We recently reported on public utterances by the Minister of Housing, Olivier Klein that the government were reviewing the tax breaks granted to landlords of short-term furnished lettings.
Last month, they finally released the report of an inter-ministerial committee set up in 2022 to assess the tensions in the housing market in tourist areas, and to identify measures to improve access to housing.
The review does not mince words in stating that the growth in short-term lettings in tourist areas, facilitated in large measure by new digital platforms, has been at the expense of traditional housing, leading to an imbalance in local markets.
The report states that tenants of short-term lettings find them more competitive than hotels or bed and breakfast establishments and owners of the properties find them attractive because of the high profitability and attractive taxation.
According to the authors “This intensifies the competition for the use of residential premises and leads to a reduction in the supply of main residences and maintains the increase in property prices.”
The graphic below shows the percentage number of second homes across France. As can be seen, most are located in coastal and mountain areas, but many of these properties could not normally be used for annual letting, such as those in ski resorts.
The authors consider that whilst a range of measures have been put in place to regulate short-term rentals, they are not sufficiently used by local authorities, and they are subject to controls that are not particularly effective.
On taxation the authors state that: “Despite recent decisions to phase them out, incentives for furnished tourist accommodation continue to account for a significant proportion of tax expenditure, which can become inconsistent, particularly in tourist areas, with the use of other controls......"
As a result, the report recommends acceleration of the "definitive extinction" of the tax status of meublés de tourisme, so that they are on a par with those of landlords of unfurnished accommodation.
In practical terms such an outcome would result in a reduction in the fixed cost allowance to 30% (as opposed to 71% or 50% depending on the classification of the property) for those who use the 'micro' tax regime. For those who use standard profit and loss accounting (régime réel) there would be changes in the deductibility of loan interest and an end to depreciation, both leading to an increase in taxable profits.
Mindful of the political and economic implications of a fundamental change to the system of taxation, the government has therefore launched a major consultation exercise, which is expected to be concluded at the end of June.
In addition to a change in taxation, the authors recommend that short-term rental properties be required to comply with the energy performance requirements of unfurnished lettings. This would mean currently that furnished rentals which did not meet a minimum 'E' rating could no longer be used for letting.
The report also recommends that all local councils be given the power to require a change of use permit from landlords seeking to use a property as a holiday rental. This rule currently only applies in metropolitan areas.
In announcing the consultation the Olivier Klein, stated: "The reflection undertaken should enable us to give the mayors in tourist areas under pressure new tools to find the right balance between access to housing and tourism dynamics. Numerous proposals have been put forward, notably on the tax issue, short-term rentals, energy renovation, the issue of producing new housing and housing for seasonal workers. Our work will continue in order to select the most relevant and effective solutions."
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