Nationwide house prices continue to rise, but the story is different in the city centres. In recent years, many Parisians are moving to quieter, less crowded suburbs, which offer cheaper but more spacious residential properties.
In Metropolitan France, the price index of second-hand dwellings rose by 6.44% (0.6% inflation-adjusted) during the year to Q3 2022, following y-o-y growth of 6.88% in Q2 2022, 7.34% in Q1 2022, 6.93% in Q4 2021 and 7.43% in Q3 2021, according to the National Institute for Statistical and Economic Studies (INSEE).
Quarter-on-quarter, house prices rose by 1.4% (0.3% inflation-adjusted) in Q3 2022.
France’s house price annual change
However, house prices have been either falling or rising meagerly in the centre. During the year to Q3 2022:
- In Île-de-France, the country’s wealthiest and most populated region, the average apartment price rose by a meagre 0.3% y-o-y to €6,860 (US$ 7,373) per sq. m., according to the La Chambre des Notaires de Paris.
- In the Petite Couronne, the average price of apartments rose slightly by 0.9% y-o-y to €5,570 (US$ 5,988) per sq. m.
- In the Grande Couronne, the average price of apartments increased 2.9% y-o-y to €3,500 (US$ 3,763) per sq. m.
- In Hauts-de-Seine, one of the country’s most populous departments, apartment prices increased by a minuscule 0.4% y-o-y to €6,770 (US$ 7,277) per sq. m.
In Paris, house prices even declined slightly – it seems the capital’s high cost of living is prompting some rural relocations. The average price of existing apartments in the capital city fell by 1.1% (-6.6% inflation-adjusted) to €10,660 (US$11,458) per sq. m, based on figures from the La Chambre des Notaires de Paris. In a recent study conducted by the University of Paris and King’s College London, almost half of Parisians think that the city is too expensive and 43% believe that they could find a better quality of life elsewhere. The pandemic has clearly been pushing people away from cities towards greener areas.
Demand is falling. Existing home sales in France were down by 6.1% y-o-y in the twelve months to November 2022, at 1,116,000 units, according to the General Council for the Environment and Sustainable Development (CGEDD). Likewise, new home sales dropped 10.1% y-o-y to 79,876 units in the first three quarters of 2022, based on figures from the Ministère de la Transition Écologie.
The French economy, the euro zone’s second-largest, was estimated to have expanded by a modest 2.6% during 2022, following a 6.8% expansion in 2021 and a huge 7.9% contraction in 2020, based on forecasts released by the European Commission. However, the economy is projected to slow further, with a projected real GDP growth rate of just 0.4% in 2023.
France’s house price boom after
During the long housing boom which lasted from 1997 to 2007, French house prices surged by 150% (112.5% inflation-adjusted). Since then the French housing market has not moved much.
The market started to weaken in 2008, amidst the global financial crisis. Price falls were moderate, as have been price rises since then. After falling by an annual average of 1.7% in 2012-2015, house prices started to rise again in 2016.
HOUSE PRICES IN FRANCE, ANNUAL CHANGE (%)
|Sources: National Institute for Statistical and Economic Studies (INSEE), Global Property Guide|
Despite the pandemic, house price growth strengthened to 6.4% (6.32% inflation-adjusted) in 2020 and to 6.93% (4.1% inflation-adjusted) in 2021. The past two years had been the highest growth since 2010.
Demand is slowing
Existing home sales in France were down by 6.1% in the twelve months to November 2022 from the same period last year, at 1,116,000 units, following a 14.8% increase in 2021 and a 4% decline in 2020, according to the General Council for the Environment and Sustainable Development (CGEDD).
From 2015 to 2019, before the Covid-19 pandemic, existing home sales have been growing by 9.1% annually.
Likewise, new home sales fell by 10.1% y-o-y to 79,876 units in the first three quarters of 2022, according to the Ministère de la Transition Écologie. By property type:
- New apartment sales fell by 9.6% to 75,065 units in Q1-Q3 2022.
- Newly built single-family home sales dropped sharply by 17.6% to 4,811 units over the same period.
“Three months ago properly priced properties were selling in a fortnight, but now there are not enough buyers,” said Helena Hermanns of Leggett Immobilier. “It’s the quietest we have been for five years.”
While there has been an observed increase in interest from international buyers, this is not enough to fill the gap created by space-seeking Parisians leaving the city centre for the suburbs or other cities outside France.
“Strongest interest is from U.S. buyers, but we also have some from Asia Pacific and the U.K. looking to buy second homes in Paris,” said Yves Romestan, chief executive of YRSA Résidences par Progedim, an estate agency.
There are no restrictions on foreign ownership in France. Most property is freehold. Apartments are mostly held in two forms of freehold: co-ownership (which has meetings of co-owners, with votes taken and accounts kept), and volumes, adapted mostly for mixed-use developments. There are also leaseholds, for up to 99 years.
Residential construction activity mixed
Recently, residential construction activity is showing mixed results. In the first eleven months of 2022, new dwellings authorized in France, excluding Mayotte, rose by 5.6% to 448,416 units as compared to the same period last year, following an 18.5% increase during 2021, according to the INSEE.
In contrast, new dwellings started to fall by 3.9% y-o-y to 448,416 units in Jan-Nov 2022, after increasing by 11.3% in 2021.
During the peak of the housing market (2005-07), new dwellings authorized and started averaged 575,000 units and 483,000 units, respectively, every year.
Construction activity started to slow in 2008 due to the global crisis. In 2009, permits fell sharply to just 380,200 units and starts to only 345,500 units.
The sector gradually recovered since. From 2010 to 2021, new dwellings authorized averaged 451,200 units while dwellings started averaged 383,000 units over the same period.
Mortgage interest rates remain low, despite ECB rate hikes
In December 2022, the European Central Bank (ECB) raised its repo rate further by 50 basis points to 2.5o%, its fourth consecutive rate hike in just five months, when the repo rate was at a record 0%, in an effort to curb the high inflation in the region.
Despite this, the average interest rate on outstanding housing loans in France fell slightly to 1.47% in November 2022, from 1.52% a year earlier and 1.65% two years ago.
By original maturity:
- Up to 1 year: 1.45% in November 2022, slightly up from 1.31% a year earlier and 1.33% two years ago
- Over 1 and up to 5 years: 1.35% in November 2022, up from 1.19% in the previous year and 1.26% two years earlier
- Over 5 years: 1.48%, down from 1.52% in November 2021 and 1.66% in November 2020
The French mortgage market is a mostly fixed rate, helping housing market stability
Over the past two decades, the French mortgage market has expanded tremendously - from 18.5% of GDP in 2000, to about 51% of GDP in 2022. Over 80% of all owner-occupied dwellings in France are bought with mortgages.
In November 2022, the total outstanding housing loans to households were up by 5% to €1.33 trillion (US$1.4 trillion) from the same period last year. Yet the growth is a slight deceleration from the annual average growth of 6.5% from 2017 to 2021.
Due to the dominance of fixed-rate mortgages, France’s housing market is likely to be much less prone to sharp upturns and downturns than housing markets in other countries, where floating-rate housing loans are a major source of instability.
Floating-rate loans only make up less than 10% of new loans in France, while loans with initial rate fixation (IRF) of over 10 years account for about 80% to 90% of new housing loans.
Low to moderate rental yields; high transaction costs
Gross rental yields from apartments in Paris are low to moderate, at around 4.70% to 6.63% for small apartments and 2.07% to 3.94% for big apartments, based on research conducted by the Global Property Guide in November 2022. However, it is fair to say that the Paris yields results arguably may not reflect yields in less desirable locations, which are likely to be higher because the research sample focuses on Paris’ high-end city centre.
The yields are not much better in other cities as well. Marseille has an average rental yield of 4.14%, Nice has an average of 3.11%, Lyon’s average is 4.04%, Toulouse has 3.88% and Bordeaux with an average of 3.99%.
From 2000 to 2021, apartment prices rose by 154% in France and by 270% in Paris, i.e., way above rents, which increased by only about 50% during the same period. The slower rise of the rent index was partly attributed to the lower allowable rent increase relative to inflation in certain periods. Rents grew by an annual average of just 1.11% from 2006 to 2021.
During the third quarter of 2022, France’s Housing Rent Reference Index increased by 3.5% from the same period last year, according to INSEE. The annual change in the rent index is capped. Article 12 of the 2022-1158 Act on Emergency Measures for the Protection of Purchasing Power provides that the annual change of the housing rent reference index may not exceed 3.5% between the third quarter of 2022 and the second quarter of 2023.
Currently, the average rent for two-bedroom apartments in Paris ranges from €1,800 (US$ 1,921) to €3,000 (US$ 3,202) per month.
Round-trip transaction costs are moderate to high on residential properties in France.
The impact of the LoiDuflot rent control law
On 19 February 2014, the French Parliament established controls on rentals, replacing the previous system.
The Loi pour l’accès au logement et un urbanismerénové (ALUR: improving access to housing and updating town planning), also known as the ‘LoiDuflot’:
- Capped long-term rentals. Rents should not be higher than 20% above the median rent set by the Prefect in the urban areas. This new rent control, imposed on 28 cities with more than 500,000 inhabitants, affects areas with high demand for rental properties, such as Paris.
- Aside from rent control, Paris and Lille are also subject to rent ceilings – the maximum amount a landlord can charge a tenant.
- Short-term rentals still need to seek authorization from the City of Paris, or the local town hall in areas with housing shortages.
- Property owners are required to grant exclusivity to one letting or property agent.
- A new mechanism for the Universal Guarantee of Rent (GUL) was introduced; tenants will no longer provide guarantors or pay a deposit since the government will underwrite any non-payment of rent.
When combined with the significant protection given to tenants, who can stay in their properties long-term, these new laws are persuading landlords to sell their buy-to-let properties, thus putting downward pressure on prices and increasing transaction volumes.
The Global Property Guide has long been firmly against rent controls, which harm tenants and landlords alike. We however approve of rules tending to increase security of tenure, without seeking to control rents, so long as the security is only medium-term.
Around 57.7% of France’s housing stock belongs to owner-occupiers, which means that almost half of France’s population is renting, according to the ECB. Around 97% of French private rented dwellings have private individual landlords, while only 3% are owned by companies or institutions, according to Dr. Joris Hoekstra, a researcher at OTB (TU Delft). Of primary residences, around 22.9% are privately rented, while 19.4% are socially rented.
The housing stock in France excluding Mayotte stood at 37.6 million units in 2022, according to INSEE. In Metropolitan France, 82% of dwellings were main residences and 55% were one-family dwellings. In the past four decades, the housing stock increased by an average of 1.1% annually in Mainland France while it grew by an annual average of 2.4% in the overseas departments.
Economic growth slowing, and public finances gradually improving
The French economy, the euro zone’s second-largest, was estimated to have expanded by a modest 2.6% during 2022, following a 6.8% expansion in 2021 and a huge 7.9% contraction in 2020, based on forecasts released by the European Commission.
However, the economy is projected to slow further, with a projected real GDP growth rate of just 0.4% in 2023.
“GDP surprised on the upside in the first half of 2022. However, rising inflation, triggered by high energy prices, and continued supply chain disruptions are taking a toll on growth, with GDP decelerating to 0.2% in the third quarter,” said the European Commission. “Specifically, private consumption was flat amid a significant decline in consumers’ confidence while investment picked up strongly, mainly driven by transport equipment. GDP is expected to contract by 0.2% in the fourth quarter.
Before the Covid-19 pandemic, France had been registering an annual average growth of a minuscule 1% in 2009-19.
During the onset of the outbreak, the government launched a stimulus package worth €110 billion (US$117.5 billion), equivalent to 4% of the country’s GDP, to help struggling firms and employees.
As a result, the country’s budget deficit surged to 8.9% of GDP in 2020, sharply up from a shortfall of just 3.1% of GDP in 2019 and 2.3% of GDP in 2018. With improved economic conditions, the deficit eased to 6.5% of GDP in 2021 and is estimated to have fallen further to 5% last year, according to the European Commission. The deficit is projected to be around 5.3% of GDP in 2023.
Public debt is expected to fall gradually to about 110.8% of GDP this year, from 111.7% in 2022, 112.8% in 2021 and 114.6% in 2020. Yet it remains far above the pre-pandemic public debt of around 97.4% of GDP in 2019.
Nationwide inflation stood at 5.9% in December 2022, down from a record 6.2% in the previous month but still far higher than the 2.8% recorded a year ago, based on figures from INSEE. Inflation averaged just 1.2% from 2011 to 2021.
In Q3 2022, the nationwide jobless rate in France stood at 7.3%, down from 7.4% in the previous quarter and 8% from a year earlier, according to INSEE. Unemployment averaged 9.3% from 2011 to 2021.
The number of unemployed people as defined by ILO declined by 17,000 in Q3 2022 over the previous quarter to reach 2.3 million people.
The nationwide jobless rate is projected to increase to 8.1% in 2023 before falling again to 7.7% in 2024, based on estimates released by the European Commission.
French President Emmanuel Macron, who was elected last May 2017, has begun taking steps to ease the burden of the country’s onerous labour code and reduce the distance between the (highly protected) long-term employed, and those who are on short-term contracts or unemployed.
In September 2017, Macron signed a wide-ranging series of decrees to reform the country’s labour laws, despite opposition from labour unions, to make it easier to hire and fire employees. In addition, the new rules increase sanctions on those who fail to look for work.
Then in November 2019, Macron’s government introduced another reform increasing the time people need to work to be entitled to unemployment benefits. Also, the benefit that wealthier workers receive after six months of unemployment was reduced by 30%.
Macron’s tough economic agenda was strongly rejected by the working class, resulting in several months of social unrest. The “yellow vest” protest movement, which began in November 2018 as a peaceful backlash against rising fuel and living costs, quickly morphed into a wider rebellion against Macron’s pro-business economic policies. A total of 11 deaths have been linked to these protests, with 76 others seriously injured.
In a major concession to the protesters, Macron increased the monthly minimum wage by €100 in 2019.
The resilience of France’s labour market during the onset of the Covid-19 pandemic is largely credited to Macron’s market reforms. The unemployment rate has been noticeably falling and the pervasive use of temporary contracts has been declining since early 2018.
“Chances are high that thanks to Macron’s labour policies France looks much better by 2022,” said economist Florian Hense of investment bank Berenberg.
In the April 2022 presidential election, Macron defeated again his far-right challenger Marine Le Pen in the second round of voting.
- The price index of second-hand dwellings - Metropolitan France - All items - Base 100 = annual average of the year 2015 - SA series (National Institute for Statistical and Economic Studies): https://www.insee.fr/en/statistiques/serie/010567059
- The Housing Rent Reference Index in Q3 2022 (National Institute for Statistical and Economic Studies): https://www.insee.fr/en/statistiques/6544008
- Rental returns in France are disappointing (Global Property Guide): https://www.globalpropertyguide.com/Europe/France/Rental-Yields
- 37.6 million dwellings in France on January 1, 2022 (National Institute for Statistical and Economic Studies): https://www.insee.fr/en/statistiques/6686650
- The annual estimate of housing stock - Total number of dwellings - Metropolitan France (National Institute for Statistical and Economic Studies): https://www.insee.fr/en/statistiques/serie/001687211
- Economic forecast for France (European Commission): https://economy-finance.ec.europa.eu/economic-surveillance-eu-economies/france/economic-forecast-france_en
- French economy forecast to contract before recovering next year (Reuters): https://www.reuters.com/world/europe/french-economy-forecast-contract-before-recovering-next-year-2022-12-15/
- France Government Debt to GDP (Trading Economics): https://tradingeconomics.com/france/government-debt-to-gdp
- In December 2022, consumer prices increased by 5.9% year on year (National Institute for Statistical and Economic Studies): https://www.insee.fr/en/statistiques/6686106
- Unemployment (National Institute for Statistical and Economic Studies): https://www.insee.fr/en/statistiques/6680259?sommaire=6680413
- France country profile (BBC News): https://www.bbc.com/news/world-europe-17298730
- Macron’s labour market changes begin to bear fruit (Financial Times): https://www.ft.com/content/d97e480a-c99b-11e9-a1f4-3669401ba76f
- Les habitants de Paris et Londres pensent que leur ville va rebondir après la Covid (Ipsos): https://www.ipsos.com/fr-fr/les-habitants-de-paris-et-londres-pensent-que-leur-ville-va-rebondir-apres-la-covid
- Commercialisation des logements neufs - Vente aux particuliers au 3e trimestre 2022 (Ministère de la Transition Écologie): https://www.statistiques.developpement-durable.gouv.fr/commercialisation-des-logements-neufs-vente-aux-particuliers-au-3e-trimestre-2022?rubrique=53&dossier=1047
- House Prices in France: Property Price Index, French Real Estate Market Trends in the Long Run (General Inspectorate for the Environment and Sustainable Development): https://www.igedd.developpement-durable.gouv.fr/house-prices-in-france-property-price-index-french-a1117.html
- Beyond the boulevards: homebuyers target a less sought-after Paris (Financial Times): https://www.ft.com/content/d3c4d80b-7587-468f-9f95-bcc22cce3733