Housing is burning and we are looking elsewhere according to AFIL

“In the 2nd quarter of 2022, sales of new homes to individual investors fell by -9.8% over 12 rolling months and this decline is accelerating, with -23.6% [1] over the half-year and -25,9% over the quarter. . The time bomb of the rate of wear had not yet been lit… The urgency is there! alarms Renaud Cormier, President of AFIL.

The context

In an extremely complex political and economic context, the new French property market is slowly but surely sinking into a deep and probably lasting crisis. It started in 2018 with the turnaround in volumes and accelerated with the COVID crisis and the municipal elections. The effects on construction costs of the war in Ukraine and the disruption of logistics chains, particularly in Asia, are now leading to strong price inflation. All of these elements, combined with political uncertainties, the rise in the cost of credit and a seriously handicapping rate of wear and tear, unfortunately cannot give hope for a rapid and natural improvement in the situation.

The expected supply shock did not occur. At the end of June 2022, 387.700 housing units [2] had been started in France over 12 months, i.e. a volume equivalent to that of the end of March 2017. Worse still, these low levels of authorizations and housing starts were only reached thanks to the support of the demand for individual housing, probably in reaction to the episodes of confinement. The production figures for collective housing are alarming: the volume of building permits for apartments has still not returned to its level of February 2020 (before the 1st confinement) and housing starts for collective housing have stagnated for 1 year. .

“However, the needs are immense. In 2006, Paris Dauphine University estimated annual needs at 500.000 housing units per year [3], a figure regularly cited as a reference thereafter. A figure never reached since its publication,” notes Renaud Cormier, President of AFIL.

New housing becomes inaccessible

Faced with growing demand in tense areas and more recently in medium-sized towns, the insufficient creation of new housing maintains a shortage which itself leads to an inevitable rise in selling prices. This price increase is mainly reflected in the market for old properties, which represents the overwhelming majority of transactions [4].

In 20 years, the prices of new properties have increased by 117% and those of old properties by 137% [5]. Today, housing accounts for more than 26% of household final consumption expenditure [6].

For Renaud Cormier: "There are many reasons for the rise in new home prices: increase in land prices (too rare), concentration of players in the most tense areas [7], inflation of materials, energy, implementation of new energy standards, longer deadlines for setting up operations… For the former, the price increase is only justified by an imbalance between supply and demand. »

Rising prices have made home ownership increasingly difficult for the French. While the overall homeownership rate remains stable at 57%, this masks the fact that it is above all the richest 30% who see the homeownership rate increase (from 70% in 1984 to 84% in 2013), while it is falling in the poorest categories [8].

Private and social rental housing under threat!

In the absence of all owners of their main residence, it is therefore essential that households have a supply of rental accommodation under suitable price, location and quality conditions.

Social housing plays this role for some of our fellow citizens. Between 1984 and 2018, the growth of social housing reached +30,3%, i.e. 992.000 additional net dwellings. “Despite this increase, the supply of social housing remains insufficient since at the end of 2020 there were 2,157 million requests for social housing, of which 50% had been waiting for more than a year [9]. In addition, the very low turnover of tenants in the social sector (less than 5% in large conurbations) makes an alternative offer even more necessary,” warns Renaud Cormier.

The vocation of the private rental stock is above all to accommodate those who do not meet the conditions for access to social housing and to streamline the residential path of households (students, young workers, mobility, etc.) who cannot or do not wish to access to the property; it also plays a social role by default. The size of this stock, which represents 7,39 million housing units, has only increased by +12,8% since 1984. The reason: the massive disengagement of institutional investors. The latter owned 850.000 homes in 1990; they only hold 200.000 in 2021, i.e. less than 3%.

For Renaud Cormier: “Their commitment to residential housing is now anecdotal and their recent resurgence of interest in this type of asset is mainly motivated by a disaffection for tertiary real estate and the search for new investments. It is therefore private investors who essentially ensure the existence and growth of the private rental stock: in 20 years, 1,089 million housing units have been produced thanks to successive rental investment schemes. »

Today, this private rental market is also under threat. The decorrelation between the evolution of rents and that of the price of housing has durably weakened rental yields: in 30 years, the real price (ie adjusted for inflation) of existing housing has been multiplied by 2 while real rents have increased by 30% [10]. These yields will fall further in new construction with inflation and rising construction costs.

“A possible blocking of rents or the reduction of incentive schemes would deal a fatal blow to rental investment, in a market where the landlord-tenant relationship is already highly unbalanced in favor of the latter,” analyzes Renaud Cormier.

The urgency is there!

[1] FPI, New housing figures, 2nd quarter 2022.

[2] CGDD – Housing construction – Results at the end of April 2022 – No. 462

[3] Paris-Dauphine University: Housing demand: the reality of the sociological shock – November 2006

[4] In 2021: 1.200.000 transactions in old real estate against 116.700 gross retail sales for real estate developers – CGDD and FPI.

[5] Insee, New housing price index, Old housing price index.

[6] Insee, national accounts; SDES, housing account.

[7] Currently, only 6% of the national territory is eligible for the Pinel system.

[8] Insee Références - Being a tenant, a more sustainable situation in the social sector than in the free sector – 2017 edition

[9] Fondation Abbé Pierre – State of poor housing in France 2022 – annual report #27

[10] Center for Strategic Analysis – Economy-Finances - Analysis note – April 2021