The real estate context in Paris is clear. The policies of historically low interest rates and massive injections of liquidity necessarily put in place to counter the effects of the subprime crisis have led to a gradual and consequent rise in real estate prices in Paris. The monetary response to the health crisis has only reinforced this process that began in the wake of the financial crisis. Thus, the average price per square meter in Paris has risen from €6,020 in 2009 to €10,300 in 2021. A significant increase of 42% which is even more marked for quality properties.
Today, after observing the unprecedented violence with which the financial markets have been corrected downwards and then upwards in 2020, many households are afraid that lightning may strike the Parisian real estate market. They are plunged into uncertainty in the face of markets that are sometimes hard to read. The most telling figure in this trend is the accumulation of nearly 142 billion euros in additional savings between March 2020 and March 2021.
In such a context, can we continue to trust Paris?
This is the big question. After having used a microeconomic approach in our previous article to try to answer it, let's try here a macroeconomic approach. Let's start with the facts. This question is the consequence of a legitimate fear, which is the general fall in prices in Paris, often called the bursting of the bubble. But in order for the bubble to burst, we need to know whether we are indeed in a bubble situation. Paris is a very specific market. With a surface area of 104 square kilometers and a very heterogeneous housing stock, 62% of which was built before 1949 and 70% of which is made up of studios and two-bedroom apartments, it is very difficult to compare it to other capital cities such as London or New York. However, it remains a market that responds to a simple law: supply and demand. Since supply is almost stable, the adjustment variable will undeniably be demand.
The demand comes from investors and individuals. The first respond to a logic of profitability and the second to a logic of purchasing power. Both are subject to the same instrument in their calculation: interest rates. As described at the beginning of this article, the context makes that these last ones push them greatly to invest. But this does not necessarily mean that we are in a bubble situation. Indeed, the latter seems to appear as soon as the respective logics of our two economic agents are no longer respected. In other words, as soon as the rise in rents for some and the rise in income for others are no longer in line with the rise in prices, which themselves have undergone an overheating, all other things being equal (notably interest rates).
The curves of economist Jacques Friggit provide a clear answer: although rents and purchasing power have risen more slowly than property prices in Paris, the steady decline in interest rates combined with the lengthening of loan periods have reduced this gap. So there seems to be no bubble but simply a consistent rise in prices in a sought-after capital city, made possible by monetary policies.
