Housing crisis: collapse of the rental property market in France.

Published by Philip Erlan | February1,2024 |10549.

Here is a crisis that is not making the headlines in the newspapers, unlike the farmers' uprising, where they are using their tractors to block the roads.

We also wish them luck in being heard. But what can those do who can't find rental housing? Perhaps they could turn to real estate agencies?

The fact is that we are facing a real collapse in the number of available rental properties: -74% in Paris over the last three years and -50% in the last year, indicating an acceleration of this trend. This is also mentioned in suburban areas and major French metropolises. The housing crisis is national.

The situation is becoming alarming for many: "In Lyon, 80% of camping spots are occupied by students in January, who are living in tents or mobile homes," says Henri Buzy-Cozot, president of the Institute of Real Estate Management.

Sleeping in a tent in winter... "In 4 hours, I received over 1100 applications (for a two-room apartment of 35 m² on Boulevard de Belleville in Paris for 1145 euros a month)," says the head of the agency in an article in "Figaro."

Although the French real estate market has been struggling for a long time, particularly due to excessive taxation and legislation that favors housing occupancy, the last straw that broke the camel's back was the Energy Performance Diagnostic Certificate (DPE).

Designed to combat "energy bottlenecks," the DPE primarily forces the acceleration of costly work that is not necessarily useful or profitable. Housing with poor DPE ratings is gradually being banned from rental, encouraging most owners to sell rather than invest significant funds in repairs.

Result: the shortage of rental housing is increasing, and paradoxically, prices in the secondary market are falling (this is absurd because in a properly functioning market, investors buy real estate to rent it out, which helps balance prices and demand).

Since January 1, 2023, housing classified as G+ has already been banned from rental. However, the next major deadline is set for January 1, 2025, for G-class housing, the number of which is estimated to be between 500,000 and 800,000 in France.

Of course, by January 1, the tenants will not be evicted, but as they are evicted, their apartments will no longer be available for rent.

The Council for Economic Analysis (CAE), a research center under the Prime Minister, has just given a negative response to this question. The expected benefit from reducing heating costs, according to the proponents of the DPE, is very promising. However, CAE specialists are conducting a field study, requesting heating bills from residents with different DPE ratings to compare them. Here’s the surprise: the actual savings in A or B class homes compared to a G class home is 86%, not 560%! Therefore, the profitability of expensive insulation work is virtually impossible, especially since rental prices are regulated by law and often capped in many major cities.

As we noted in May of last year, the real estate market is becoming increasingly dysfunctional, and this research confirms that. In its current state, investing in rental properties should be avoided, and one needs to be especially cautious with both new and old properties...

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