Build housing!

Throughout most of the world’s economies, today, housing is one of the major determinants of growth. On the one hand because it is a major provider of employment; on the other hand because the value of property assets largely determines household borrowing capacity and consumers’ ability to spend. And all countries show in this sector the greatest affection.

You might well think that France is a paradise for this sector: positive population growth, with housing needs constantly being renewed; increasing incidence of people living apart, due to couples experiencing the dissolution of their relationship at an ever increasing velocity; a growing demand for second homes, single-family homes or collective dwellings, for French people and foreigners; urgent environmental modernization needs, calling for the remediation of the existing housing stock; very low interest rates, making low-cost financing a possibility; finally, massive public aid, (a twofold increase in 20 years, which accounts for more than 2% of GDP) that makes construction one of the most-supported sectors of the economy.

However, housing is scarce in France and increasingly difficult to find: there is a shortage of at least 1.5 million new housing units. More than 4 million French people are housed in insalubrious places; as a consequence, both property and rental prices have doubled in France in 20 years, while they have remained stable in Germany, undermining purchasing power and increasing labor costs.

In total, the housing industry accounts for only 5% of France’s GDP, making it the worst efficiency ratio of public investment expenditure to GDP. All the more so as more than half of the funds are allocated elsewhere and not for those with low incomes and as aberrations and privileges are proliferating there – for example, the controlled rent organizations (HLM – Habitation à Loyer Modéré – low-cost housing), even the wealthiest ones, do not pay corporate tax, depriving the national budget of more than $1 billion in tax revenues.

On top of this, a new law, the so-called "law Duflot 2" or "law ALUR," on the pretext of strengthening tenants’ empowerment with respect to landlords, has resulted in an absolute bureaucratic madness, requiring more than 208 implementation decrees, of which only 50 were passed, and hampering any prospects of profitability for rental housing.

Everything conspires, then, so that nothing gets built: elected officials, who do not want for newcomers to modify the balance of social equilibrium that got them elected in the first place; homeowners, who do not want a new supply of housing to challenge the scarcity of homes like theirs; builders, more on the lookout for subsidies than projects that are economically profitable.

As a consequence, in France the housing construction has entered a serious crisis in recent months: housing starts declined below 270,000 units per year, while the original plan was to build 500,000 units, a 20% decline compared to the period a year earlier.

This downturn reduces the growth rate of the French economy by 1 percent, solely by the mechanical effect of the slump in housing starts, and even more when accounting for total indirect effects.

There is an urgent need to stop this disaster. The French people stand to gain nothing from protecting rents. They have everything to gain by ensuring that the implementation of more sustainable and affordable housing remains effective.

In order to do this, it would be necessary to be bold enough to decide urgently on radical measures. First, losing no time in repealing the ALUR act. Then, drastically cutting housing assistance, the social housing sector being the exception and putting public housing bodies (HLMs – social-housing organizations) in a position where they can be efficient and looked at as businesses. Finally, clearing land for construction, by taking back the power of local representatives over land, to give it back to national representatives, who are less sensitive to landowners’ conservatism.

This would have to be done quickly. In the month ahead. It would identify as early as 2014 real opportunities in terms of their potential for growth. It is made all the more urgent by the fact that the French economy is stagnating and there are no other engines that have so much power.

From the courageous readiness that will be displayed, or not, by the government and the Parliament, to undertake such a reform, we will be able to determine whether or not France has remained a country of monopolies, rents and privileges, or whether, on the contrary, it can at last move to the side of competition, profit and fairness.

Photo: Luciano Mortula/Shutterstock