How to moderate real estate prices?

Summary Property prices rose sharply in France between 1998 and 2007, and again between 2009 and 2012. The first phase of increase is partly linked to factors common to the euro zone (easing of financing conditions), partly also to specifically French factors (policies to support demand, shortages of land supply, rising construction costs). The second phase is more directly linked to the financial crisis, which has encouraged investors to withdraw from assets considered safe, including real estate, whose attractiveness has been further enhanced by policies to support demand. In France, housing is the largest household expenditure item, far ahead of food. Access to decent housing, or even just housing, has become a major problem, especially in tense areas such as the Paris region. There are many arguments in favor of a public policy aimed at moderating the rise, or even reversing the curve of real estate prices, especially if part of the rise in prices is due to ill-adapted public policies: rising prices accentuate inequalities (to the notable detriment of younger generations from modest backgrounds) and lead to economic inefficiencies, such as the distance between home and work, investment (in the event of a bubble) in overvalued property, or the loss of competitiveness of the French economy when the cost of housing is passed on to salaries or in corporate real estate We believe that the risks associated with a downturn in the real estate market are less significant in France than in other countries. In this context, we propose a combination of measures to stimulate supply, correct distortions on the demand side and make the market more fluid. To stimulate supply, we propose to improve land management by systematically transferring responsibility for it to the level of inter-municipalities and to encourage productivity gains and competition in the construction sector. To make the market more fluid and property taxation more equitable, we suggest abolishing transfer duties in stages and reforming the property tax on built-up areas. The latter would henceforth be based on the net market value of the property (market value minus outstanding loans). This reform would be neutral for the budget and would be completed by a tax on latent capital gains on unbuilt land, encouraging the sale of land when it becomes buildable. These reforms presuppose the rapid implementation of the obligation for notaries to inform the notarial databases. At the same time, it seems desirable to us to progressively eliminate all of the subsidies for housing, which are costly measures (more than 4 billion euros in 2012) that tend to support prices for a limited gain in terms of home ownership. Housing policies and, in particular, home ownership policies, have the potential to improve efficiency, equity and budgetary savings. This note was submitted to the Prime Minister on February 13, 2013.