Rent control : Soon to be the norm for large cities ?

While the rental framework in Lyon and Villeurbanne took effect on November 1, 2021, it is popular to criticize this practice, which is expected to spread fast in other important cities. A survey by the Consumption Housing Environment (CLCV) organization in early 2020 found that 40% of rental advertising published in Paris, where oversight has been necessary since July 2019, are still inaccurate. Let us return to the specifics of this rent control scheme, its intended consequences, and acknowledged limitations.

The principle

The imposition of a rent ceiling for empty and furnished rentals used as the tenant’s primary dwelling, as well as for mobility leases, constitutes rent control. In the cities involved, a reference rent is established based on the following criteria:

• the type of accommodation (apartment or house);

• rental, empty or furnished;

• the date of construction;

• the surface area and the number of rooms;

• the address, some areas being more “tense” than others.

The municipality will utilize these factors to create a computation that will enable the owner to know the monthly reference rent to apply, per square meter leased and excluding costs, using an Internet portal. With exclusions, this reference rent will be the approved rent range, which will be raised by 20% or decreased by 30%.

In the case of a violation, the prefect may demand a rent decrease, and the owner who fails to comply faces a punishment of € 5,000, or possibly € 15,000 if it is a formal entity. In actuality, rent control may only be obtained via a dispute with the tenant, and only a small number of cases are filed before the authorities.

Rent control is spreading in tight areas

It is a demand arising from the Elan Law of 2018, which requires rent regulation in regions where the real estate market is “tight” by 2020. This refers to communities where purchase prices and, by extension, rental prices have reached new highs, due to a lack of commodities in the face of rising demand. In some regions, a tax on unoccupied homes may be levied, and the housing tax may be raised.

Lille, which has been controlling rentals since March 2020, is the only provincial municipality that has implemented the legislation on schedule. Prior to Lyon and Villeurbanne, the nine cities of the formation Public Territorial Plaine Commune (Aubervilliers, Épinay-sur-Seine, Pierrefitte-sur-Seine, Saint-Denis, Villetaneuse, Stains, L’Île-Saint-Denis, la Courneuve, and Saint-Ouen) in the Paris area accepted the legislation in June.

It will be the turn of the nine Eastern municipalities on December 1, 2021, who had their candidacy chosen and confirmed by a decree issued last May. Bagnolet, Bobigny, Bondy, Le Pré-Saint-Gervais, Les Lilas, Montreuil, Noisy-le-Sec, Pantin, and Romainville are the towns in question. Finally, the policy will take effect in Bordeaux and Montpellier before the summer of 2022.

In certain situations, the application is refused: for example, Grenoble-Alpes Métropole and Grand Orly Seine Bièvre were denied the ability to impose this restriction on their property owners. The government determined that these communities did not match the criteria established to define the market as a tight zone, including a high median rent and a substantial discrepancy between private and social rental rentals.

The interest of the measure

Let’s look at why the real estate market has to be more democratically supervised, as well as the predicted consequences. The agglomerations in question have seen a substantial mismatch between the availability of rental housing and the demand, which is sometimes significantly greater. As a result, rents have risen dramatically in certain areas, making housing more challenging for a growing segment of the population.

The legislator’s goal is not to jeopardise owners’ investment plans, which are often just ordinary savers looking to secure their retirement: the rent cap has no impact on existing leases or implicit renewals. (at the ages of 3 and 6). Renewals at the end of leases, new leases, and mobility leases will all be affected.

This aims to curb the avarice of landlords who would take advantage of the increasing demand to charge exorbitant fees. The populace that cannot afford to pay a high rent would therefore be guaranteed of finding housing inside the municipality.

System limits

While the concept is admirable, the regulation of private rental stock rentals has a basic limit, which has the unintended consequence of producing the opposite effect. Indeed, it inhibits investment or, more accurately, redirects it away from the cities targeted by the legislation.

Anyone who imagines himself in the shoes of an investor risking their resources to purchase a rental property would want to establish a rent to make the venture successful. However, since purchase prices are unregulated, a decrease in rent would instantly reduce the profitability – and hence the interest – of investing. Savers may soon have to adjust their investing strategy or relocate to a place where this restriction does not exist.

As a result of the races, the rental supply in major cities is expected to diminish, and owners offering reduced rents will still pick the best files. People with the greatest earnings will continue to be privileged, while others with lower incomes will suffer just as much, not because of the amount of rent, but because of the shortage of available homes.

Second, rents will rise more rapidly in the suburbs, where demand and investment will be concentrated.

Finally, the limitation is susceptible to an exception, and an extra rent may be charged based on criteria that are somewhat subjective, such as additional comfort features or a view of a historic site.

Finally, rent control in big cities is not a crazy notion; but, it can only accomplish its true aim if it is implemented throughout the whole country. This would be the only way to preserve the balance between the great cities and the suburbs, including the surrounding countryside, and it would allow rentals to be affordable to even the most modest budgets throughout France. To be continued!