Controversial rent cap for Paris apartments will take effect in August

Paris is about to inaugurate a rent cap, the first of its kind in France. For many real estate professionals, the imminent change raises serious concerns that investors will be discouraged and the market will destabilize. There is also the sense that, good intentions aside, the law will hurt the very people it was intended to help.

The city’s rents are up 42% in the last decade, and Paris is the 2nd most expensive city in the world for two years running. The ambitious law is intended to slow or reverse that trend – at least with respect to rents – and to make Paris more affordable for low and medium income renters. Once implemented, the law is expected to lower the rental prices in about 1 in every 5 new leases in the city. The rent cap structure – in French, encadrement des loyers – is part of the much-debated and controversial loi pour l’accès au logement et un urbanisme rénové, or Loi ALUR, passed into law in March of 2014.

Apartments in good locations and in good condition are hard to come by in Paris. The problem is particularly acute in neighborhood with a high number of absentee/second home owners, and in areas popular with short-term rentals. In these neighborhoods, prices are out of reach for most middle and low-income renters. But they have been for a long time; and rent caps probably won’t solve that problem.

“Generally speaking, a market that is not free, doesn’t quite work,” says Alon Kasha, principal of A+B Kasha, a real estate agency specialized in property in Paris’ coveted Saint Germain des Près neighborhood. “These measures turn the tables on the very people they are trying to help. As landlords become averse to renting or seek alternatives, it will become increasingly difficult for these tenants to find a property to rent. Less expensive, but more difficult.”

Under the rules published on Friday June 12th implementing this first phase of the Loi ALUR (“Accès au Logement et un urbanisme rénové”), landlords must set lease prices for new renters in accordance with the “reference” price per square meter in the neighborhood, up to 20% over or 30% under that price.

This reference rental value, the loyer de reference, is based on data collated by the Observatoire Local des Loyers (rental housing monitor) under the umbrella of the Ministry of Housing and Territorial Equality. To reach those figures, the city was divided into 80 rental districts, and median rental prices were calculated in each. Factors include whether the apartment is furnished or unfurnished, the m2 size, number of rooms, and year of construction of the building. Exceptional features such as a terrace, a great view, luxury features or a prime location will allow for an upward adjustment, although it remains unclear exactly how that will be calculated. An online calculator is already available to figure out the rent level for any apartment citywide.

20 Minutes gives the example of a 32m² 1-bedroom apartment in the Clignancourt neighborhood of the 18th arrondissement. The apartment has a median rental rate of €22/m². Under the ALUR rules, the maximum rental price allowed is €26.4/m2 (20% over the median), or €844,80 euros per calendar month for this apartment. An apartment of the same size in the same area is currently listed on the website Prêt a Louer at €910 per month.

Paris is following closely on the heels of Berlin and Amsterdam, both of which instituted rent caps earlier this year.