French Housing Crisis Could Deteriorate Even Further

Some 8.5 percent of the country’s jobs come from the construction sector. The decline in the sector — activity fell 1.4 percent in the first quarter, well below overall economic output – is expected to continue for the third consecutive year.

Charles-Henry de Marignan, senior analyst at IEIF, an independent real estate research agency, notes that the decline in the construction sector represents a significant obstacle to economic growth in the country.

“From a purely mathematical point of view, housing starts are insufficient as the population increases quickly”, Philippe Waechter, head of economic research at Natixis told CNBC in a phone interview.

Last week, the government unveiled its latest action plan to stimulate the sector with an extension to interest free loans which had been set to be scrapped by the end of 2014.

The “0 percent interest loan”, introduced in 2011, was meant to help middle and low-income first-time buyers by offering them cheap financing. The repayments could be deferred for five years. That figure has now been raised to seven years.

Initially restricted to new-build homes, their use has now been extended to old properties in need of renovation in certain areas and access to the loans has been increased. The government believes that the number of beneficiaries will be increased by 60 percent a year from 40,000 currently to 70,000.

But analysts doubt the measures will have much of an impact, given the value of the loans available is fairly modest, especially if you want to buy in Paris, where prices are the highest in the country.

While they are meant to boost construction, such fiscal measures usually have “a perverse effect”, Laurent Quignon, economist at BNP Paribas told CNBC by phone, as they often “have more impact on prices than on volumes”.

“If increasing volume is the aim, it’s not necessarily the type of measure to put in place”, the economist said.

via CNBC

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