Paris: A Ghetto for the Rich, or Will it Become a New Ghetto for the Poor?

This is the last issue of the year and sadly, the authorities are calling the property market in Paris and the Ile-de-France “morose.” Prices are down, sales are up, but still the hope for a big improvement is not there.

Apartments sold better than homes (1% increase) with a 7% increase from August to October 2014, but still the figures are down compared to the last 10 years of growth. The exceptional reduction of 25% on capital gains tax the previous year made a big difference to sales, but the first results for November show a decline in sales compared to November 2013. Home sales in 2014 are not expected to exceed 2013 figures.

In one year, prices of existing homes fell 1.6% in the Ile-de-France, 1.8% for apartments and 1.1% for houses. Paris stands out from the other departments with a decline of the price per square meter of 1.7% in 3 months (€8,050/m² at the end of October). It is anticipated that prices will fall further to €7,900 per square meter by February 2015, down 2.2% in three months.

All this is good news for the buyer, however. With as finite a market as Paris, as much as the authorities are trying to reduce the city’s property values, they can only be held at bay for so long.

Read the entire report in pdf form (in French).

I’ve been in Los Angeles all the past week and believe it or not, real estate in the City of Angels is not as expensive as Paris. “The median home value in Los Angeles is $525,700. Los Angeles home values have gone up 7.9% over the past year and Zillow predicts they will rise 2.6% within the next year. The median list price per square foot in Los Angeles is $371 ($3993 per square meter, or €3,280 per square meter), which is higher than the Los Angeles Metro average of $342. The median price of homes currently listed in Los Angeles is $579,000 while the median price of homes that sold is $536,850.”

But what’s tough to compare, like apples to oranges, is that spaces are much larger Stateside than in Paris. An average two bedroom apartment in Paris is about 753 square feet (70 square meter), while the average U.S. two-bedroom apartment is about 900 square feet.

(Photo by Charles Plaeiau, Reuters)Meanwhile, the latest from Paris is that it’s not good enough that prices are coming down. The city of Paris is launching a campaign to prevent the city from becoming a “Ghetto for the Rich.” In a recent article by Feargus O’Sullivan in CityLab.com, the city published a list of 257 addresses (8,000 apartments) on which the city would have “right of first-refusal” to buy and then would convert them to subsidized housing for low income residents.

When one of these properties comes up for sale, the seller must offer it to the city first…but here’s the clincher — the city can decide the price! The owner can appeal to an independent judge to have it re-evaluated or can remove it from the market, but he can’t sell it to another buyer unless the city bows out.

The addresses are mostly in former working-class neighborhoods (most are in the 18th arrondissement), but many are on busy hip streets that have been gentrifying in recent years. And it will be expensive for the city to fork out about €850 million, which will buy them about 100 of the list of addresses.

The real estate industry is having heart failure! Sales are already sluggish and this could bring them even further down, along with the prices. And they question: couldn’t the money be better spent by building more apartments elsewhere? This is already in the works — over the next six years, 10,000 new apartments will be built each year, with 70% of them designated for subsidized housing, plus convert office space to housing and relax height restrictions for public buildings.

While journalist Feargus O’Sullivan remarks “But in a world where city after city is throwing up their hands and doing almost nothing to combat displacement, exorbitant housing costs, and their negative effects, it deserves credit for really trying.” I have a more worrisome viewpoint. Personally I believe that if real estate is forced into a downward trend, then money is lost…and when money is lost, everyone gets poorer, not richer. The city should work harder to find ways for its citizens to earn more, reduce unemployment, provide more opportunity for home loans, etc., so they can afford their beautiful city and help support the infrastructure, not usurp it.

Happy New Year!

A bientôt,

Adrian Leeds

Editor, French Property Insider

Email: [email protected]

P.S. The Adrian Leeds Group is now listing properties for sale in Paris and other parts of France — visit Parler France Properties to see four outstanding properties. We only represent properties of exceptional quality, on as high a standard as the properties we have represented for rental, so you can trust you will make the best purchase and investment.