Controversial Rent Caps come into Force in Paris
August 1st saw all new or renewed rental leases in the French capital being capped as President François Hollande made good on one of his key 2012 campaign promises for sweeping housing reform.
The rent control regulations will limit rents in Paris to 20% above and 30% below a neighbourhood's average and is based on apartment size, year of construction and location with an additional surcharge for luxury homes.
However, critics say that real estate investors will be deterred from the Parisian market and while the wealthiest tenants stand to benefit from the new rent caps, less wealthy renters are likely to suffer.
Critics Warn New Regulations will Deter Property Investors
Jean-Francois Buet, chairman of FNAIM, France's largest residential property-broker federation said the mechanism is "dangerous because the framework is deterring investors who, faced with the lack of freedom will choose other investments".
There are rising concerns that the regulations will slow renovation works by apartment owners, increase landlord-tenant litigation and create affordability issues for many existing tenants, according to residential property managers Foncia.
When the rent control proposals were published in June this year, Foncia Chairman Francois Davy said: "The most expensive rents will probably drop but still won't be occupied by modest-income earners. An apartment rented for €10,000 per month in a fancy neighbourhood will drop by 30%, while in more working class areas an extremely low rent risks climbing 10% on average".
80,000 Paris Rental Leases affected by New Legislation
Around 80,000 new rental leases are signed in Paris each year with around one in five being subject to capping, according to Observatoire des Loyers de l'Agglomeration Parisienne (OLAP), the association mandated by the government to compile Paris rents. OLAP report that of these a third will drop by less than €50 per month, a third by €50-€100 and the rest by more than €100.
The measure could decrease the rent for around 60,000 dwellings in the capital in the coming years, according to business daily Les Echos. It could also raise rents for around 25,000 homes, the French newspaper added.
However there is strong public support for the new regulations and also from France's main environmental party, Europe Ecologie-Les Verts with spokesperson Sandrine Rousseau commenting: "It's a strong step for social justice as rents have climbed by 42% in the capital over the past 10 years". The party is calling for the rent cap to be extended to all cities that face a 'tight' housing market.
The rent controls are the first major step taken by Francois Hollande to make good on his manifesto promises for national housing reform. The new law seeks to cap rent increases from one lease to the next in the country's largest cities as part of the reforms, known in France by the acronym ALUR.
Rent Reforms Ultimately to be Applied Nationally
Opinion polls in France have shown that 75% of the public supported the price-capping measure with criticism coming unsurprisingly from estate agents and landlords Associations who have denounced the law, vowing to drag officials that wish to implement it into legal battles.
France's National Federation of Real Estate Professionals (FNAIM) said the law constricted the housing market and would dissuade potential buyers from investing, suggesting it could file a suit with France's Council of State. Estate agents in Lille have reportedly blocked efforts to apply the law in the northern French city by withholding housing and rent data from authorities.
Just two French cities apart from Paris are considering establishing rent controls – La Rochelle and Grenoble. "Housing in France is 50% more expensive than in Germany. It is a burden on families and limits their purchasing owner," Grenoble Mayor Eric Piolle told France Inter radio this week.
In many respects rent controls can work well for property investors and are particularly helpful when negotiating a price, because rental incomes are cast in stone making it easier to nail your margins. With a legally established framework preventing unscrupulous landlords from cashing-in on Paris' massive popularity, property prices may well slip back into the realms of affordability sometime soon.
