War in the Middle East: a major obstacle to the recovery of housing construction

The housing sector in France is worried about the impact of the conflict in the Middle East on new construction. Between soaring material prices, geopolitical tensions, and the risk of rising interest rates, the recovery of the real estate market could be significantly slowed after three years of crisis.

The entire housing sector is starting to worry. "As soon as there is an armed conflict, people wait. I have developers on the phone who tell me they feel like the vehicle has stopped," laments Pascal Boulanger, president of the Federation of Real Estate Developers (FPI).

The war in the Middle East constitutes "an extremely impactful exogenous factor for housing production", said Minister of Urban Affairs and Housing Vincent Jeanbrun on Tuesday, during a first follow-up committee meeting with the sector on the "Housing Recovery" plan announced in January.

"I don't know what construction costs will be in the coming months. We didn't need this," worried Emmanuelle Cosse, the president of the confederation of landlords, the Social Union for Housing, during this meeting.

Building material prices are rising sharply in the construction sector.

In France, the rise in construction material prices is already a reality. Regarding construction material prices, "the impact is already here," declared Vincent Jeanbrun later during a visit to Bondy.

The French Building Federation (FFB) notes up to 35% price increases for bituminous membranes (used for waterproofing), and +20% for plastic products such as PVC and certain insulation materials (polystyrene), according to figures provided to AFP.

For its part, the trade union for building craftsmen, Capeb, reports that 65% of its members surveyed have received notices or letters from their suppliers regarding increases in the prices of materials.

But the main risk for the real estate sector could come from another factor: rising interest rates, which could slow down real estate projects for both individuals and social landlords.

Real estate: are interest rates heading for a rise in France?

"The resurgence of geopolitical tensions in the Middle East since the end of February poses an inflationary risk that could reshuffle the cards" in the real estate market, Cafpi brokers warned last week in a note.

In February, the average interest rate for new home loans excluding renegotiations was 3,23%, according to the Bank of France.

"Rising interest rates are inevitable," says Loïc Cantin, president of the National Federation of Real Estate (Fnaim), who fears "a struggling market," and not just in the new-build sector. When interest rates skyrocketed in 2022, sales of existing homes declined.

"If the rate hike happens, it will disrupt social housing organizations and access to homeownership," adds Valérie Fournier, general manager of the social landlord 3F, which is building 85 homes in Bondy, including 58 intended for purchase by modest households.

An increase in interest rates will require "adapting" to "absorb this crisis and reach our goal of two million homes by 2030," said Vincent Jeanbrun, who wants to bring the banking sector together on the subject.

Objective: 2 million homes by 2030 despite the crisis

Faced with these tensions, the government wants to strengthen monitoring of the sector. In particular, it wants to "work quickly" on a price observatory for construction materials, a long-standing demand of the FFB and the social housing movement, to "see if the increases are justified or if there are windfall effects."

This crisis "is a shock that will cost us all," noted Economy Minister Roland Lescure on Tuesday before the deputies, who wants to ensure "that the costs of this shock" are "fairly shared" and that small and medium-sized enterprises, particularly in the construction sector, do not suffer more than others.

In January, Prime Minister Sébastien Lecornu and Vincent Jeanbrun set a target of creating 2 million homes by 2030, or 400.000 homes per year, including 125.000 social housing units this year.

To support the recovery of housing construction in France, several measures have been put in place: tax support for individual investors, aid to social landlords and simplification of procedures.

The Minister of Housing is notably promoting a "local interest operation" scheme which would "swipe through procedures" in order to reduce construction times in an area defined by the mayor and validated by the prefect.

Illustrative image of the article via Depositphotos.com.