2019, a residential real estate market at its highest level
Historically low interest rates, and their persistently downward trajectory, continue to buoy up the residential real estate market. In a tense international climate, central banks have abandoned their monetary normalization policy and adopted goals aimed at durably keeping interest rates at extremely low, or even negative, levels. As a result, growth in outstanding real estate loans granted to households is at its highest level since 2012 thanks to new loan production at record-breaking levels in 2019.
The abundant supply of credit goes hand-in-hand with highly favorable lending conditions – low interest rates, size of required deposits declining in recent months, high average length of mortgages – that combine to boost household solvency. Despite the gradual application of restrictions on public housing subsidies, which have had a greater impact on the new-build housing market, the situation remains favorable in the residential market overall. Activities in the household real estate market in 2019 are on the rise (by an estimated +4%), driven by the existing property market (estimated at +6%) while the new-build market continues to contract (down by an estimated 5%).
A trend confirmed in 2020
Thanks to the persistence of favorable financing conditions, this overall configuration should not substantially change in 2020, even if certain factors herald a possible market slowdown. Thus, barring major unforeseeable events, activities could decline moderately but should remain at a satisfactory level next year. The volume of transactions in the existing property segment is expected to remain very high, despite a slight downturn due, in particular, to high prices in tight markets. However, the scarcity of available land related to municipal elections, the probable decline in social housing combined with a less favorable housing policy, notably regarding individual, single-family homes, should weigh down on the new-build housing segment, which is expected to slow down even further. The sensitivity of the regulatory authorities to the expansion of home loans could also lead to measures taken to reverse the trend in financing conditions.
The climate challenge: a new deal?
At the same time, France's commitment to the ambitious Climate Plan is leading the Government to pursue a vast plan of action that is gradually bringing about a change in the housing market. To meet the goals of the National Low Carbon Strategy, final energy consumption in the residential sector must decrease if the goal of carbon neutrality is to be met by 2050, but the results achieved so far still fall short of the desired trajectory. Considering that nearly 54% of primary residences in France are classified in categories E to G for energy efficiency, and the building sector as a whole (residential and tertiary) is the second largest emitter of greenhouse gases, the need to improve energy efficiency in the existing property segment is becoming a priority.
Nevertheless, while it is vital to respond to the environmental emergency, it is also necessary to take account of the patrimonial and territorial risks posed by the energy-climate policy at a time when the housing market is already confronted with a worsening structural imbalance at a local and regional level. Indeed, the combined effects of the concentration of population and employment in the major regional metropolitan areas and the convergence of public aid, the choices made by market players in terms of intervention and expectations of changes in property values focused exclusively on tense markets are already leading to a faster rise in prices in these areas and a consequent widening of the gap between them and the less attractive markets.
The energy and climate transition is crucial for housing and represents an opportunity to reduce energy bills and to curb the impoverishment of the population. Nevertheless, the target of reducing housing considered as “thermal sieves” runs the risk of contributing further to the devaluation of geographical areas and types of housing that are already heavily impacted by tensions at a local and regional level. If, in addition, this policy is applied on the basis of current zoning arrangements, it could lead to the assimilation of the drive to revitalize small and medium-sized towns with urban sprawl.
Finally, owing to the impact of expectations (about final values, the price of renovation and construction work, the future tightening of regulatory measures, etc.), certain provisions could ultimately discourage households in unstressed areas from investing in the energy transition or give them the feeling that the value of their properties could be threatened.
The Climate Plan and the National Low Carbon Strategy set out a range of virtuous principles by taking account of impacts at a local and regional level and by staggering action plans, but it will be necessary to remain vigilant regarding the risk of depressing the value of household assets and creating “disincentives” to investments in energy efficiency projects. Ultimately, the success of these different policies also depends upon their social acceptability...