Switzerland
Land value capture in Switzerland
Few land value capture instruments are used in the country (Table 2.53). The law stipulates the government must compensate landowners for major disadvantages resulting from regional and local planning decisions, whereas landowners must compensate the government in the event of major advantages. In cases of rezoning or determination of special zones, municipalities apply charges for development rights. Strategic land management is conducted by some municipalities, most famous being Basle and Biel/Bienne. Land value capture instruments such as developer obligations, infrastructure levy and land readjustment are not currently used in a systematic manner for the purpose of capturing land gains.
Enabling framework
Switzerland is a federal state with 26 cantons (regional level governments) and 2 212 municipalities (OECD/UCLG, 2019, p. 427[1]). The federal government defines guiding principles for land use planning and co-ordinates land use policies (OECD, 2017, p. 203[2]). Cantons are responsible for spatial planning.
Municipalities prepare Land Use Zoning Plans for the city and issue building permits. For special areas or larger projects that need additional regulation, they prepare Special Land Use Plans, which override the city-wide zoning plans. Special Land Use Plans have been primarily used for urban development in unbuilt industrial zones and for large infrastructure projects.
Planning decisions under the Spatial Planning Act that result in major advantages for private landowners must be compensated to the government according to the principle of compensation, in place since 1980. In 2014, national framework regulations determined that the land value gains from permanently assigning land to a building zone must be compensated at a rate of at least 20 per cent (art 5 §1bis SPA). Cantonal legislators have the discretion to define a higher rate, usually up to 50 per cent, or to set more cases to be compensated, e.g. upzoning.
Both national and local governments create the legal framework for land value capture.
Charges for development rights
There are two types of mandatory charges for development rights in the country, according to the Spatial Planning Act. The first type is a charge to be paid in cash upon rezoning decisions that allow for higher density. The second type, which is less common, consists of the in-kind provision of public improvements. In all, municipalities frequently apply these charges and collect the revenues. The use of each type of charge depends on the local context.
If paid in cash, the charge must equal to at least 20% of the land value gains. In practice, municipalities set the fee between 20 and 30%, and the maximum that has been practiced is 50%. Developers rarely appeal the charge.
If paid in-kind, the charge is negotiated between the municipality and developers of large-scale projects within special zones. The contribution may constitute of public infrastructure, transportation lines, neighbourhood facilities and affordable housing units. Affordable housing units must be built on-site and be comparable to market-rate units in terms of size, design standards and amenities. The share of units to be rented or sold at affordable prices varies by planning zone. The units have to remain affordable as long as the project exists. Beneficiaries are households that spend more than 30% of their income on living and are eligible for social welfare programmes provided by municipalities.
In both charge types, the development right is charged in a delimited zone and cannot be transferred to another municipality. The charge is due upon project completion, but payment could be deferred until the sale of land. If the developer is a public authority or if the added value is minor, municipalities may make payment exemptions.
Funds collected are earmarked for "planning-related measures", which may include the provision of public space, roads and parking, affordable housing, public utilities and other measures (art. 5 § 1ter SPA). The funds are legally bound to the entity that collects the revenues. There are a few exceptions to this rule, for instance, in the case of Basle where funds have been invested in intercantonal and even cross-border projects in the tri-national region with France and Germany.
The main challenge to implementation is the low demand for building at higher densities in most cities. Owing to their small size, municipalities often lack the administrative capacity to create and impose the charges. Some cantonal regulations are unclear and inadequate.
Strategic land management
The national, regional and local governments can acquire and retain zoned land in advance of needs, for the purposes of urban renewal, control of urban growth patterns, control of land price inflation and capture of capital gains. They adopt strategic land management only moderately.
The government purchases vacant or underused land or land zoned as industrial at market price. They may also receive land from another level of government or governmental agency.
After being rezoned, the acquired land is sold at market price to the highest bidder, leased or transferred to another public entity. The government recovers investments through the sale or leasing of plots.
Public land is leased to facilitate urban growth and to provide land for development with public purposes. The public entity who decides which public land to lease and set the ground rents is the same that owns the land. The ground rent typically amounts to 3% of the land value.
The typical lease length is 50 or 100 years. The contracts are usually renewed and readjusted 10 years before expiry. Exemptions or discounts to payment may be granted to non-profit entities or to projects with public purposes, such as affordable and social housing, neighbourhood revitalization or construction of public facilities.
Strategic land management is rarely used, given the overall perception that the government should not interfere in private land markets. Moreover, owing to their small size, municipalities lack the administrative capacity to manage land in a strategic manner. Governments hold little urban land, and leaseholders consider the ground rents to be expensive.
References
[3] OECD (2022), “Subnational government structure and finance”, OECD Regional Statistics (database), https://doi.org/10.1787/05fb4b56-en (accessed on 13 January 2022).
[8] OECD (2021), “Subnational government structure and finance”, OECD Regional Statistics (database), https://doi.org/10.1787/05fb4b56-en (accessed on 25 November 2021).
[2] OECD (2017), Land-use Planning Systems in the OECD: Country Fact Sheets, OECD Regional Development Studies, OECD Publishing, Paris, https://doi.org/10.1787/9789264268579-en.
[1] OECD/UCLG (2019), 2019 Report of the World Observatory on Subnational Government Finance and Investment - Country Profiles, OECD/UCLG.