The bank robbery capital of the world
Yesterday morning I reshared this tweet of a recently completed mid-rise building at 58, rue de la Santé in Paris. And the response was overwhelmingly positive. There was a long list of people saying: please build this in my city, I want to live here, I want to invest in projects like this, and more.
Based on the echo chamber that I live in on the internet, it would seem that most people like this project, and are wondering why Paris can build it, but we generally can't. So let's take a closer look in the hopes of learning something. Here's an image from Google Street View:
The developer for the project is RIVP (Régime Immobilière de la Ville de Paris). They are a major social housing developer in the city and are semi-public company, primarily owned by the City of Paris. They build, manage, and renovate social housing, and have somewhere around 66,000 housing units under management in the île-de-France region.
The project contains 14 social housing apartments and one commercial unit at grade. It's 8 storeys tall (R+7 is the nomenclature commonly used in France which means rez-de-chaussée plus 7 additional floors). And on its main elevation there are only two small stepbacks at level 7 and 8. Otherwise the building goes straight up.
The site area is 191 m2 or ~2,055 ft2. This is the equivalent of a single-family housing lot measuring around 20 feet x 100 feet, which would be fairly common in Toronto. Except in this case, it's not just for one family; it's for 14 of them and a commercial user on the ground floor.
The total area, according to the above site signage, is 909.40 m2 or ~9,789 ft2. That crudely works out to about 60.6 m2 per unit (I'm including both the residential and commercial units in this very rough calculation). This is exactly similar to what I would expect to see here in Toronto in terms of an average suite size.
The floor space index for the site (i.e. its density) is 4.76x. This is not particularly high and is probably on the low side compared to what you'd typically find in Toronto for new mid-rise developments. The key difference here is that they're achieving it on a relatively small site.
The total height of the building is 23.46m. Divided by 8 floors, that works out to a floor-to-floor height of 2.93m. This is a bit tighter than what I would expect, but it seems to be because the ground floor is relatively compact, whereas Toronto developers are encouraged to be greater than 4.5 meters tall.
The project architect — MAAJ Architects — specifically mentions on their website that they used concrete in order to keep the height of the building down. They also show the building as being taller and having 16 apartments, so I'm guessing height was constraint.
The big question that remains is: how much did it cost to build? And I unfortunately don't have a good answer for this. Precise hard costs are generally hard to find and total development costs are almost never published.
That said, the architect does show on their website a hard cost figure of 2,630,000 € HT for 1,242 m2 (again, it looks like an earlier design of the project was bigger). These figures work out to €2,117 per m2 or €196.70 per ft2 or C$289 per ft2.
Don't quote me on these figures. I don't have inside information or first-hand experience in this market. But if it's even remotely accurate, then I'd say it's at least 30-40% cheaper than what a comparable build — with hand-laid bricks — would cost in Toronto.
Cover photo by Arthur Weidmann
The other night, I went down a Parisian real estate rabbit hole on Twitter. And one of the things that kept coming up was this half joke: The biggest developer in Paris today is the mayor. The reason for this is that the city is targeting 40% of all homes to be public housing by 2035 (of which 30% will be social housing and 10% will be moderately affordable).
Supposedly this is to stem the steady outflow of people from the capital as a result of housing being too expensive. But it means that a lot of new public housing will need to be created. As of January 1, 2021, the official estimate was 260,563 "logements sociaux" in the capital, which translates into 22.4% of all principal residences.
To hit this 40% goal, the city is going to need to create somewhere around 140,000 new public housing dwellings between now and 2035. So how does it plan to do this? By being a developer, of course. A big part of the strategy seems to be to convert existing buildings (d'adapter l’existant). And to execute on this, the city is leveraging something known as "le droit de préemption."
The way it works is like a right of first refusal clause (ROFR), except that it's not something that was contractually negotiated between market participants, it's just the law. What it means is that if a property owner goes to sell their building and they receive an offer, the city has an automatic ROFR and can choose to buy the building at whatever that third party was willing to pay.
Over the last two years, the city has elected to do this 84 times and has spent over €1.1 billion, according to Business Immo
I had a call with a developer in Paris earlier this week and it was interesting to hear him talk about the new home market over there. It sounded a lot like Toronto. Higher interest rates cooled demand. Individual investors largely disappeared. And now developers are having to rethink their strategies and floor plans (including suite sizes).
But in his view, this isn't necessarily a bad thing. It now means that you actually have to be a reasonably good developer in order to have a chance at succeeding. You have to design thoughtful floor plans and build great housing. It's a return to fundamentals, and I would argue that the same thing is happening here in Toronto.
My other noteworthy takeaway was around social housing. All new developments in the Île-de-France region are subject to inclusionary zoning. I believe the requirement is 30% of the suites. These suites are then purchased by social housing operators, and it is one of the ways that new supply is created in the market.
We talk a lot about IZ on this blog, but what's interesting about this approach is that it becomes a forward sale for the developer. Meaning, it helps to de-risk projects. Before doing anything, you know you've sold 30% of your inventory, and somehow the numbers all work. European social housing math is baffling to me.
I am now wondering if this creates some kind of incentive to keep development costs in check. Because if social housing operators are expected to buy 30% of all new homes, then they too are going to want them to be as cost effective as possible. I'm speculating though; I don't know that this is the case.
If you're a developer or real estate person in Paris, please get in touch. I'd love to learn more about your market and trade notes.
For those of you who are visual learners like me, here's the first property on the list:
It's certainly ambitious.
But, for the most part, it does not create a lot of net new housing, even though the city is also aiming to buy office buildings, parking garages, and other non-residential buildings. APUR previously estimated that for every 1 unit of new public housing, 0.6 existing units are being demolished. So the most accurate way to think about this initiative is that it represents the socialization of Paris' housing stock into public hands.
This runs in contrast to what we've been talking about recently with cities like Minneapolis and Austin, who have instead added a lot of new market-rate housing in order to temper rents and increase affordability. Paris is reducing its stock of market-rate housing.
At the same time, the city also enacted new policy prohibiting homes that consume more than 450 kWh/m2 from being rented. This is intended to force landlords to renovate, but it will certainly have a further impact on supply, at least in the short term.
It's also worth noting that all of this is happening at a time when Paris' housing market is in broad decline (less transactions, higher days on market, lower prices, and so on). Like Toronto, it started around the middle of 2022. And it's something that Paris hadn't seen since the 2008 financial crisis.
Chart by CoStar via Business Immo; cover photo by Salomé Watel on Unsplash
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