The number of new individual housing starts in France dropped by 19% in the first quarter of the year, whilst new planning consents were also down by 15.8%, in comparison with the same period in 2007.

Whilst construction activity for individual homes in France is down, that for apartments seems to have held up better, with an actual increase of 3.4% in starts, and a less severe drop of 13.7% in planning consents.

This reduction in activity over the past three months rests against a backdrop of a record for French construction activity in 2006/7.

Thus, taking a longer view, in the year ending March 2008, 509,098 (-8.8%) new planning consents were granted for new homes, and there were 414,746 (-0.5%) starts on site.

If the picture over the past quarter is analysed by region, then some significant variations are apparent, with a drop in activity of around one third in Burgundy, Higher Normandy, and Picardy, and an equally significant drop in planning consents of 23% in PACA.

New Housing Activity in France By Region

Source: MEEDDAT/SESP, Sidatel

The French property development association, the Fédération des promoteurs constructeurs (FPC), announced that it expects a continued downturn in the number of new individual starts for the remainder of the year.

The market outlook is not helped by the continuing strong rise in construction costs and a shortage in labour. In 2007 construction costs rose by 5%, following an increase in 2006 of nearly 6%. Figures for the first quarter of 2008 are not yet available, but no-one is holding their breath that there will be any relief.

French House Prices Will Also Drop

This reduction in new build activity is also being accompanied by a drop in prices, although there is by no means unanimity on the outlook.

In their latest French property market report, HSBC France forecast that property prices of new homes will drop by 4% in 2008, and by 6% in 2009.

The forecast is more pessimistic than in their previous review, mainly because of what they consider to be the increased pressure on household incomes, and the size of the existing unsold housing stock. At the end of 2007 there were 102,577 unsold homes in France, a record high figure.

However, the HSBC analysis is not one shared by economists at Credit Agricole who consider that prices for new property will stabilise in 2008, whilst that for older property will drop by 5%. They argue that developers need to protect their profit margin, so will resist cutting prices, whilst owners of older property are less constrained by the need to recover costs.

HSBC consider the market for older properties will remain firmer, with a drop of only 1% in the first half, and 3% over the full year.

Just to add further confusion to the picture, as we went to press, FNAIM, the professional body of French estate agents, published their latest monthly survey of the housing market. They report that prices for older houses rose by 1.3% in April, after a drop in the previous quarter.

They are at pains to point out that this should not be taken as a sign of a resurgence in the market, but simply as more evidence that a crash remains unlikely.

No regional analysis is provided, but we would anticipate some significant regional variations when the figures do appear in July.