Alex E. Proimos/Flickr

At least that's the popular attitude. But the truth is much more complicated.

"The best of America," wrote F. Scott Fitzgerald, patting himself on the back, "drifts to Paris." Today, we might revise that tribute to Parisian allure to say that the rich of America drift to Paris. So do the rest of the world’s wealthy. And Parisians aren’t happy about it.

The average price of an apartment in Paris has grown enormously over the last fifteen years, from 150,000 Euros in 1999 to 375,000 Euros in 2008 [PDF]. The Minister of Housing has called the shortage of apartments a "major crisis." In a famously cosmopolitan city running out of cheap rooms, the refrain is this: "If the prices are going up in Paris, blame the foreigners!"

Parisians think foreign buyers drive up housing prices, waste precious space, and detract from the liveliness of the city. The French government, judging by the legislative record, seems to agree. Last year, a student at the Ecole d’Economie de Paris wrote her mémoire on the subject, and she clarifies the culprits. "It’s the buyers – foreign and French – who live abroad that drive up the price," writes Aurélie Sotura, "not foreigners who live in Paris" [PDF].

These “invisible gentrifiers” aren’t uniquely Parisian. They’re the subject of controversy in Berlin, as Feargus O’Sullivan has observed. But the Paris housing market is like Berlin's on steroids: the city proper is one-tenth the size of Berlin, but has two-thirds the German capital’s population. Paris anchors the E.U.’s second-largest metro area after Greater London. Its building laws are among the strictest ever invented. Its density is unparalleled in the developed world. And its appeal to foreign investors seems to be inexhaustible.

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It’s a more nuanced trend than Parisians think: in the first trimester of 2011, only 5.9 percent of transactions (one in 19) involved foreigners. But for apartments over 4 million euros, 50 percent of buyers were from abroad. For apartments worth more than 10 million euros, that figure rises to 85 percent. There’s even a "second generation" of foreign owners, who have bought, sold, and bought again.

Those high prices often correlate with the prized, ancient apartments of Paris’ inner core of neighborhoods, the most popular among most foreign buyers. Rates of foreign investment there are considerably higher than one in 19. In the 1st arrondissement in 2010, nearly one of six apartments was bought by a foreigner.

Like those who come to Paris in search of wealth, those who come thanks to it tend to cluster by nationality. Americans like the fashionable Marais and the Left Bank core favored by their literary compatriots of yore. Belgians, Britons, and Swiss also tend to buy in these central neighborhoods. Russians can be found further west around the Champ de Mars, and on the other side of the Seine money from the Gulf has come pouring into the stuffy boulevards of the 16th.

Unlike the waves of foreigners who have come to Paris before them, the artists, exiles, and migrants, these new buyers aren’t moving in. According to Sotura, only 6.9 percent of foreign buyers use their apartments as a primary residence, and they are not particularly interested in offering long-term rentals to the French, which has become a major sticking point for the government.

From a city planning perspective, it’s easy to see why long-term renters are desirable. They take ownership over public space and local affairs, join organizations, and vote in elections. More long-term rental housing in central Paris would relieve the housing shortage and deflate rental prices elsewhere in the city.

Those, both foreign and French, who own property have other incentives. Renting an apartment by the week is much more profitable than by the year, particularly in one of the most visited cities in the world. “Yearly income based on the flat being rented about 70 percent of the time,” the New York Times reported in 2010, “would bring triple the amount of a long-term lease." Long-term rentals are also risky – it can be very hard to reclaim your apartment from recalcitrant tenants. Paris has over 10,000 listings on Air BNB, twice as many as Berlin, more than London and nearly as many as Manhattan.

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For obvious reasons, the French government has been reluctant to put a halt to the booming real estate business. But Paris’s long-serving socialist mayor, Bertrand Delanoë, has previously shown a willingness to restrain the market in order to preserve the city’s carefully maintained urban fabric. (Extremely strict zoning laws that precede his term are part of this, but so are more unusual laws like the one that allows the city to buy expensive storefronts and rent them to bookstores on the cheap.)  

In 2005, France passed a law designed to regulate the Parisian rental industry and to fill foreign-owned apartments with long-term residents. The law stipulated that no residential apartment in a city of over 200,000 people (France has about a dozen such cities) could be leased for less than one year. Any landlord who wished to issue shorter-term leases would need to have the property rezoned as commercial, like a hotel, a procedure that brings a host of other complications. (There are exceptions for student housing.)

The law was generally considered an empty threat, as the thousands of short-term rental listings attest. It didn’t help that the prosecuting organization, the Bureau de la Protection des Locaux d’Habitation, was severely understaffed, with only five employees. Then came the collapse of the financial markets in 2008, which did not encourage cracking down on investors – after what had happened in Spain and Ireland, a lively real estate market was welcome. Concerns that buyers would shift their attention out of the Eurozone to London or perhaps to more stable Germany may have also hampered enthusiasm for enforcement of the law.

But now France has a Socialist president, Francois Hollande, who rode into office on promises of high taxes for the rich. Hollande wants to raise the tax on rental income from 20 percent to 35.5 percent, which may be an admission that the 2005 law encouraging long-term rentals has failed – the new plan is simply to make absentee landlording of all types financially untenable. Hollande wants to raise the tax on capital gains, which would affect apartment sales, from 19 percent to 34.5 percent. A big tax on vacant apartments in big cities is also on the way. Experts believe these measures could hurt the French property market, inspiring foreign investors to buy homes elsewhere. Hollande has also enacted a tax rate of 75 percent for those who make more than one million Euros per year, which has caused rumors of a mass exodus of the wealthy to Belgium, Britain and Switzerland.

Will Hollande’s policies trim the Paris housing market down to size? It will take years to say for sure. Whether or not the rich will leave because of Hollande’s proposed tax hikes is the subject of scrutiny and scandal. But even if some have already sold properties in Paris, according to the Paris Property Group, “wealthy French fleeing tax hikes are offset by foreign investors buying luxury properties in Paris.“ No sooner can the French unload them than foreign billionaires scoop them up.

Top image: Flickr user Alex E. Proimos.

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