WHY HAS FRANCE BECOME THE LARGEST OVERSEAS MARKET FOR AIRBNB? (IT IS NOT WHAT YOU THINK)

October 23, 2018

 

It is a rare occurrence for France to be the largest overseas market of any US company, let alone an American startup. Our country has nonetheless become the #1 market for AirBnB outside the United States.

 

French pundits have found an easy and self-comforting explanation for this unusual phenomenon in the supposedly irresistible attraction of France as a tourist destination.

Whereas the appeal of France in general and Paris in particular may have played a significant role in the success of AirBnB in our country, this explanation ignores the elephant in the gallic room: the appalling state of the rental market in France, at least viewed from a landlord’s perspective.

 

Countless friends and family members have confided in me over the years that they’d rather leave their property empty than rent it.

How has it come to this? Two adverse factors have been at play in France for a long time:

 

Exorbitant taxes on real estate revenues combined with unwarranted rent control laws are driving rental returns into negative territory in cities like Paris (after tax return: generally less than 2% per year, hardly higher than inflation).

 

The overprotection of tenants through law, some of whom don’t hesitate to stay in an apartment without paying their rent for several years before being evicted (without any consequences for their financial future, contrary to the US where a bad credit score is a strong deterrent) have deterred many landlords from renting their property using conventional leases.

 

These property owners understandably consider that the very low return on their investment is just not worth the very real and exorbitant risk of unpaid rents (and considerable reparation costs when the unscrupulous tenant vandalizes their property upon eviction).

 

Unsurprisingly, the Gauls, in keeping with their reputation for resourcefulness, were quick to find a providential workaround with the arrival of AirBnB (and its domestic competitor RoomLala).

 

Not only are rental returns with AirBnB, especially in touristy areas, much higher than with conventional leases, but the eviction of unscrupulous tenants are a very rare occurrence because of the short-term nature of the rental arrangement.

Add to these very substantial advantages the fact that a significant proportion of French landlords simply do not report their AirBnB revenues with the local IRS and the case for short-term rentals over long-term leases becomes overwhelming.

 

It was therefore deeply unsettling to listen to Mr Denormandie, the Minister in charge of housing in the Macron government on October 18th announce yet another ham-fisted piece of legislation intended to curb the AirBnB explosion in France by banning the practice altogether, without at any point in his 20-minute diatribe against “rogue” landlords addressing the root causes of the malaise afflicting the rental market in France.

 

Lowering taxes on rental revenues in overstretched markets such as Paris and the Riviera while facilitating the eviction and long-term identification of unscrupulous tenants would alleviate the rental crisis for all would-be tenants while dissuading most property owners from resorting to the more lucrative but much more management-intensive AirBnB alternative.

 

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