France looks set to implement a series of groundbreaking laws designed to induce landlords to rent to a wider variety of income levels.
The term laissez-faire may be a French import, but you can’t accuse France’s new government of taking a hands-off approach when it comes to rent. The country’s socialist-led coalition is introducing a slew of new, groundbreaking laws to control rents and cap real estate agent fees. Counterbalancing these tenant-friendly measures, there will also be decrees giving property owners a state insurance system against unpaid rent, and limiting taxes for landlords who offer rental apartments in high-demand areas. Dubbed collectively the Loi Duflot after housing minister and Green Party member Cécile Duflot, the laws will hold throughout France but will be especially tight in designated "strained" zones, which contain 4.6 million homes in total. These include Paris, of course, but also Marseille, Lyon, Montpellier, the Corsican city of Ajaccio, and the Atlantic resort of Arcachon.
Still, with the country’s highest rents by far, it’s the Paris market that will be affected most by the new law. The Parisian rental market currently has its fair share of problems, some familiar, some distinctive. Good Paris apartments are hard to come by (some say almost mythical) and their rents seriously stretch the resources of people with low and middle incomes, partly because international absentee landlords have soaked up much of the better stock. In a local twist on housing hell, agents also have too strong a hold on supply. Frequently demanding high finders fees, they can also charge customers up to €400 for access to lists of apartments for rents, lists that are notorious for containing properties that turn out to have already gone.
French landlords also tend to be exceptionally risk averse and wary of leasing to anyone except the very wealthy. A friend of mine with a steady job was repeatedly asked by landlords for a “parental guarantee” at the age of 44. To be fair, this reticence is partly a response to strong tenants rights — no one in France can be evicted during the winter months, for example. Coupled with high rent, this attitude pushes poorer Parisians either far into the suburbs away from their jobs, or into the arms of unscrupulous "Marchands de sommeil" or "sleep peddlers," slum landlords who pack tenants into small, sometimes hazardous spaces.
The Loi Duflot is an attempt to tackle these problems head-on. When it comes into effect in 2016, agents’ fees will be capped, rental lists accessible by fee only will be banned and the number of documents required by prospective tenants will be cut. More radically still, high demand areas such as inner Paris will get rent caps. No new rental contract will be permitted to charge more than 20 percent per square meter above the neighborhood’s median rent, which will be assessed annually by a "local rent observatory." Existing rental contracts that overstep that limit will have to be brought down when they are renewed.
None of this rules out the possibility of rent increases. If all landlords set their rents at the highest legal level, then the median will surely push up year on year. But it should slow the process down and ensure enough regularity throughout neighborhoods for prospective tenants to feel confident that they’re not getting ripped off.
Landlords are also getting some benefits, too. They’ll get a cap (albeit at a not inconsiderable 18 percent) on the tax they pay on rental earnings if their property is in an area of shortage. More significantly, both tenants and landlords will pay into a government run insurance fund against unpaid rent. If a tenant defaults, landlords will no longer have to chase them through the courts, but simply apply to the fund for reimbursement. This fund will pay the landlord upfront, then investigate the claim themselves. If the tenant has defaulted due to unemployment, illness or low income, they’ll receive rent relief (a system already in place in France). If they’re just negligent or taking advantage, however, they’ll get sued. The crucial move here is that a potential burden is taken off landlords’ shoulders, who may then consider lower income tenants less of a risk and thus take more of them on.
Widely viewed as tenant-friendly legislation, the new law is feared by critics who think it will encourage landlords to sell up and, by sucking rentals off the market, steadily push up median rents. At present, however, the trend seems to be slightly in the other direction, as the law has arrived during a period when Paris' and France’s rental markets have been settling down. Paris rents have remained static since May 2012 – in some wealthier areas such as St Germain des Pres, they’ve actually gone down slightly, leaving the average city rent at €30.97 per square meter.
There are also a few more apartments around to chase. According to Foncia, France’s largest rental company, while the number of Paris rental contracts has increased 11 percent since last June, the number of flats seeking renters has risen even further, to 13 percent in Paris and 24 percent in the greater Paris region (where there is more new construction). Renters are also getting slightly pickier – the average time Foncia’s Paris rental apartments lay empty increased by two days to (a still modest) 15 days in total. Even with static or falling rents, it seems that buying apartments to rent out and constructing new buildings still remains profitable enough to attract investors. How effectively the Loi Duflot will work remains to be seen, but counterblasts against it have so far been muted, reflecting a shaky consensus that policies leaving rent levels to the market are making French cities unlivable. For now, French big city tenants are looking forward to their rent processes and prices becoming that little bit less hellish.