Rent control Europe: France

Population: 66,689,000
GDP: $2,829,192,039,172
Avg. Weekly Earnings: €1,128.44
Avg. Apartment Price (Per. Sq. M.): €13,639.00
For 120-sq. m. apartment in city centre (Paris)
Avg. Monthly Rent: €848.59

France boasts the second largest economy in the European Union, and alongside their German counterparts, are responsible for a major portion of the fiscal policy introduced by the Eurozone nations. French legislation is also among the most pro-tenant in the world, and this is coupled with the policies introduced by Francois Hollande, the French Socialist President, which target the wealthy.

Currently, France is faced with housing shortages of record proportions; despite government subsidies and tax cuts incentivising construction of rental properties, household investment is at its lowest point since mid-1999. This lack of investment puts additional stress on companies and consumers to create growth, and spur the recovery forward. Paris in particular is a popular destination for foreign investors, which has caused local legislation intended to curtail this absentee ownership. These housing regulations have made the situation worse, with additional restrictions on rents decreasing investor interest in the area.

There also exists considerable tension between investors and policy-makers regarding tenancy duration. French officials prefer long-term tenancy contracts, due to the impact this would have on deflating the housing shortage and bringing rental prices down to a more manageable level. The issue, of course, is that renting for much shorter durations, such as week-by-week, would bring about nearly triple the rental revenue of a year-long or longer tenancy.

Furthermore, long-term tenancies are, perhaps counter-intuitively, more difficult to manage than numerous short-term tenancies. This is due to the restrictions placed upon landlords and powers granted to tenants, many of which make it difficult to repossess property from tenants if they don’t pay or create problems for other tenants.

Tenants are able to terminate the tenancy during the contract with three months’ notice, but the landlord does not retain the same right. Instead, landlords are only able to reclaim the property if they (or a family member) intend to use the dwelling as a primary residence, intend to sell, or the tenant has not fulfilled the obligations of their tenancy, such as paying rent, acquiring home insurance, etc.

While initial rents are freely agreed upon by lessor and lessee, this rent is restricted to a single revision per year, and only in contracts where this power is explicitly granted to the lessor. The increase, when calculated, may not exceed the yearly average of the INSEE index of construction costs, even if an index clause increase would normally.

If, at the end of a contract, the landlord aims to raise the rent, he must demonstrate that the current rent of the property is below market value by providing nine similar properties (surface area, decoration, age, rental amount) with markedly higher rental rates. In the increase resulting from this research is greater than 10%, it must be expensed over the following six years, even in the case of shorter fixed contracts.

In 2015, new rent controls took effect in France’s largest urban centres, concerning all new residential leases and any renewals. The intention of the law was to cap rent increases from lease to lease, to combat the large inflation of home rents in Paris, where prices have risen by 42% in the past decade. The National Federation of Estate Professionals stated that the law will cause the rental housing market to decline even further, putting off buy-to-let investors, and further contributing to the housing shortages felt in much of France.

Demand is currently massively outpacing supply, and housing construction is similarly down, declining by 17.6% in Q2 2014, and a further 0.21% in Q3 2015. Despite this demand, the long term of many tenancies and the restrictions imposed by the rent control legislation prevent rental rates equalising to market levels. Gross rental yields in Paris, in particular, are currently poor, estimated at 3.1% to 3.6%. Furthermore, housing prices declined for the thirteenth consecutive quarter, falling by an inflation-adjusted 2.96% by Q2 2015.

French policy from 2005 intending to foster long-term tenancy was largely unsuccessful. However, the Loi Pinel attempts to guarantee affordable housing, even in locales such as Paris, where fully market-determined rents may make that impossible. To do so, the legislation caps agent fees and prevents hiding rental lists behind a paywall, as well as limiting the number of documents needed to enter into a tenancy contract dramatically.

The aforementioned rent caps in high demand areas like Paris will place a hard cap on rents at 20% per square metre above the median rent of that neighbourhood, assessed annually. As discussed, any current rental agreements above this limit will be brought down to the measure when renewed. There is, however, the fear that these restrictions will encourage landlords to “sell up,” and the median rent, by removing supply, will steadily increase.

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