France property sector is one of the most buoyant and costly ones in Europe. Transaction numbers in the market occasionally slow during economic downturns and when mortgage rates dip, but real estate prices in key French metros and port cities remain quite high, compared to the average household income. To grasp the continued high cost of housing in France, one must go beyond temporary variations in the level of interest rates and consider the structural nature of housing supply shortages, the tightness of urban planning controls, the peculiar tax system and environmental obligations.
Bad Structural Supply Shortfalls and Land Restriction
There is an underlying structural imbalance in housing supply and demand that is constantly driving the price of real estate to rise in France.
The ZAN (Zéro Artificialisation Nette) law, France environmental obligation to achieve a ‘net zero’ of land used for building new housing, is punishing local municipalities for the conversion of natural and agricultural land into new homes. This restricts the spread of suburbs, and irrevocably raises the value of the land already developed within the city. In addition, strong regional restrictions such as the Loi Littoral (Coastal Law) and Loi Montagne (Mountain Law) put into place significant constraints on development in areas along coveted coastlines and high alpine valleys where demand for holiday and lifestyle property is strong, and limit supply to a permanent level.
Meanwhile structural needs for housing have never caught up with the national housing output. The housing market in France is experiencing significant shifts driven by demographic changes and the rising number of households, with a need to build hundreds of thousands of new housing units each year, but growth of new housing is often slower than is needed, resulting in demand for new housing being fed directly into the resale market.
Hard and non-flexible code on urban planning and historic preservation
However, in many other markets around the world, urban sprawl and population growth inevitably lead to a rise in the number of high-density buildings, whereas in major cities in France, the architectural preservation rules limit building heights and maintain the historic character.
Strict heritage regulations protect the central districts of the cities, such as Paris, Lyon and Bordeaux. Such restrictions prohibit or discourage the demolition of already existing buildings or the development of buildings from top to bottom in primary economic centers, thus effectively ceasing the available residential square footage. With no room to grow vertically or horizontally, the city centre is extremely competitive for a limited supply of historic apartments, which makes prices per square metre among the highest in Europe.
Strict Mortgage Frameworks and the “Lock-In” Effect
Fixed rates of interest are the main feature of the French mortgage market, with terms of 20-25 years. This shields people who already own a house from interest rate fluctuations but can cause market friction when there is macroeconomic adjustment.
The HCSF has a tight debt-service-to-income ratio of 35% for borrowers. This cap stops predatory lending from happening, and helps to lower default rates, but also sets an affordability cap that requires a lot of personal equity from the first time home buyer. Also, millions of French citizens who obtained long-term mortgages on their homes at record-low fixed interest rates before monetary tightening have also shown reluctance to put them on the market. The high rates at which existing properties are resold after a buyer has opted out of an ultra-low fixed rate mortgage can result in a strong “lock-in effect,” which drives up the prices of baseline homes and reduces the supply of properties on the market.
Energy Efficiency Mandates and DPE Regulations
In real estate, energy performance is no longer an environmental issue but has become an important parameter in real estate evaluation in France. Within Climate and Resilience law, building types are classified from A to G in terms of their Diagnostic de Performance Énergétique (DPE). Progressive bans are in effect at properties rated F or G, which will not be able to enter into new rental contracts unless extensive energy retrofits are done.
- High-Efficiency Properties (Grades A–C): These properties command high price premiums because they have low operating costs, modern insulation, and are immediately available for rental. Low
- Efficiency Properties (Grades F-G): These properties will come with serious discounts if the buyer has to invest tens of thousands of Euros in additions like mandatory insulation, heating system renewals and structural renovations.
The result is a dual-mkted market where move-in ready and energy-efficient homes are selling at record price premiums, and the cost of energy efficiency specialty materials and labor has kept acquisition costs high.
The high transaction overhead and tax barriers
France’s fiscal system offers an incentive to ownership of property over the long-term and a disincentive to short-term selling and speculation.
Existing property in France is subject to transaction taxes, registration fees and notary fees (frais de notaire) of 7% to 8% of the purchase price. These high initial expenses make it difficult for people to turn over their investments quickly, and also make markets less liquid because buyers wait a number of years before they recoup their investment. In addition, income tax and social surcharges on capital gains are applied to secondary homes and investment properties and only reduce after 22 – 30 years of holding the property. This tax system has a very strong incentive to hold a property for 30 years or more, and it’s a disincentive for the large number of resale properties coming onto the market each year.
The growth of tourism pressures and international capital
The demand for geographic services is very concentrated in France. Domestic and foreign investment goes downhill in Paris, in dynamic regional capitals (Lyon, Marseille, Bordeaux) and luxury lifestyle destinations (Côte d’Azur, French Alps).
Prime coastal and alpine locations are shielded from regional credit squeezes by international cash buyers. In addition, the number of short-term holiday accommodations in high-tourism locations continues to earmark residential property that will otherwise cater to local long-stay residents, leaving property in primary cities with high rental yields and property values.
Housing in France is so expensive… If you have ever looked into the possibility of buying property in France, you will likely have seen that the prices for real estate tend to be quite high.The price of real estate in France is typically higher than most people would imagine, and there are a number of key factors that have contributed to this.