New Rent Control Laws in Effect. Are they the answer?
French Property Insider Volume XVII, Issue 27 Thursday, July 4, 2019 • Paris, France
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Madame Le Maire does it again. She and her co-hort, Ian Brossart, Deputy of Housing, have managed to institute new rent control as of this past July 1st, even after her first efforts (2015 to 2017) were thwarted by the courts in 2017. This new measure is the result of rental prices having risen by more than 50 percent in the last 15 years. Duh! So, has the price of property! Being a tenant may be difficult, but the Socialist city administration doesn't realize or care that being a landlord is no picnic, either. Because of the high price of property, investors are having a harder time than ever recuperating their investments. Hence, the increase in rents.
This isn't specific to Paris. It's happening to capital cities all over the world, making major metropolitan areas less affordable for middle-class families. Even the Aix-Marseille-Provence region is considering this solution.Is rent control the answer? The new rent control reform in Paris concerns housing, furnished or unfurnished, rented for the first time or whose lease is up for renewal. Therefore, this new "arrangement" applies to leases signed as of July 1, 2019. If your current lease, signed prior to July 1st, renews automatically, you cannot contest the rent you're paying.
There are three types of "reference" rents set annually at the order of the prefect, and for each area of Paris, exclusive of "charges"*: 1) a lower limit of the proposed reference rental level (equivalent to the reference rent -30% of the latter), 2) a reference limit and 3) a higher limit of the proposed rental level (equivalent to the reference rent +20%).
*Charges correspond to services provided by the landlord, service charges for the operating and maintenance of the building, as specified in the rental contract. Charges imposed by the homeowner association fees of the building usually include: water, heat, hot water (if collective), maintenance, garbage collection, etc. If the landlord also provides the electricity and other utilities, these can also be considered "charges," and not "rent."
The new leases must specify the referenced rent level which is applied and the owner/landlord cannot exceed the higher level. The 80 neighborhoods of Paris are affected, divided into 14 geographical sectors. This enables the rent levels to be fixed based on the area of the city in which it's located, the number of rooms and the age of the building. Landlords risk fines if they don't comply with the reference rents, but there are some exceptions, based on particular characteristics of the property, such as location, comfort, services, etc.: terrace, a garden or parking in an area lacking these amenties. In this case, a "supplement" rent must be mentioned in the lease.
If your new lease doesn't include the mention of the reference rent, you can contest the lease up to one month of your having signed it. The landlord has up to one month to respond (from the date of the registered mail). If you have no response from your landlord, you can appeal to the magistrate for the registration of the information.
Upon renewal of your lease, both you and the landlord can propose a new rent, but the landlord must inform you of any increases at least six months before the end of the lease and for you, five months prior. If and when your landlord does not respect these new rules for fixing the rent, the prefect can put him in default of compliance and fines may be imposed, including a return of overpayment of rents, plus €5,000 for a individual and €15,000 for a property owned by a company, such as an SCI (Société Civile Immobilière).
These are the basics of the new rent control, but again, I ask, will this work? The industry doesn't think so, and neither do I. Every tightening of control will exacerbate the problem by creating an even greater scarcity of property. If landlords can't recuperate their costs or earn a profit, why would they even want to invest? This reduces the number of available properties on the market. And if the landlords aren't profiting, why would they want to make property improvements? They wouldn't is the answer, and property will go to ruin. The regulations also create an even bigger climate of mistrust between the landlord and the tenant, painting the landlord as "evil" and at fault for the the housing shortage.
The truth is, in my opinion, that the city's effort to provide more and more affordable housing is having the opposite result, because they don't understand the basic principles of economics or behavior. In a public forum a few months ago, I heard a city official blame the loss of Paris' population specific to short-term rentals, which is an absolute fallacy! According to France24, mayors all over France are considering adopting the same practices, many of whom are members of the Communist Party. And let's face it, they don't want anyone to own property! And it seems that neither does the average French person, as 71 percent (according to the polls (IFOP-Fiducial, conducted in March 2018 among 973 Paris voters), support the measures.
Meanwhile, the tighter the controls on the people who "hold the cards," or in this case, own the real estate, will only result in less real estate availability and that means no matter what, prices will go up and so will rents, while the quality will decrease. It's the "free enterprise" and the "free market" that will lead to competitive pricing and bring prices and rents down. Mark my words. This is a dumb, dumb, dumb move.
There are numerous articles online by experts attesting to this FACT:
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