Taming the Short-Term Tiger by the Tail

 

Madame Le Maire de Paris, Anne Hidalgo, is pretty confident she has the public on her side of the short-term rental equation. She’s now proposing a referendum to ask Parisians what they think the maximum number of nights should be that a property can be let to others. She hopes that by asking Parisians their opinions, she can put pressure on the legislators to change the law.

As you may already know from reading French Property Insider, I am strongly opposed to her viewpoint and her tactics. A re-election in March only means a lot more of the same and even more than before, making the property market even less fluid than before and what will, I predict, drive prices even higher. If she could have her way, she’d lower the ceiling of short-term rental days from 120 days a year (this applies to primary residences only) to 30 days, as in Amsterdam where it was previously fixed at 60 days. In London, the rental of furnished property is limited to 90 days and is unlimited in Berlin provided that the owners of main residences have obtained the agreement of the authorities.

She promises to continue her battle against Airbnb should she be re-elected in March, accusing the platform of diverting tens of thousands of housing units from the market. She wants to ban short-term rentals entirely in central Paris where, according to her, “fraudsters” (property owners who rent their property short-term) are rampant. This is not correct according to data collected by the city hall or that Le Figaro had obtained. It is in the 5th arrondissement that the total number of rented dwellings is highest. This is typical of the rhetoric one hears from her, not backed up by fact. She’s also sadly mistaken about Airbnb, which is not the true culprit. Airbnb exists because the need exists for the property owners to generate revenue to cover their costs and because people need short-term accommodations. She fails to see this reality.

Hidalgo hardened her stance, in spite of her lack of vision, as previously she targeted multi-property-owners who make rentals an often undeclared commercial activity and not those who rent their property to make ends meet. However, her new proposal would include all owners. For the UNPI (Union Nationale des Propriétaires Immobiliers, or National Union of Real Estate Owners), this is an infringement of the rights to property. I concur.

Above all, Hidalgo risks running up against European legislation. “Anne Hidalgo wants to strengthen her anti-Airbnb arsenal while the Court of Justice of the European Union, which is due to rule this winter, has not yet judged whether the current device complies with European regulations,” explained Madame Xavier Demeuzoy, an Airbnb rental attorney. The Minister of Housing doesn’t agree with her, either. Julien Denormandie believes the problem does not come from the maximum rental period. He’s in favor of battling the speculators, not the owners of the main residence who supplement their income with a few rentals a year. “Airbnb allows many French people to have a little more money at the end of the month, to repay their credit. Renting your main residence for 120 days does not reduce the supply of accommodation,” he said.

He’s right. What it does, is fill the vacancy and provide housing, not take it off the market. What’s happened with secondary properties which can no longer offer short-term rentals is that they are now just being left vacant, doing no one any good at all. And there is less investment in secondary homes, meaning less economic movement stimulation.

Illegal Rentals in Paris Average Nightly Rates Average Size of Rentals Average fines Total Fines

The city hall claims that 60,000 homes have left the private market, including 34,000 properties rented on Airbnb (the rest being second homes and vacant homes). These figures are disputed by Airbnb which estimates it, rather, at just over 4,000 (or 0.3% of the private housing stock in Paris). Who can you believe?

Le Figaro asked: In which arrondissement of Paris were the fines against “unscrupulous” owners the heaviest? Le Figaro also collected the characteristics (surface area, the nightly rate, the number of rented dwellings, etc.) of the apartments concerned. And guess what? It is in the 5th arrondissement of Paris (the Latin Quarter) that the owners were the most severely punished.

This is almost comical because the Latin Quarter is one of the most touristy parts of the city and is not a desirable full-time residence for anyone…when one is surrounded by bars and restaurants which throw plates on the sidewalk to attract diners! This is just the sort of area of the city where it should be allowed, not punishable.

In 2018, the courts imposed a total of more than two million euros in fines on owners who illegally rented their accommodations in Paris. Le Figaro wanted to know more about the detail by the arrondissement of these penalties, the characteristics of the housing units targeted, and the profile of the landlords.

Le Figaro was able to obtain the data collected by the Paris city hall. No illegal Airbnb rentals had been listed by the city in the 14th, 19th, and 20th districts. So, if you have a property there to rent, you might be safe! Regarding the owners, the only figures brought to the attention of the city related to their status. Of the 110 landlords sanctioned (156 dwellings), 78 acted in their own name and 32 in the form of an SCI (Société Civile Immobilière) or a limited liability company. “We are dealing with investors who have diverted their homes from their original purpose to make clandestine hotels,” said Ian Brossat, deputy mayor of Paris in charge of housing. (FYI, Ian Brossat is a registered Communist. I often joke that he’s a guy that doesn’t think anyone should own anything!)

The 5th, one of the five most expensive districts in Paris, is the one where the owners were the most severely punished (357,000€). It alone accounts for 17 percent of the total fines imposed on fraudulent owners (2.1 million€). This is without counting the 60,000€ in fines for six accommodation units in the 5th arrondissement that were not counted because no data on the average surface area and the price of the overnight stay were available for these properties. The 8th (228,000€), the 4th (212,800€), and the 2nd (178,000€) followed behind.

Why the 5th I wonder? Well, the 5th is where many of the universities are and is highly populated by students. It’s not a major tourist destination, except for the one area of the Latin Quarter, which as I said earlier on, is a logical place for short-term rentals. Madame Hidalgo has always focused more on Le Marais, while it turns out she’s set her sights on the wrong side of the Seine.

Finally, it should be noted that most of the districts post average fines of between 10,000 and 20,000€, knowing that an owner illegally renting his accommodation risks a maximum penalty of 50,000€. This was the case for six people (1st, 3rd, 4th, 5th, 5th, 8th and 10th arrondissements).

It is in the 8th (259.9€ on average per night), 17th (258.2€), and 7th arrondissements (254.6€) that the “fraudulent” owners “made” the tenants pay the most. (This sounds like a death sentence for tenants who willingly and knowingly pay for their accommodations.) The average cost of an overnight stay for almost all of the arrondissements (except for the 15th and 18th centuries) exceeded 100€. Know what the average cost of a hotel room in Paris is?

As a general rule, prices for a budget and economy hotel in Paris per night average around 100€. What is classified as a “very comfortable” hotel averages 170€ per night and the most expensive deluxe category hotels can cost anything from 450 euros in Paris. Compare that to an apartment with a kitchen? So, it’s a big bargain and that’s one thing that makes it so attractive.

Plus, you get more space for your buck.  In the 17th, the average apartment rent is at the top (61.4 m²) just ahead of the 8th (56.8 m²). The average areas of the other arrondissements are equivalent to those of studios (16 to 41 square meters) or two-rooms (41 to 54 square meters).

It’s not just the total fines that are highest in the 5th arrondissement. This is also the case for the total number of illegally rented dwellings (31). Then followed by the fourth (17), the second (12), and the first (11). This is proof that, contrary to what the city hall and Airbnb suggest, it is not necessarily in the first four districts that “fraudsters” are rampant. As for Airbnb, the platform initially blocked rentals that exceeded the legal maximum threshold of 120 days per year in the first four arrondissements because it had observed “excesses.”

My personal beliefs are that the city doesn’t have the right to impose any of these regulations — that property owner should be free to do what they want with their own property, however that they are also free to govern themselves within the guidelines of their homeowner associations. So, if the owners in a building want to allow rentals, they should and if they don’t, they won’t. Simple as that.

I also believe that the regulations and methodology used by the city are counterproductive to the cause — that the end result is that there is less property on the market for rent or purchase and at higher rents and prices than they would like because there is less fluidity in the marketplace and for a variety of other reasons. It also turns investors and homeowners into criminals simply by wanting their properties to reap rewards, which is what drives property investment that fuels the economy.

A better method would have been to allow an owner one secondary property they could legally rent, but not more than the one. This way, all the foreign owners, who have their pied-à-terre which they use a few weeks a year, can still be let the rest of the year without the city butting into their business, but they can’t just speculate by adding others to their collection just for profit.

I could actually outline an entire program for the city that would manage the dilemma in a more futuristic way, considering that we are living in a transient world, where we can work from anywhere, travel a lot, and need transient accommodations. This new way of life isn’t going to wane, but only prosper and grow as our society grows even more technologically global, and so should the leaders who have this “tiger by the tail” they want, but can’t control.

Did they ever hear of taming the tiger instead? I guess not. They’re just caging it up and expecting it to behave like a pussycat. That’s not going to happen and in the process, someone is going to get hurt.

A bientôt,

Adrian Leeds
Adrian Leeds Group

 

 

 

 

 

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