Red-tape pledge fails to boost home starts

PUBLISHED : Wednesday, 04 June, 2014, 5:13am
UPDATED : Wednesday, 04 June, 2014, 5:13am

Strangled by regulation and high prices, weak French housing investment is proving a major drag on the euro zone's second-biggest economy as it struggles to stage a convincing recovery.

President Francois Hollande pledged more than a year ago to slash red tape holding back construction, hoping to bring within reach an oft-repeated promise to build 500,000 new homes a year.

But property developers complain that government measures since then have even discouraged home building and say they simply cannot make houses at prices would-be buyers can afford.

There is no shortage of demand. The charity Fondation Abbe Pierre estimates that some 3.5 million people in France are without a roof of their own or inadequately housed.

Falling household investment is really starting to weigh on growth
Francois Payelle, Developers Group

According to statistics agency INSEE, household investment - primarily in real estate - slumped 2.6 per cent in the first quarter from the previous three months. That was the biggest drop since the 2008 financial crisis and brought household investment to its lowest since mid-1999.

"Falling household investment is really starting to weigh on growth," said Francois Payelle, head of the French Property Developers Federation. "What was a marginal subject has now become sensitive in macroeconomic terms."

With the government counting on economic growth this year of 1 per cent, any slack in housing investment puts an added onus on companies and consumer spending to keep the recovery on track.

Developers put about 350,000 properties on the market last year, far below Hollande's target and extending the list of unfulfilled promises by the Socialist president, whose poll ratings are mired at record lows.

No meaningful pick-up is expected this year after a soft first quarter. "Given the demand, we should be able to put a lot more houses on the market, but we can't," Payelle said.

For him, new housing regulations that recently took effect have made a bad situation worse, with additional restrictions on rents and other rules putting off would-be investors and buyers.

A new law allowing government officials to set rent limits in cities of more than 50,000 people has spooked investors.

Developers also say local rules on parking places, sizes of flats and how many floors buildings may have also deter them.