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Rent Control in Paris

Introduction


Rent control in Paris is a policy first implemented in 2015 and reintroduced in 2019. This measure aims to regulate rent increases in an extremely tight real estate market, where rents have significantly risen over the past two decades. The report by the Atelier Parisien d'Urbanisme (APUR), in collaboration with CESAER, provides a detailed assessment of this policy's impact on the Parisian real estate market.


Rent increases in Paris have been among the fastest in major European cities over the past twenty years. This pressure on the real estate market has led to growing difficulties for residents, particularly those with middle and low incomes, who struggle to find affordable housing. The reintroduction of rent control in 2019 aimed to address these challenges by capping rents at a reasonable level based on reference rents established by the Observatoire des Loyers de l'Agglomération Parisienne (OLAP).


Context and Methodology


Context


The rent control system in Paris was introduced following the 2014 ALUR law, aiming to curb excessive rent increases. After an initial attempt between 2015 and 2017, which was annulled by the administrative court, it was reintroduced in 2019 as part of an experiment extended until 2026. This regulatory context has been influenced by similar movements in other major cities like Berlin, which also implemented strict rent control measures but with varied results.

In comparison with Berlin, where a similar scheme was introduced, rent control policies have had mixed success. In Berlin, the "Mietendeckel" (rent cap) was annulled in 2021 by the Federal Constitutional Court, leaving tenants in legal uncertainty. This situation highlights the importance of designing robust and legally sound regulations. In Paris, authorities have learned from initial attempts and strengthened the legal framework to ensure the policy's sustainability.


Methodology


The evaluation of the rent control effects uses a causal inference method, specifically the difference-in-differences method. This method compares the evolution of rents in Paris (treated group) with that of similar cities not subject to rent control (control group). The data used mainly come from SeLoger listings and leases from the Observatoire des Loyers de l'Agglomération Parisienne (OLAP).


This method is particularly suited for evaluating public policy impacts as it controls for potential biases related to time trends and common shocks affecting both the treated and control groups simultaneously. By using this method, we can isolate the causal effect of rent control while minimizing distortions due to other economic or social factors. For example, by comparing Paris with cities like Toulouse or Nice, which do not have similar rent control schemes, we can obtain a more precise estimate of the regulation's effect on Parisian rents. This rigorous methodology is essential to provide reliable and actionable conclusions.


Results and Analysis


Rent Moderation


Rent control has effectively led to a notable reduction in rent increases in Paris. According to OLAP data, the average monthly rent for private rental housing in Paris was €24.70/m² as of January 1, 2023.


The reduction in rent increases is particularly significant for small dwellings, often the most demanded in dense urban areas. This moderation is crucial for maintaining housing affordability in neighborhoods with high demand. For example, in neighborhoods like Le Marais or Saint-Germain-des-Prés, where rents have historically been among the highest in the capital, rent control has stabilized prices, providing some predictability to tenants and investors.


Data shows that in 2022, rents for the private rental stock in Paris increased by an average of +2.5%, but this rise is moderate compared to increases observed before rent control. Before this measure, increases could reach between +5% and +10% per year, as was the case between 2001 and 2013.


Impact by Housing Type


For medium to large-sized dwellings, the impact is less marked, which can be explained by the strong demand for small units in dense urban areas.


This differentiation by housing size highlights the importance of targeting regulations based on market characteristics. Small dwellings, often sought after by students and young professionals, represent a significant portion of rental demand.


The report's data indicates that for dwellings smaller than 18 m², the effect of rent control was particularly strong, with a reduction in rent increases of 10.2%. For dwellings between 18 and 24 m², the reduction was 6.3%, and for dwellings between 24 and 40 m², the reduction was 4.9%. Beyond 100 m², the effect of rent control remains moderate but significant, with a reduction of 2.6%.


Compliance and Monitoring


Rent control in Paris aims to cap rents to curb their increase. However, about 40% of rental listings exceed the increased reference rent, with particularly high non-compliance for furnished apartments (48.2%) compared to unfurnished ones (29.3%).


Furnished apartments are often rented at higher prices due to additional services and amenities provided, which partly explains this non-compliance.


OLAP data shows that rents for furnished apartments are on average 10% to 15% higher than those for unfurnished apartments. This price difference, combined with high demand for furnished units in sought-after neighborhoods, leads some landlords to circumvent regulations. Compliance with rent caps is particularly low in central districts and neighborhoods popular with expatriates and foreign students.


It's crucial to recognize that excessive state intervention in the real estate market can often lead to unintended consequences. Strict regulations and rent caps discourage private investment and the construction of new housing. High non-compliance among landlords can be seen not just as a challenge but as a rational response to rigid market policies. A more liberal approach would involve reducing administrative barriers and encouraging the free play of supply and demand.


Implications and Perspectives


Impact on Investments


Rent control initially raised concerns among investors, who feared reduced returns. However, the stability brought by this regulation has gradually attracted investors seeking predictable returns. Though restrictive, regulations can create a stable and attractive investment environment in the long term.


If well-managed, this policy can serve as a model for other metropolises facing similar challenges, demonstrating that it is possible to balance rent regulation with a dynamic real estate market. Case studies from cities like Vienna and New York show that well-designed regulations can coexist with a dynamic real estate market. In Vienna, for example, strict rent controls have maintained stable returns for investors while ensuring housing affordability. Similarly, in New York, regulation policies have helped stabilize the rental market, attracting investors seeking predictable returns.


However, it is important to note that historically, the most dynamic and resilient real estate markets have been those with minimal state regulation. International experience shows that deregulation, combined with tax incentives, stimulates not only private investment but also innovation in the real estate sector. Recognizing these dynamics allows us to learn from both approaches to create a real estate market that is both stable and conducive to innovation and investment.


Case Studies: New York and Vienna


New York

In New York, the real estate market is also subject to strict regulations, but these measures have helped stabilize the rental market and attract investors seeking reliable returns in a volatile market. Regulation policies are regularly adapted to respond to market dynamics, which strengthens investor confidence. New York has managed to balance tenant protection with investor attractiveness by continually adapting its policies to meet the changing needs of the real estate market.


Vienna

Vienna is a relevant example where strict rent control coexists with a dynamic real estate market. The city has implemented rigorous regulations while maintaining an attractive market for investors. Vienna's regulations ensure housing affordability while offering stable returns to investors. Vienna's success demonstrates that it is possible to balance rent regulation and market dynamism, provided the regulations are well-structured and consistently applied.


Conclusion


In conclusion, the debate between a regulated approach and one without state intervention remains crucial for the future of the Parisian real estate market. Examples from Vienna and New York show that well-designed regulations can offer stable returns and attract investors while protecting housing affordability for tenants. However, history has also shown that deregulation and tax incentives can stimulate investment and innovation, creating dynamic and resilient real estate markets.

For Paris, adopting a balanced approach seems essential. Controlled deregulation, accompanied by incentive policies, could attract more private investments and encourage the construction of new housing, thus responding more effectively to growing demand.

Paris should integrate lessons from both approaches, combining the stability and predictability offered by well-thought-out regulation with the dynamism and flexibility brought by strategic deregulation. This synergy will create a real estate market that is stable, accessible, and attractive to investors while ensuring adequate protection for tenants.

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