Changes in French people’s aspirations when choosing a place to live, and the consequent transformation of demand in the residential housing markets especially at a regional level, are reflected in a distinct shift away from the previous trend toward city-dwelling. This new focus in the housing priorities of the French can largely explain the buoyancy of the existing housing market and the strength of demand for home improvement work, a trend that should continue into 2021 and 2022, even if demand is expected to weaken slightly next year. The new-build housing segment, however, is suffering from greater tension owing to a mismatch between the aspirations of the French – whose preferences incline them toward single-family homes – and a housing policy that advocates the national target of the “zero artificialization” of land. This situation is exacerbated by the growing difficulty in the multiple-dwelling market encountered especially by private developers to replenish the supply of housing stock (also confronted by a sharp decline in new construction permits) which – combined with tensions on land-use, the imposition of more stringent standards, and the rise in the price of building materials – is jeopardizing a significant revival in new building starts for the 2021-2022 period.
Housing will become the post-Covid "major concern" for French households
In a general context characterized by a lack of visibility in many areas, the housing market appears dynamic over all, even if certain segments are witnessing a gradual deterioration in their operating conditions as a result of the health and economic crises. With the benefit of hindsight, however, it would appear that housing is becoming the post-Covid “major concern” for French households, most of whom are adopting potentially enduring changes in their lifestyles. The importance they place in the immediate environment (family, housing) and in the quality of life is leading households to carry out a massive reappraisal of their attitudes toward housing.
This new focus finds notable expression in the increasingly widespread intention of owners to carry out work on their properties, ranging from painting & decoration or home improvements to larger-scale renovation, building extension or energy transition work (43% of owners are considering the start of energy efficiency improvement work on their properties within the next 5 years). The impact of these new aspirations combined with the launch of the "MaPrimeRénov" Government subsidy scheme has led to a sharp increase in demand for the services of finishing work contractors.
The old-build housing market segment also seems to be in good health, with the appeal of housing being strengthened in particular by uncertainties about the ongoing health situation that tend to enhance in many respects the notion of housing as a safe investment. In the first quarter of 2021, market activity even exceeded seasonal dynamics, as French people’s desire to improve their living conditions was stimulated in this atypical context. These changes in the qualitative perception of housing, however, are also having significant effects at a local and regional level. The decline in the proportion of real-estate transactions in the Il-de-France region is being accompanied by renewed interest in the outer suburbs of Paris at the expense of transactions within Paris intra muros. More specifically, over the course of 2020, most of the départements with a large regional metropolis saw a substantial decline in transactions in the old-build housing market while a large number of départements with medium-sized cities saw a sharp increase in the number of transactions.
Growing interest in single-family homes and rising average prices in the Greater Paris/Ile-de-France region and in the provinces
Price changes follow the trend observed in transactions. In the Ile-de-France region, for example, the pace of price increases for apartments has slowed since the end of last year, with even a slight decline in Paris in the first quarter of this year (-0.9%) compared with the last quarter of 2020. On the other hand, French households are showing greater interest in single-family homes, thereby triggering average price increases in both Ile-de-France and the provinces. Price trends for three-roomed apartments in about 40 French cities also highlight a new phenomenon: the sharpest price rises no longer concern a few large metropolitan areas but a large number of medium-sized cities, most often located in the west of France, ranging from Le Havre to Pau, via Angers, Tours or Limoges.
The effects of the 3rd lockdown period may have exacerbated the seasonal slowdown in the residential real estate market at the beginning of the year and further depressed market conditions before the usual rebound in activity in the spring. Ultimately, however, demand turned out to be buoyant thanks to the boost provided by interest rates remaining close to their historic lows, and to the rather favorable lending conditions offered by the banks. The outlook for the old-build housing market in 2021-2022 is expected to remain positive. On the one hand, household confidence in real estate seems robust with price expectations still trending upward in the short and medium term, and with a significant increase in the proportion of French people wanting to buy a home, particularly in the coming year and in large urban areas, and most often as their primary residence. On the other hand, the continued pursuit of what remains a very accommodating monetary policy aimed at limiting long-term interest rate differentials between European countries should inhibit the rise in interest rates, while the soon-to-be restrictive nature of the criteria adopted by the HCSF High Council for Financial Stability should contribute more to slowing down – rather than halting – the credit dynamic notably for rental investment and first-time buyers.
Without support measures, there may be a decline in business activities in the new-build home market
In a highly uneven real estate market, activities in the new-build home segment are liable to decline or remain well below the levels enjoyed in 2016-2019 without the provision of Government support measures and a stimulus plan for housing. Indeed, the rebound in new housing starts has not been accompanied by a more rapid delivery of building permits, especially in the multiple-dwelling sector where the inversion between the building permit and construction curves is without precedent. It seems to illustrate specifically the difficulty encountered by the private sector in replenishing its construction project portfolio and tailoring it to changes in demand. Despite the rebound in the first quarter of 2021, it seems unlikely that there will be a reversal of the downward trend in properties offered for sale, and the recovery in reservations made by private individuals – who now find themselves competing with demand from institutional investors, notably for intermediate housing – is expected to go hand-in-hand with a lasting decline in operators' inventories. It is to be feared that the rebound in activities at the beginning of the year will not subsequently be confirmed and that new housing will continue to be handicapped by a number of factors: the growing difficulties in securing land (owing to higher prices and the continuing post-election reluctance of certain local governments), the constraints imposed by health regulations, the difficulties in obtaining supplies or the inflated price of building materials and, finally, the implementation next year of the standards associated with the new RE2020 environmental regulations. Single-family housing seems to be more stimulated by strong household demand, with the traditional clientele of modest first-time buyers being replaced by a more solvent clientele of ex-urbanites aspiring to change their living conditions, but the objective of “net zero artificialization” of land and the tightening of conditions providing borrowers access to interest-free loans are compromising the medium-term momentum of this market segment. It is therefore to be feared that the period 2021-2022 will not see a veritable rebound in new construction after the decline observed in 2020.
A large number of questions have been raised by the unprecedented crisis triggered by the pandemic. Should a new balance be struck between new-build housing and the preservation or renovation of the old-build housing stock, in terms of both housing policy and household demand? Could the impacts of the current crisis lead to a rebalancing of the residential market in favor of the provinces, medium-sized cities, and house ownership? Is the scale of this specific crisis capable of truly changing the current situation and the previous trends of growing territorial discrepancies by transforming the aspirations of French households, or will it only be a period of inflection of a deeply rooted and ultimately unavoidable trend toward greater city-dwelling?