The real estate crisis is caused by the state

Published on November 21, 2023


The real estate crisis currently raging in France did not come out of the blue, and the state is largely responsible for it. His total interventionism eventually overcame the decline in the construction of new housing and the shrinking of the housing stock accessible to the most deprived. Certainly, the rise in interest rates has some of the responsibility for the collapse of the real estate market, but the very heavy hand of the state also has its share, and certainly not the smallest.

After very significant increases in recent years, property prices in most major French cities, including Paris, have finally fallen in the past year.

A priori, this is good news for those who want to buy, especially for first-time buyers, but a little less so for those who want to sell. The latter try to withstand the downturn as much as possible and help block the market. Thus the number of transactions collapses. According to Meilleurs Agents, the limit of one million transactions should be reached by the end of 2023. As far as tenants are concerned, the situation is no brighter. In fact, especially in metropolitan areas, more and more households can no longer find a home that meets their needs, both in terms of surface area and location.

As is often the case, the causes of a crisis are multiple. Let’s take a look at these different factors that have hindered the real estate market:

  • rising interest rates,
  • property taxes,
  • court orders regarding energy renovation,
  • the avalanche of construction standards,
  • the management of urban planning by the municipalities,
  • rent control.

Rising interest rates

To combat inflation, central banks have turned off the weapon of interest rates, which has obviously had an impact on real estate loan rates.

According to the Housing Credit Observatory, the average interest rate on real estate loans tripled, or even more, in one year between the first quarter of 2022 and 2023. Where we could borrow at just over 1% in 2021, we now have to count on 4%. This significant increase in credit costs for borrowers obviously makes purchasing real estate more expensive, especially for young households.

To this increase in credit costs we must also add the strengthening of the guarantees that banks require from borrowers. All this means that the demand from starters is decreasing and the demand for homes is shifting to the rental market. But private investors have yet to respond. For them, however, the equation is somewhat the same: the increase in interest rates reduces the profitability of their investments. Add to that the weight of property taxes.

Real estate taxes

Real estate has become a real cash cow for state and local governments. The taxes on landlords are significant. There is of course the tax on capital income, but also the property tax which has increased significantly, and for the luckiest, the property tax (IFI).

All this means that many small business owners who had invested to supplement their retirement are finding it difficult to obtain a satisfactory net income from their investments today. Many regret it and are not ready to set a piece back in stone. Certainly, Pinel’s tax exemption system is extensive, but this remains insufficient to compensate for the limitations associated with this type of investment (lack of liquidity, very long blocking of funds, real estate management, etc.). Due to this taxation and the restrictions associated with landlord status, owners are seeing less and less of the benefit of renting, and many are thinking of leaving the market or renting as part of a furnished tourist accommodation, Airbnb style. This causes the rental supply to decrease.

Energy renovation and new construction standards

The decline in the construction of new homes can also be explained by the fact that developers are caught between the increase in construction costs caused by material prices and increasingly demanding environmental standards; energy transition required.

To this is added the hunt for “thermal sieves”, which is part of the energy performance diagnosis (EPD). The DPE, imposed by Brussels in 2006, classifies homes according to their energy consumption, from the letters A to G. The aim is to achieve a housing stock of category A or B by 2050 in order to comply with European regulations .

Immediately and since the 1uh From January 2023, homes with an energy consumption greater than 450 kWh per m² may no longer be rented out. We cannot do better to reduce the supply of rental properties. And from 1uh By January 2028, all new buildings must have ‘near-zero’ emissions under a new directive on the energy performance of buildings. Small owners therefore have to adapt to more and more obstacles when renting out their properties, and some prefer to throw in the towel.

Urban planning management by municipalities

According to many real estate developers, the management of urban planning by municipalities is an obstacle to the development of their activities.

This observation is shared by the Senate, which notes:

“Urban planning law is the law of paradox. However, based in theory on the principle of territorial economy, it does not allow to deal flexibly with the conflicts of use that permanently arise from the appropriation of land. Between the ‘freezing’ of natural and similar spaces, intended to guarantee absolute protection, and their letting go in the most casual manner – especially near cities – it fails to define and then maintain a fair balance.

Rent control and rental problems

With the development of metropolises, the concept of tense zones appeared.

These are municipalities where the number of homes offered for rent is much lower than the number of people who want to become tenants and make it their main residence.

In these municipalities, rent control sets a limit on the rent that the owner sets when renting residential space, rented with residential rent (including mobility rent). For example, many large cities see their rental prices regulated. While this framework is obviously beneficial for tenants who have found housing (not for the others), it does not please landlords who see the profitability of their investments decrease in the longer term. Given inflation and the cost of work, maintaining below-market rents is the best way to destroy real estate in the long run. All studies on the experiences with rent freezes in all countries that have put this into practice are unanimous on this subject[1].

But rent control is not the only restriction on landlords’ property rights.

We should also keep in mind the legal issues that owners face when dealing with unscrupulous tenants. This legal uncertainty often forces them to take their accommodation out of the traditional rental stock and place it on seasonal rental platforms such as Airbnb.


The real estate crisis we are experiencing is not surprising. Certainly, the rise in interest rates has contributed to its deterioration, but many other factors have fueled this crisis, which essentially, as we have shown, stems from the increasing interventionism of the state in this sector. From this point of view, the state is not the solution, but the problem.

[1] See Mr. Albouy, Real estate financing and asset management2e ed. Economica, Paris, 2020.

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