Landlords in a bind as France imposes tough new emissions rules

Michelle Bassano owns a desirable asset: a top-floor studio apartment she rents out in an almost 200-year-old building in the historic Marais district of central Paris.

But she is now thinking of walking away as the issue of trying to meet France’s strict new energy efficiency standards is proving too challenging. “It is a nightmare,” said Bassano. “I’m thinking of just selling.”

Bassano’s neighbours in the jointly-owned building refuse to ratify the roughly €100,000 needed to replace and insulate the zinc roof. Adding insulation to the stone facade outside is banned by historical preservation mandates — yet insulating the inside would mean losing precious space in the 25 square metre flat and cutting into its resale value.

Landlords across France are grappling with looming restrictions on renting out poorly insulated apartments and homes under strict new rules that phase in gradually from 2023. They aim to incentivise owners to renovate roughly two-thirds of France’s 37 million homes by 2050.

President Emmanuel Macron’s government argues that widescale renovations are needed to address a big source of greenhouse gas emissions: buildings account for almost half of French energy consumption and one-third of carbon emissions, while two-thirds of that total comes from homes. Experts say his government’s intervention is unique in Europe.

The new rules pose a particular problem for apartment buildings and historic homes like many in Paris, along with picturesque villages from Provence to Alsace. Homes in the Marais are doomed to remain in the bottom half of the government’s energy rating system even with renovations, say experts.

Critics are already warning of unintended consequences: they say the policy may worsen France’s housing shortage and could even spark social unrest as high inflation also hits households.

Jean-Claude Bassien, deputy chief executive of property group Nexity, thinks the government’s approach is the right one but that the timetable is “unrealistic and absurd”.

“We will need more time if we want to do this well and avoid a repeat of the gilets jaunes,” he added, referring to protests, named for the yellow jackets worn by demonstrators, that rocked France in 2018 over a proposed carbon tax on petrol.

To incentivise renovations, owners are required to get properties rated for energy efficiency, classifying them from A (best) to G (worst), before they can be sold or rented out. The regulations offer both carrot and stick: poorly insulated homes will gradually be excluded from the rental market over the next decade, but public money is available to help pay for insulation, new windows, or upgraded heating.

Landlords of F and G-rated homes may no longer raise rents, and as of this year, the worst of the G-rated properties cannot be rented to new tenants.

By 2028, 5.2mn homes rated F and G, or 17 per cent of total housing stock, will become ineligible for rental. By 2034, all E and D rated properties will be excluded, amounting to more than half of all homes.

Even some in Macron’s camp worry that the approach is too draconian. Finance minister Bruno Le Maire hinted that he supported softening the rules, but was then forced to backpedal.

While countries across Europe are trying a range of policies to decarbonise and boost the energy efficiency of homes, none have tried what France is doing, said Boris Cournède, a policy expert at the OECD.

“Everyone is looking at the French example, to see how it plays out,” he said. “It’s a good idea on paper even if it’s a bit early to judge the results.” 

In Germany, the government has taken a different approach, including banning gas boilers — a politically contentious measure — and creating a carbon dioxide tax on home heating. Belgium and Austria have tweaked regulations to facilitate renovations of multi-owner apartment buildings.

France has pledged to increase subsidies for home renovations to almost €5bn from €3.4bn last year. But a Green party-led Senate report argued much more funding was needed — one estimate puts the requirement closer to €25bn a year.

Bar chart of Cost of renovations paid by households after government subsidies, H1 2022 (%) showing The poorest French households will get help for green renovations but others will largely foot the bill alone

Accessing the cash available is not always easy, with a long application process and complex rules. Gilles Lambert has applied for about €10,000 in subsidies to renovate a 1980s building he owns with four rental apartments in a leafy Paris suburb.

“The application has been a complicated obstacle course,” said the 62-year-old. In the meantime, two of his flats have been banned from the market.

Real estate agents and property management companies have warned that the rules may aggravate housing shortages in cities such as Marseille, Bordeaux and Lyon by shrinking the pool of homes to rent.

Édouard Philippe, Macron’s former prime minister and now mayor of Le Havre, said excluding low-rated homes would “mechanically reduce rental options for low-income people”.

Another concern is that rent control rules in key cities will make it difficult for owners to garner an acceptable return on renovations where they do carry them out.

In Paris, renovations have become a flashpoint within jointly owned apartment buildings, known as copropriétés, because costly projects require majority approval, while a unanimous vote is needed to take out loans.

Laure Gallard has been lobbying her neighbours in a 10-unit, 1920s building to hire an expert to map out the renovations it needs, but has had little success.

“I think they are in denial because they do not want to know and are afraid of the cost that lies ahead of us,” said the 34-year-old architect. 

Some owners of F or G-rated homes are simply trying to sell. According to real estate website Se Loger, almost 20 per cent of the homes for sale in the first half of 2023 were poorly insulated ones, double the level in 2021.

Thomas Lefebvre, data scientist at Se Loger, said there was no guarantee that buyers would renovate. “If we’re just removing homes from the rental market without spurring renovations, then it’s not really a win for the environment,” he said.

Jacques Baudrier, a deputy mayor in Paris in charge of construction, refuses to despair. The city has spent some €2.5bn in 10 years to renovate public buildings and schools, and plans to update all low-income housing by 2050.

“We’ve made a lot of progress in the public sector, but in the private housing market, things are going far too slowly,” he said. 

The city has been holding monthly workshops in town halls to inform people about subsidies and offer advice. At one event in June, some 600 people came to trade tips on insulation, shutters, and heating and cooling systems.

“Initially people were really worried,” said Baudrier, “but now they are getting into it.”

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