More than one billion euros worth of property bou…
More than one billion euros worth of property bought or pre-empted by the City of Paris and social housing landlords
The housing crisis in France is intensifying, exacerbated by the sharp drop in new housing production. According to the Union Sociale pour l’Habitat, almost 520,000 new homes will need to be built every year between 2024 and 2040 to meet demand, far more than the current level of housing starts (264,000 over the last twelve months, to the end of September 2024). Of these 520,000 new homes, 198,000 need to be social housing, more than double the number financed each year since 2020. The challenge is all the greater given that the ecological crisis is imposing stricter regulations on land consumption.
Utilizing existing properties for a more proactive housing policy
Consequently, some public-sector players are changing their strategy, relying more on the use of existing stock to achieve highly ambitious production targets. In Paris, for example, the city council’s goal is to achieve 40% “public” housing by 2035, including 30% social rental housing and 10% affordable housing, at a time when new construction is clearly declining due to the completion of the major Parisian joint development zones and the desire to protect certain areas of land. In addition to a stricter regulatory framework, as illustrated by the new bioclimatic local town planning regulations, the City’s main strategy is therefore to speed up the conversion of private housing stock into social and affordable housing. The current tendency is to increase the budget dedicated to acquisitions and pre-emptions of properties in areas with shortages, and to involve social housing landlords more frequently in invitations to tender in the Paris residential market.
Over 1 billion euros of assets bought or pre-empted in Paris
In order to gauge the extent of this trend, Newmark has compiled a list of all private housing stock[1] bought by the City and social housing landlords in Paris. Since the beginning of 2023, 84 transactions have been recorded, the vast majority of which are pre-emptions (82% of the total), carried out directly by the City or delegated to social housing landlords. There were also acquisitions carried out in the form of off-market deals or in response to traditional calls for tender, primarily on behalf of Paris Habitat and RIVP. Landlords other than those of the City of Paris are also acquiring buildings in Paris. Over the past two years, Immobilière 3F has acquired several, including 67 avenue de la République (Paris 11th).
The 84 transactions recorded since the beginning of 2023 account for 49% of the total number of transactions recorded in the Paris residential investment market. These 84 transactions totaled 1.1 billion euros, making public-sector players the main players in the market, ahead of private and institutional investors. The rise in the share of public-sector players can be explained by more ambitious targets for the creation of social housing, as well as by more favorable market conditions for social housing landlords. Between 2020 and 2022, they were constrained by high prices and competition from other types of buyers. In 2023, the context changed, with weaker demand from institutional and private investors and market values corrected downwards.
Changes in acquisition criteria
While most of the 84 acquisitions and pre-emptions recorded are for less than 10 million euros, some are considerably larger, approaching 50 or even 100 million euros, such as 25-27 avenue du Dr Arnold Netter (Paris 12th) purchased by RIVP, or the complex pre-empted by the City at 53-57 rue de l’Amiral Mouchez (Paris 13th). Furthermore, the City and landlords also tend to pre-empt and buy more in areas with shortages, where prices are generally higher than in areas with a high proportion of social housing. Since the start of 2023, for example, some 15 transactions have been identified in arrondissements where the Solidarity and Urban Renewal law (“SRU”) housing rate is below 10% (2nd, 7th, etc.). The 11th (SRU rate close to 15%) is the arrondissement with the highest number of pre-emptions and acquisitions by the City and social housing landlords.
Nevertheless, the social housing stock continues to increase in arrondissements that are already well supplied: 43% of the number of acquisitions and pre-emptions recorded are concentrated in arrondissements that have already reached, or even far exceeded, the 25% threshold for SRU housing (13th, 18th, 20th, etc.). One of the reasons for this is that the City considers the neighborhood rather than the arrondissement as a whole. For example, the City pre-empted 38-40 avenue des Gobelins in the 13th arrondissement. The arrondissement is over-supplied globally, but the property is in an under-supplied neighborhood of it.
Privately owned property, the first to be targeted
The targeted properties are most often privately owned: they account for more than half of the properties pre-empted or bought by the City and social housing landlords since 2023 in Paris. In the case of inheritance, families may be particularly sensitive to the ability of the City and social housing landlords to buy quickly and without suspensive conditions linked to financing. Moreover, private individuals are sometimes ill-equipped to bear the costs and procedural delays in the event of disagreement over a pre-empted property. Institutional investors, for their part, have accounted for only around twenty transactions since 2023, but half of the volumes pre-empted or bought by the City and social housing landlords. The properties they sell can indeed be substantial, such as those belonging to certain real estate companies, insurance companies and mutual insurance companies.
Risks and opportunities for real estate market investors
Over the next few years, conditions in the Paris real estate market may be less favorable to the City and its landlords (end of price correction, improved financing conditions for private investors, etc.). However, pre-emptions and acquisitions of private property will continue. In addition to its high targets for social housing production, the City intends to step up its efforts in the affordable housing sector, with an annual average of over 10,000 housing units to be created in this category between now and 2035!
Pursuing this policy is bound to have an impact on the Paris real estate market. Firstly, it would support the residential investment market by enabling public-sector players to rapidly acquire a large number of assets and play the “market game” (responding to calls for tender, limited discounts, etc.). However, the acceleration of pre-emptions and acquisitions by the City and social housing landlords would also result in many assets leaving the private market, limiting the potential number of properties available for acquisition by other types of investors. This policy would also increase uncertainty in a residential real estate market traditionally prized for its stability. As a result, investors may be reluctant to position themselves on properties whose characteristics match the pre-emption criteria of the City and its landlords.
Furthermore, the squeeze on private housing in favor of public housing would accentuate pressure on the Parisian market and could lead to an increase in property prices. This would make it more difficult for the middle classes to find housing, increasing pressure on the already saturated social housing stock, or even forcing them to move out of Paris.
Finally, the increased pace of pre-emptions could lead to an increased risk of litigation. In recent years, these procedures have been limited, as the targeted properties are overwhelmingly privately owned, and the City and the social housing landlords have generally aligned themselves with the selling prices requested by the sellers. However, the extension of the City’s acquisition criteria means that pre-emptions will increasingly target institutional owners, as well as properties located in areas with shortages that are therefore more expensive.
Other asset classes are also being targeted
The City’s involvement in the Paris real estate market also concerns assets other than housing, such as retail premises. Pre-emptions and acquisitions by the City and its landlords frequently involve residential buildings with ground-floor retail units, the latter contributing to the financial equilibrium of transactions. In August, a right of first refusal was introduced for businesses in the 5th, 6th and 7th arrondissements, and discussions are currently underway on new tools to protect certain retail activities (potential control of retail rents, etc.).
Finally, pre-emptions and acquisitions also concern offices. Some of these are purchased by landlords for conversion into social or intermediate housing; but the most obvious are those that have been earmarked (“pastillés”) by the Paris City Council under the new bioclimatic local town planning regulations, most of which are in the west of the capital. Like the pre-emptions of privately-owned housing, the earmarked sites in the new local town planning regulations reflect the city’s determination to intensify the development of social housing in central and western Paris arrondissements with a shortage of housing. In arrondissements that are already well supplied, the City’s efforts will not be weakened but will be directed more towards the production of affordable housing, in the form of a BRS (“bail réel solidaire”) ground lease arrangement or intermediate rental housing. This will ensure that public-sector intervention in the capital’s real estate market continues in the long term.
[1] Predominantly residential buildings, which may include commercial or light industrial premises / Transactions ≥ €1 million.
