To Address Its Housing Shortage, Paris Cracks Down on Pied-à-Terre Rentals

PARIS — Many people buy a pied-à-terre in Paris
to use for a few weeks a year and to rent the rest of the time. Most of
them don’t realize, however, that they are breaking the law. Now, the
city government is trying to address the problem with a more direct
approach to enforcement.

Mayor Bertrand Delanoë ordered an agency last year to warn property
owners that renting out residential apartments for less than a year at
a time violated French law. The move was intended to address the lack
of affordable housing in the city center. Those who ignored the
warning, he said, would be prosecuted.

Only about 25 letters have been sent since enforcement began last
autumn — most of them in response to complaints made by neighbors. And
only a handful of those cases have gone to court.

But the rental industry in this most-visited city in the world is
concerned and, as more owners slowly become aware of the issue,
confusion is growing. A few have pulled their properties off the
market, others have deleted addresses or other identifying details from
Internet listings. And dozens of rental agencies have banded together
to try to save their lucrative business.

“No one seems to know what this crackdown means, but I feel my business will have to change,” said Susie Hollands of Vingt Paris, a property advisory and management company.

There is no precise tally of how many of the 1.3 million residences in
Paris are being used for short-term rentals. Industry professionals
estimate there may be tens of thousands, with a significant proportion
owned by foreigners who bought them as vacation homes or investment
properties. (Those buyers are predominantly Americans, Italians and
Britons, according to brokers.)

Those in the industry also say they believe that the numbers have risen
sharply in the last 10 years as the Internet has made it easier to find
potential renters.

To legally offer short-term rentals, owners would need to have their
residential properties reclassified as commercial sites, a complicated
process that involves finding a commercial property in the same
neighborhood that can be transformed into residential use.

“It isn’t difficult; it is impossible,” said Fabrice Luzu, a notary who
has helped many international clients invest in city real estate. “The
owner must apply for a special permit and there is very little chance
he would obtain it.”

Without such a permit, any apartment classified as residential in a
French city of more than 200,000 must be offered with a minimum
one-year lease. The law, passed in 2005, has some exceptions for
student housing.

For landlords in Paris, the difference in income can be substantial.
Depending on how it is renovated, a 650-square-foot apartment in the
chic Saint-Germain-des-Prés area, for example, could be rented
furnished for 2,500 euros ($3,100) a week, Ms. Hollands said.

She estimates that the yearly income, based on the flat being rented
about 70 percent of the time, would bring triple the amount of a
long-term lease.

She added, “Unfurnished, on a long lease, it would rent between 2,200
euros and 2,500 euros a month” or at most, 30,000 euros a year.

The police are charged with enforcing the law, but rarely do. So last
year, after several attempts, Paris succeeded in transferring
enforcement within the city to the mayor’s housing agency, the Bureau
de la Protection des Locaux d’Habitation, or the office for the
protection of residential property.

“We decided to apply the law in a strict manner,” said Franck Affortit,
the agency’s assistant director. “Letters have been sent to owners, who
include many Italians, some Americans and British and French.”

Most of those owners have taken their properties off the rental market,
while “several” others who have not are being prosecuted, Mr. Affortit
said.

One case has resulted in a preliminary judgment in favor of the city;
court dates for the other cases have not yet been set, Mr. Affortit
said.

Conviction could result in a fine of as much as 25,000 euros. Continued
violation could result in additional fines of as much as 1,000 euros a
square meter a day. Still, he admits that given his small staff of
five, tracking down violators “is a problem.”

Therefore, he said, “we are going to apply this in an intelligent manner.”

The main target, he said, are owners who are “making these rentals into
a permanent activity, diverting residential property from its essential
function as housing for Parisians,” Mr. Affortit said. “Someone who
rents once a year” will not be prosecuted.

Still, the uncertainty has unnerved many in the industry.

Ms. Hollands of Vingt Paris wrote about the crackdown in a November
2009 newsletter to her clients. “I was lambasted by other agents for
writing about it,” she said. “But I felt a moral obligation to inform
my owners and investors who were about to spend a million euros without
knowing about this.”

Her company has served mainly North American and British clientele for the last seven years.

In May, one of her customers “who had done an exquisite restoration
received a letter because the neighbors complained,” she said. “They
had been renting out the apartment by the week since March and had
bookings through the summer. And they were paying a lot of attention
not to cause a disturbance.”

The client now rents the furnished property on a one-year lease.

About 35 rental agencies recently formed the Association des
Professionnels de la Location Meublée, a group of professionals in the
furnished rental industry, with the goal of finding a way to operate
within the city’s regulations.

The association questions the city’s interpretation of the law and its
premise that properties forced off the short-term rental market will
become long-term prospects for Paris residents.

Its first step was to commission “a serious study of the market to show
what it represents, and to demonstrate that furnished rentals for
periods less than 12 months correspond to a social and economic need
for a city like Paris,” said the group’s president, Jean-Marc Agnes.
“Clearly, it is not just about three-day stays by tourists, but
includes professors, research scholars and exchanges of businessmen in
international companies who may come for several months.”

The group expects to have the results in September.

In the meantime, the effort does not seem to have hurt property sales
in Paris, whose market has been one of the most robust in Europe
throughout the recent global real estate downturn.

“I don’t see prices going down to fulfill Mr. Delanoë’s wish to have
cheaper apartments for Parisians,” said Mr. Luzu, the notary. Whether
it be wealthy Americans, Brazilians, Indians or Chinese, “they all want
a pied-à-terre in Paris,” he said.

The American designer and developer Alon Kasha has been alerting his
clients to the potential problem, although many of them do not rent
their properties.

“If they are doing this for a rental income, it’s too fraught with
problems,” he said. “I tell them, ‘Rather, buy a warehouse somewhere
and rent it out,’ ” he said.

“But if they’re buying because they have a passion for a Paris
apartment, that’s different. I say, ‘If you can rent it and it works
out, that’s fine, but don’t count on it.’ ”

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