Rent Control: What’s the future of rent prices in Paris?

One hot topic following the election of President François Hollande is his plan to impose rent controls on French apartments.  

Hollande and Cécile Duflot, the Minister of Housing Equality, plan to enact an index of apartment prices across the country, capping rent inflation in certain areas.

Under this proposed law, owners who are re-listing their apartments for rent at the end of the previous tenant’s lease would no longer have the right to raise rent as they wish.  Instead, the owners will have  the right to raise rent only according to the “IRL,” or the Indice de Référence des Loyers (Rent Index).

Over the last ten years, rents have gone up 50% in Paris, 43% in the inner suburbs, and 42% in the outer suburbs.   In comparison, disposable income has only gone up 31% during the same period.

The new law is an effort to benefit renters, giving them the right to protest rent increases at the Préfecture.  Hollande has also said that for markets such as Paris, where apartments are in high demand, that a law could also be imposed to lower rent nearly 20% for re-rented properties.  This will be up for discussion in July during the next Parliament meeting.

However, generally speaking, stronger rent-control tends to drive real estate prices up. A oft-cited 1981 study on rent control in many countries concludes that these controls result in a decrease in the supply of housing units.  Fewer people move, which creates less fluidity in the market, driving up the prices of those apartments that are available.

As long as mortgage rates remain low – and there is no reason at the moment to think they won’t since the The Daily Express from London predicts that interest rates will remain at current rates through 2017 – that will also help keep the market vibrant. On the flip side, the actions of speculative market players and institutional owners who feel their interests might be compromised under socialist leadership may create the very problems they would prefer to avoid.

Only time will tell, but check back on our blog for an update on the rent control issue.

Information adapted from Le Figaro.