Rent controls: a long-awaited law but no benefits for either landlords or tenants

The ALUR rent control law came into force in France on 1 August 2015, covering unfurnished and furnished lets. Lodgis, the Parisian furnished lets specialist, is critical of the incoherencies in this new legislation, which has been eagerly awaited by landlords and tenants alike.

An insufficient bank of reference data

In a decision dated 20 March 2014, the French Constitutional Council indicated that to ensure rent zoning was fair, accommodation categories and geographical areas should be defined precisely enough that the reference rent would reflect all the criteria usually taken into account when setting a rent.

However, OLAP (the Paris Area Rent Observatory) does not have sufficient data to zone areas with any degree of accuracy. A Lodgis study of data provided by OLAP demonstrated that just 10% of reference data was used to set 50% of reference rents. Consequently, the new rents being set do not always reflect current market realities.

Incoherent criteria that penalise tenants

The first issue is with geographical zoning. Within a zone, tenants need to look at both the street name and the number. For example, for an apartment near Paris's Ménilmontant metro station, the street on which a property is located can create a difference of up to 13%. The rent for a 22 sqm studio apartment at an even-numbered address on Rue Oberkampf is €660 pcm, while at an even-numbered address on the Rue Ménilmontant side of the station the same studio apartment would cost €715 pcm. Similarly, the rent paid by a disadvantaged family for a four-room apartment in a Haussmannien-style property near Château-Rouge metro station in a very working-class street such as Rue du Poulet or Rue Doudeauville (average rent €20.40 per sqm) will be higher than that paid by a well-off family that can offer the guarantees required to rent an identical apartment on upscale Place des Victoires or Rue Saint Honoré (average rent €20.30 per sqm).

In an even more astonishing example, a four-room apartment in a recent building at an even-numbered address on Avenue de Choisy costs 40% more than the same apartment at an odd-numbered address (average rent €24.30 vs €17.30 per sqm).

Moreover, two-room apartments are soon to be in short supply. When tenants choose a property to rent, they do so to meet a need at a point in time. Even when surface area is equal, layout affects the level of rent. An apartment with a separate bedroom is more expensive than a studio. However, with just one exception, the reference rents set for two-room apartments are lower than those set for studios.

So, the reference rent for a 30 sqm studio apartment in the 14th arrondissement is €978 pcm. A two-room apartment is 23% cheaper at €795 pcm. Similarly, a 30 to 35 sqm studio in Paris's 3rd arrondissement in a 1980s building near Place de la République will cost 35% more to rent than a two-room apartment of the same size in the same place. Landlords are being tempted to tear down walls inside their apartments to make them more profitable!

The data also penalises landlords

Logically, the value of new-build properties should be higher than that of older buildings. However, no provision is made for this in the ALUR law. In some districts the principle holds, but in others quite the opposite is true.

On Avenue de Choisy in the 13th arrondissement (a very varied street with Haussmannien-style buildings as well as 1970s tower blocks and modern buildings), a four-room apartment in a Haussmannien-style building on the even-numbered side of the road is 15% more expensive to rent than it would be in a modern building (average rent €19.90 per sqm vs €17.30 per sqm). Conversely, on the odd-numbered side of the road, an identical apartment will cost 28% more to rent in a modern building than in a Haussmannien-style building (average rent €24.30 per sqm vs €19 per sqm).

So far, Paris's long-awaited rent controls have turned out to be very disappointing. The ALUR law is not living up to expectations and may even be dangerous, because there is a risk it will make landlords even more reluctant to put their properties on the rental market. Incoherencies on the furnished lets market are even more striking: OLAP has no statistics on furnished lets (although these account for 50% of the reference rents), and the arbitrary 11% premium added to rents does not reflect the reality of the furnished lets market.

Read more:

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