President Francois Hollande pledged more than a year ago to slash
red tape holding back construction, hoping to bring within reach an
oft-repeated promise to build 500,000 new homes a year.
But property developers complain that government measures since then
have even discouraged home building and say they simply cannot make
houses at prices would-be buyers can afford.
There's no shortage of demand: Charity Fondation Abbe Pierre
estimates that some 3.5 million people in France are without a roof
of their own or inadequately housed.
According to statistics agency INSEE, household investment -
primarily in real estate - slumped 2.6 percent in the first quarter
from the previous three months. That was the biggest drop since the
2008 financial crisis and brought household investment to its lowest
"Falling household investment is really starting to weigh on
growth," said Francois Payelle, head of the French Property
Developers Federation. "What was a marginal subject has now become
sensitive in macroeconomic terms."
With the government counting on economic growth this year of 1
percent, any slack in housing investment puts an added onus on
companies and consumer spending to keep the recovery on track.
Developers put about 350,000 properties on the market last year, far
below Hollande's target and extending the list of unfulfilled
promises by the Socialist president, whose poll ratings are mired at
record lows for a modern-day French leader.
No meaningful pick-up is expected this year after a soft first
quarter. "Given the demand, we should be able to put a lot more
houses on the market, but we can't," said Payelle.
For him, new housing regulations that recently took effect have made
a bad situation worse, with additional restrictions on rents and
other rules putting off would-be investors and buyers.
A new law that allowing government officials to set rent limits in
cities of over 50,000 people has spooked investors, who fear lower
rents will make their properties unprofitable.
Developers also say local authority rules on parking places,
apartment sizes and how many floors buildings may have also stop
them being able to build the properties people want or need.
SUPPLY AND DEMAND
A 30 percent jump in prices over the last decade has made home
ownership impossible for many even though the market has cooled over
the last two years. Prices fell 1.4 percent in the first quarter
compared with a year before, data from INSEE show.
Figures from the OECD suggest prices relative to household income
are now less affordable in France than in Britain, where the central
bank has warned of a potential housing bubble.
The government acknowledges that building norms need to be eased.
New Housing Minister Sylvie Pinel has promised to deliver a list of
50 measures next month to cut red tape.
"Boosting supply is a way of reacting to the housing crisis that
many French people are living, encouraging lower prices and
breathing new life into the building sector," Pinel said.
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With housing starts down 17.6 percent in the three months to
end-April from a year ago, the situation has become urgent, the
Housing Ministry said on Tuesday.
"It's worrying. It's a sector that's missing out on the recovery,"
said IMF mission chief to France Edward Gardner, adding that prices
remained too high to encourage investment.
The building slump contributes to French unemployment stuck above 10
percent. Some 122,500 construction jobs - 8 percent of the workforce
- have been shed since the financial crisis.
Developments in the French housing market also influence shares in
real estate developers like Nexity <NEXI.PA>, Kaufman & Broad <KOF.PA>
and construction groups Bouygues <BOUY.PA>, Vinci <SGEF.PA> and
Bank of France Governor Christian Noyer has pointed out that
housebuilding is falling short even though France ploughs more
public money into the sector than any other developed country
through a range of measures to encourage home ownership.
"It's a valid question whether these policies have only led to
higher prices rather than construction," said Gardner.
Record low interest rates as the euro zone struggles to recover from
its debt crisis - caused in some countries by the popping of huge
property bubbles - have helped keep mortgage lending buoyant,
although March saw a small decline.
French banks usually refuse mortgages that will saddle a borrower
with monthly payments greater than a third of their income, a policy
Noyer says has kept default rates manageable.
Longer-dated mortgages have allowed French households to borrow
more, although most have lower debt than in countries such as
Britain. Bank of France data shows household debt has risen to a
record 84.8 percent of gross disposable income.
Economics professor and real estate expert Michel Mouillart sees few
options left for the sector short of allowing smaller deposit
payments than the 20-25 percent usually required.
"If we want to revive construction without using more debt or more
public aid, all you have to do is make the French rich," Mouillart
(Editing by Catherine Evans)
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