Homeownership: the real causes of an unprecedented crisis.

Housing. A basic need that is struggling to be met in France in 2023. And the situation is not about to improve. The sector faced several years ago growing constraints: environmental regulations, high land costs, rent regulation... Rising interest rates have changed the situation for buyers, sellers and tenants alike. Our explanations and ways out of the impasse in this six-part special feature.

July20, 2022 real estate professionals shudder.

Stood in front of a loophole bearing the logo of the European Central Bank (ECB), Christine Lagarde promptly announced a 50 basis point increase in the ECB's three refinancing rates - the first time in''Ten years - to combat rising inflation. And will be followed by another nine rises within fifteen months.

After years of jubilation, the real estate market has suddenly run into difficulties. Loans made by banks to the Office of Financial Supervision were denied to borrowers. Mortgage interest rates, which had been hovering around 1 percent between 2021 and 2022, rose next year, reaching 4.30 percent at some institutions last October. "Money used to be practically free," recalls Yann Genno, president of the agency network Laforêt. With immediate consequences. "This restriction has seriously deterred the possibility of purchase for many people, especially first-time buyers who have not been able to save their own''funds or had no luck in obtaining a family loan or donation,' says Edouard Grimon, spokesman for the Supreme Notary Council.

The volume of mortgages granted has fallen by 40% in a year. This problem is not limited to large agglomerations, it covers the whole territory. Only vacation destinations, where secondary homes make up the majority of housing, are still showing a positive trend. "But the myth of the Parisian who arrives with pockets full of gold coins has been debunked", asserts Guillaume Martineau, president of the cooperative company Orpi.

For the sector's representatives, this is a serious blow. Everyone carefully avoids talking about the crisis in the real estate market, preferring to talk about the housing crisis. "The French'. 'still want to take ownership', assures Yann Genno. Guillaume Martineau agrees: "The crisis is not a sign of their disinterest. We are surprised by the number of offers accepted ... and the number of offers that then struggle to be successfully finalized". In hopes of offloading the market, most industry participants are in favor of relaxing the mortgage loan rules set forth in 2019 by the High Stability Financial Council (HCSF).

This institution has set the maximum borrowing burden for households at 35% and capped the loan term at 25 years. However, it allows banks to reject these rules in 20% of cases. "No one can consider that the HCSF rules make sense in 2023.

The wrong problem, objects at the Bank of France, Governor François Villeroy de Gallo, is particularly adamant about a possible relaxation that could revive inflation. "It is very surprising that so much attention is being paid to the HCSF. There is very little discussion of its essential role, which is to prevent systemic risks. The rules put in place are healthy and relaxing them could put households at risk''over-scheduling,' says economist Helen Ray, a member of the HCSF.

The organization also says banks are not making "100%" enough use of the opportunities presented for waivers. And while everyone is throwing the ball to each other, some households, believing themselves solvent, are applying for loans... without knowing whether the bank has already reached its rejection quotas. "The government says it understands the crisis, but the governor of the Bank of France is independent. We are again playing out the same scene as with the interest rate cap", complains Béranger Dubuis. Michel Mouillard, in charge of the Credit and Housing Supervisory Board, points to other problems: the personal contribution required to obtain a loan. "Since 2019, it has increased by 50%,'''says the economist. 'Few families have been able to expand their savings in this way'.

For those buyers who have been able to get a loan, conditions have also changed. "They're getting a smaller loan than they expected in most cases and as a result are turning to neighborhoods where prices are a little bit lower," says Michelle Muillard. If they continue to stick to their original geographical choice, the loss of area is quite large: for an average loan of 200,000 to 300,000 euros, the increase in interest rates over the year is 20% less area. "What buyers invested in price yesterday, they are investing in interest payments: this confuses the market a lot," says Philippe de Linieville, CEO of Bien'\''ici, an online real estate listing platform. In addition, in 2023''year, average salaries have barely changed, and some families are having to make choices and put their projects on hold.

In this tunnel of bad news, there are still some signs of hope peeking through. "The Bank of France is forecasting that nominal wages will rise faster than consumer prices over the next two years, which is helping to restore purchasing power in real estate," says Agnès Benassi-Kéré, deputy governor of the Bank of France. Another bright spot is the extension of the zero interest rate program until 2027, for which six million people are now eligible. Next year, 40,000 buyers will be able to use this program. All of this is positive for the industry, which''Now waiting for the ECB to cut interest rates. But even here patience will be needed. It won't happen until next summer at the earliest. As before...