Understanding the Paris rent cap
Paris is about to inaugurate a rent cap, the first of its kind in France, raising concerns among real estate professionals that the new law could discourage investors and destabilize the market. There is also the sense that, good intentions aside, the law could hurt the very people it was intended to help.
The city’s rents rose 42% over the last decade, and Paris has been the 2nd most expensive city in the world for two years running. The rent cap law is intended to slow or reverse that trend by making Paris more affordable for low- and medium-income renters. Once implemented, the law is expected to lower rental prices for about one in every five new leases in the city. The rent cap structure – in French, encadrement des loyers – is part of the much-debated and controversial loi pour l’accès au logement et un urbanisme rénové, or Loi ALUR, passed into law in March 2014.
Apartments in good locations and in good condition are hard to come by in Paris. The problem is particularly acute in neighborhoods with a high number of absentee/second-home owners, and in areas popular with short-term rentals. In these neighborhoods, prices are out of reach for most middle- and low-income renters. But they have been for a long time; and rent caps probably won’t solve that problem.
“Generally speaking, a market that is not free, doesn’t quite work,” says Alon Kasha, principal of A+B Kasha, a real estate agency specialized in property in Paris’ coveted Saint Germain des Près neighborhood. “These measures turn the tables on the very people they are trying to help. As landlords become averse to renting or seek alternatives, it will become increasingly difficult for these tenants to find a property to rent. Less expensive, but more difficult.”
Under the rules published on Friday, June 12, 2015, implementing this first phase of the Loi ALUR (“Accès au Logement et un urbanisme rénové”), landlords must set lease prices for new renters in accordance with the “reference” price per square meter in the neighborhood, up to 20% over or 30% under that price.
This reference rental value, the loyer de reference, is based on data collated by the Observatoire Local des Loyers (rental housing monitor) under the umbrella of the Ministry of Housing and Territorial Equality. To reach those figures, the city was divided into 80 rental districts, and median rental prices were calculated in each. Factors include whether the apartment is furnished or unfurnished, the m2 size, number of rooms and year of construction of the building. Exceptional features such as a terrace, a great view, luxury features or a prime location will allow for an upward adjustment, although it remains unclear exactly how that will be calculated. An online calculator is already available to figure out the rent level for any apartment citywide.
Paris is following closely on the heels of Berlin and Amsterdam, both of which instituted rent caps in early 2015.
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