the usual maximum coefficients of utilisation today, the municipalities or the cantons in the central zones (e.g. around public transport hubs) could prescribe minimum coefficients of utilisation. That would be a radical game-changer.

There are efforts to stem commuter traffic. The home office is being propagated from all sides.
This example shows the consequences of a questionable rule. According to zone regulations, jobs must not be created in residential areas, so people commute, with the well-known traffic jams on the street as well as in public transport. Now home office is propagated to break the traffic peaks. This moves the workplace directly into your own home. One wonders if it would not be better to allow offices in residential areas. By the way, a home office has plenty of advantages. The cultivation of a corporate culture requires the personal interaction of the employees.

A large part of building investments are not made by the public sector, but by institutional investors, real estate companies and private individuals. What could be their contribution to a positive spatial development?
Private actors should muster the courage to innovate and generate creative concepts that meet the changing needs. Recently, I gave a speech on occasion of the laying of the foundation stone of the Swiss Prime Site project «Yond» in Zurich. I pointed out that this project development embodies a radically new idea of the office. A user rents a room, not space. He/she can then design and manage it the way he/she needs it in a highly flexible way, and without high adaptation costs one can install a mezzanine floor or play with creative elements (e.g. a small auditorium). This is very much in keeping with the current demand for flexibility that the generation of millennials has as start-up entrepreneurs.

Flexibility is not exactly the strength of classic real estate, property is immobile.
It need not be that way. Even today, Switzerland is still building rather conventionally and is focussed on long durability: solid, stable hardware. But is that a concept for the future? The millennials want to live more flexibly and creatively than the standard product «4½ room flat» allows for. At a time they need a lot of space, then again only a bed to sleep, to do which they rent a place in another city. Housing requirements will radically change with the new digital forms of work. Anyone who takes on the pioneering role here gains enormous market opportunities. But many rules are contrary to that. The building laws must also adapt to the digital age.

Flexibility, also for tenants?
Of course, Switzerland is still a country of tenants. The majority does not live in their own homes. But there have been undesirable developments for some time now.

What do you mean by that?
Rents account for almost 20% of our social product, which alone shows its great significance. I consider the current rental law to be one of the most damaging regulations in Switzerland. According to the basic idea of the law, rents should be based on historical land prices and construction costs, but the rising demand for housing space should not play a role. As a substitute for the levered out market, the development of rents has been linked to interest rates by law.

But that makes sense, because lower interest rates mean lower costs for the landlord/landlady.
But the housing stock does not change in the short term with the interest rate. The fixed interest rate follows no economic logic, but a legal one. As it gives false incentives, it leads to huge losses in the well-being of all of us, and it is not «fair» either. Capping the rents inevitably ends in rationing. What once used to be food stamps are today the occupancy rules in social housing.

But if demand alone would determine the level of rents, would they not be much higher?
No, on the contrary, the rents would be lower than the new rents today, because the housing stock would be better used and the range of housing space expanded. What we see today is a classic insider outsider phenomenon. If you rent a flat, you benefit from declining rents because of falling interest rates, although living space has become scarcer. Therefore, no one terminates a long-term lease on a coveted location (especially in the cities) if they do not have to. Meanwhile, the small portion of vacant flats encounters a strong demand from newcomers. This leads to overshooting rents in the free part of the market.

What is the problem with that?
The wedge between the insiders (resident old tenants) and the outsiders (newcomers, mobile households, young families) is getting increasingly bigger. But that is «only» the injustice. The «cake of prosperity» as a whole shrinks as well, among other things, because the mobility sinks. Many tenants live in dwellings that are no longer suitable because the move to another flat is punished. That some people sublet their flats through Airbnb is one of the visible symptoms of this condition.

Then how could the housing market be improved?
We suggest a market with rental periods of different lengths, analogous to the market for fixed-rate mortgages with different maturities. So there would be a price for 2-year leases, for 5-year-leases, etc. During the term, the rent would be fixed or staggered. This protects tenants from malpractice. In this way, a functioning housing market could emerge without the described negative phenomena, for the benefit of all.

How would landlords/landladies benefit?
At the moment the old tenants earn a pension in the economic sense, although they are not the owners of the used property. Many behave and feel like owners, as the Airbnb example shows. The Homo oeconomicus rears his/her head.

So you are in favour of deregulation?
We are not in favour of a complete deregulation, but there are much better models to arrange the housing market while protecting the tenants at the same time. A deregulation of the housing market is definitely needed, with more market elements.