Abstract
Over the last two decades, real estate developers have become key players in the housing sector in France. This evolution has several dimensions: developers’ share of the housing construction market has increased, their geographical areas of intervention have expanded and their weight in social housing construction has soared. Since privatization and financialization are not adequate frameworks to account for the rise of these actors in the French housing context, other explanations are here explored. This article shows that the rise of real estate developers is mostly the result of changes led by national and local governments to gain capacity for action in a constrained budgetary context. More precisely, it investigates two policy instruments that have favored the developers’ expansion. First, tax expenditures for rental investment and, second, VEFA-HLM – a regulatory tool enabling the construction of social housing by real estate developers. Both instruments seek to enroll real estate developers in implementation, while political actors try to maintain control over decisions, and more broadly over the main orientations of housing policies. This article thus contributes to analyzing how, i.e. by which instruments, public actors can foster the rise of private economic actors in the development of urban policies.
Introduction
French housing policies have long been scrutinized through the lens of the social housing sector. Features of the French model of social housing provision, as well as the sector’s evolutions over the past decades, have been thoroughly investigated. Several evolutions, including state withdrawal, reforms of building subsidies, and residualization have been documented (Driant and Li, 2012; Harloe, 2008; Lévy and Fijalkow, 2010; Lévy-Vroelant and Tutin, 2010). The actors examined up until now have therefore mostly been public actors and social landlords (called organismes HLM 1 ). Private real estate developers have long been understudied. Almost no research had been conducted on these actors from the end of the 1970s to the beginning of the 2010s. The seminal work of Christian Topalov (1973) stood alone for many years. Though there has been a renewal of interest in these actors since the 2010s2, this research has focused largely on real estate developers in the commercial or tertiary sector (Coulondre, 2016, 2017; Guironnet, 2016; Nappi-Choulet, 2006). Particular attention has thus been paid to their role, linked to that of real estate investors, in the processes of financialization of urban development (Guironnet et al., 2016; Wijburg, 2019; Wijburg and Aalbers, 2017). But the role of private real estate developers as key actors in the French housing sector has largely remained in the shadows.
This is particularly surprising considering the rise of these actors in the housing sector since the beginning of the 2000s. The first clue to their growing presence is their increasing contribution to housing production – especially in the most densely populated areas. Private real estate development accounts for nearly 70% of housing construction authorizations in the Paris region between 2013 and 2021 (Trouillard, 2022). Their scope of intervention has also been widening: private real estate developers have worked in an increasingly upstream manner, toward urban planning, and downstream, toward rental management. In addition, the main developers have broadened their geographic areas of intervention: while historically established in the main French metropolises – and mostly the Paris region – they began to set up in smaller cities and more peripheral locations. Another key evolution is their role in social housing construction. Excluded from this activity until the 2000s, they have since then adopted a progressively larger role in this sector. Private developers built 3% of the social housing in France in 2007 and 53% in 2018 3 . These evolutions are striking with regards to the main French developers, on which this article focuses.
This rise in power of developers may seem unexpected given the particular characterization of the French case in international comparisons. France is indeed still identified by a notably strong role and control of local and national governments, both for housing policies and for planning systems (Berisha et al., 2021). Even in this case, which is supposed to embody high levels of public control, property developers have become more and more important players. Outcomes of this evolution include the increasing dependence of public authorities on private real estate developers for housing construction (and more broadly for urban development) and the growing importance of negotiations between municipal authorities and developers around the characteristics of residential developments. Such trends have been documented in a variety of national contexts in Western European countries (See for instance: Ballard and Butcher, 2020; Brill and Robin, 2020; Elsmore, 2020; Holsen, 2020). But they are more unlikely and have been much less scrutinized in the French case.
This article seeks to explain the rise of private real estate developers in the housing sector in France. It highlights the importance of taking into account the diversity of conditions that may foster the development of these actors. Real estate developers have been analyzed elsewhere as powerful, increasingly globalized, market players (Brill, 2022; Gotham, 2006; Molotch, 1993). Their crucial role in orienting urban development, influencing urban policy-making, and, at times, overriding public regulations has been documented in North America as well as in European countries (Haila, 2008; Leffers and Wekerle, 2020; Minton, 2017). To apprehend their growth, researchers have studied the economic strategies of these actors and of those who finance them. At the micro and meso levels of analysis, developers’ profiles and strategies have been examined. At a more macro level of analysis, researchers have looked to the dynamics of neoliberalization and the dominance of market regulations for elements of explanation. In this article, I argue that the expansion of developers over the last 20 years in housing policies in France stems in large part from the public policies that have been put in place. I therefore show how the rise of French real estate developers has been largely politically driven. But I also suggest that the outcomes of such evolution are only partially controlled by political actors. Developers are becoming central actors in implementation, and the possibilities for political regulation are increasingly dependent on local political resources.
Activities of real estate developers in France are framed by a large number of instruments, rules, and standards issued by national public actors. The instruments of most importance to developers' activities fall into two categories: legislative and regulatory instruments on the one hand (such as building permit rules or construction norms) and economic and fiscal instruments (such as tax breaks, exemption from conditional taxes, or reduced VAT) on the other. Within this complex landscape of policy instruments (for more details see Pollard, 2018), two main instruments have fostered the expansion of developers over the past two decades. First, the boom in tax expenditures for buy-to-let investment played a crucial role. These fiscal schemes directly benefit households who purchase a property in a new construction and commit to renting it for a fixed period of time, but they also provide important support to the real estate industry. The second instrument to foster developers’ expansion has been the opening of social housing construction to real estate developers. This opening has been made possible by the redefinition of a pre-existing regulatory instrument: a type of sales contract that gradually transfers ownership of the building during its construction (vente en l’état futur d’achèvement, VEFA) to social landlords. These instruments have been inductively identified, on the basis of interviews with developers, as having constituted highly effective policy elements for their activities. Each instrument is examined through the following dimensions: the political motivations that led to its introduction; the perception of the instrument by developers and its impact on their activities; and finally its broader outcomes.
The French real estate development industry is characterized by the dual existence of, on the one hand, a few large real estate development companies with a turnover of several hundred thousand euros and, on the other hand, numerous small companies anchored locally and whose lifespan sometimes does not surpass a single project. The major French developers, on which this text concentrates, have diverse profiles. Some are subsidiaries of banking groups (such as BNP Paribas Real Estate or Sogeprom) or of construction companies (such as Bouygues Immobilier, Eiffage Immobilier or Vinci Immobilier). Some are independent companies (such as Nexity). Many of these large companies date back to the 1950s and 1960s. But this does not preclude substantial changes due to dynamics of professionalization, of concentration and, more broadly, profound financial evolution. Such changes are illustrated, for example, by IPOs, radical changes in the shareholding of these players, or choices to become affiliated with large groups. Despite these differences, the two instruments studied in the article have proven to be crucial for all the actors studied.
This text draws on research carried out on real estate developers in France, and more specifically in the Paris region, for about 15 years. This research is based on in-depth qualitative research and combines fieldwork at the national and local levels. About 50 semi-directive interviews are the central material of this work. Executives of the largest French real estate development companies were asked about their conception of various housing policy issues, their public and private networks, and their links with their own professional association (Fédération des promoteurs immobiliers (FPI)). In order to analyze developers’ place in the overall housing sector and policies, other public and private actors in the sector were also interviewed: political and administrative actors at central state level and in two municipalities in the inner suburbs, and social landlords. As for the local level analysis, data was collected in two large municipalities in the inner suburbs of Paris. These cities had been selected during the 2000s as the most dynamic territories in terms of housing construction. The professional housing sector press was also valuable material for this research. Several empirical fieldwork phases were carried out: in-depth individual work (Pollard, 2018) and research partnerships (Gimat and Pollard, 2016; Bonneval and Pollard, 2017).
The next section examines the debates in urban studies literature on the explanations for the centrality and rise of developers in urban development. The following two sections each focus on one of the instruments mentioned above and consider their effects on developers. The third section analyzes how the growth of real estate developers in France has been largely supported by national policy intervention based on tax expenditures for rental investment. The fourth section examines the effects of the production of social housing, sold to social landlords, by developers. The concluding section discusses the outcomes of these evolutions. The article shows that the rise of real estate developers is, for the most part, the result of incremental changes effected by public actors in the housing sector. These changes have caused the implementation of crucial areas of housing policy to be delegated to private actors. The instruments under study in this article seek to enroll real estate developers in implementation, while political actors try to maintain control over decisions – and, more broadly speaking, over the main orientations of housing policies.
Theoretical explanations for the centrality and rise of developers. A literature review
To grasp the key – and increasing – role of real estate developers in the production of housing and, beyond that, in the making of the city, one can draw on a number of analytical contributions.
In the 1970s and 1980s, seminal research on the coalitions guiding urban development revealed the particular position of real estate actors – i.e. real estate developers, land owners, and land and property companies. These actors, seeking to maximize growth and profit through the development and exploitation of land, were seen at the core of urban politics, particularly in the United States. Such research drew mainly on two analytical frameworks: “urban growth coalitions” from a neo-Marxist perspective (Logan and Molotch, 1987; Molotch, 1976), and “urban regimes” from a neopluralist perspective (Elkin, 1985; Stoker and Mossberger, 1994; Stone, 1989, 1993). Thinking in terms of urban regimes helped researchers understand the influence exerted by real estate actors on governing decisions within coalitions of public-private actors built over the long term. Such analyses concentrated on the power of developers based on their financial resources, the prominence of their interests on the local political agenda, and their strong integration into the local ruling elite. This research focused on bargaining processes at the local level but was criticized for neglecting political institutions and the weight of the socioeconomic context (Kantor et al., 1997). More specifically, in the French case, the limitations of these approaches stem not only from their insufficient consideration of the role of the state, but also from their overestimation of the dependence of political actors on private economic actors (Le Galès, 1995).
Starting in the 2000s, this earlier research was followed by further investigation into the rationale for the central position of real estate developers in urban development. This research has been developed in several directions.
First, the various resources of real estate developers have been considered, including financial resources, local networks and expertise. Their centrality would be linked to their means of influence on public actors. Their presence in local economic and political life would thus have worked in favor of their own interests, turning them into decisive actors in the local political agenda. The analysis of developers’ profiles and behaviors has been sharpened by consideration of the economic, social, and political contexts in which developers are embedded (Coiacetto, 2001; Guy and Henneberry, 2000). They have ceased to be considered as solely economic “utility-maximizing” actors, and have started being analyzed in more complex ways – including as political actors. A strand of recent research reflects on the way developers affect public actors. For example, Leffers and Wekerle have highlighted the role of developers, both in daily planning decision-making and in consultative procedures (Leffers and Wekerle, 2020). Effects of real estate developers’ power have been documented from different perspectives, for instance in shaping urban space and land policies (Gurran and Phibbs, 2013; Leffers, 2018; Ruming, 2009) or in orientating the dynamics of revitalization and gentrification (Mosselson, 2020; Ruming, 2018). Particular attention has also been devoted to metropolises in the Global South (see for instance: Shatkin, 2016; Weinstein, 2014).
Second, their rise is also analyzed as part of a broader neoliberalization trend. From such a perspective, the rise of developers is examined in relation to global dynamics that restructure the capitalist economies of Western democracies. The flow of capital into real estate is attributed to broader macroeconomic trends, such as the end of large industrial investments or the growth of Asian economies (Pinson, 2020). This would go along with the transformation of the real estate sector, which has seen the concentration of real estate development companies and mergers between the banking and real estate development sectors. What is emphasized here is the centrality of urban development industries in neoliberal capitalism. Analyses that rely on a framework of neoliberalization emphasize the reengineering – and sometimes even the strengthening – of the state and the transformation of urban policies toward market-oriented objectives (Brenner, 2004; Peck, 2001). But they often privilege the role of ideas and market values over concrete policy instruments and actual interactions between actors (Pinson and Morel Journel, 2016).
Finally, some literature describes different types of public initiatives that have put real estate actors at the forefront. For one, public-private partnerships – that is, formal arrangements between local authorities and business actors (Davies, 2003; Pierre, 1998; Raco, 2014; Savas, 2000) – have been developed. In addition, privatization policies, including the transfer of public services to private actors (Bernt et al., 2017; Savas, 2000), have been on the rise. Recent research shows that facing increased funding pressure, local-level governments have sought new ways to attract investors and other private urban development actors by anticipating their expectations and sometimes even embracing the practices and narratives of the financial sector (Aalbers, 2017b; Beswick and Penny, 2018; Guironnet et al., 2016). Using Chicago as a basis for her empirical research, Weber shows that, in an attempt to secure political capacity in the face of budget-related challenges, local governments have tended to develop new fiscal tools to subsidize development projects (Weber, 2010; Weber and Goddeeris, 2007). In line with these considerations, the financialization 4 of urban governance and, more specifically, of housing production is often put forward to explain the rise of developers as well as the growing dependence of local governments on global financial markets and actors (Aalbers, 2008, 2017b; Belotti and Arbaci, 2020; Fields and Uffer, 2016; Pereira, 2017; Romainville, 2017). Research therefore documents how the influence of developers has been reinforced in the context of urban governance financialization.
In the French case, such explanations have proved unsatisfactory. Public-private partnerships as well as privatization are indeed not central issues as far as housing is concerned. Moreover, financialization is (still) low in the French housing sector – unlike for office and commercial real estate (Guironnet et al., 2016; Wijburg and Aalbers, 2017). In France indeed, real estate investments are massively dominated by private households, encouraged by substantial tax breaks (See next section : How national tax expenditures have fostered the rise of developers). The dynamics of financialization only began, very gradually, in the second half of the 2010s. The intervention of the French government, which set up investment funds for intermediate housing, helped from then on to attract institutional investors to the housing market. This trend is still only emerging and has not (or at least not yet) led to substantial restructuring of the real estate sector (Guironnet et al., To be published). Due to those particular features, analyzing the French case, which has been little explored in the international literature, is therefore one of the contributions of this article. Beyond this empirical input, the current case study enables the exploration of other policy instruments that encourage the role of private economic actors in urban development. Two research gaps are thus addressed.
First, studies have demonstrated how public players of the planning sector are de facto involved in setting up and shaping property markets and actors – even if such involvement is not always undertaken consciously (Adams and Tiesdell, 2010). In a leading contribution, Susan Fainstein considers how different institutional contexts and land policies shape the activity of real estate developers through the analysis of major urban redevelopment projects in London and New York (Fainstein, 2001). However studies focusing on understanding how regulatory pathways, i.e. institutional and policy settings, shape the role of real estate developers in policies are still scarce (Todes and Robinson, 2020). More specifically, there has been little work on how policy instruments shape the position of real estate developers. An instrument-based approach makes it possible to observe how the state structures private economic actors, impacts their characteristics and activities, and ultimately conditions their weight as players in public policies.
Second, limited research has developed a multi-level perspective. I argue that considering the national and local levels simultaneously allows for the identification of the various ways in which public actors have fostered the growth of developers. In the literature, the consideration of political settings has been developed mainly at the local level. A set of studies has considered the ways in which local governments can frame the behaviors of real estate developers (Elsmore, 2020; Garboden and Jang-Trettien, 2020; Hyde et al., 2022). National level institutional settings are in general grasped summarily (for an exception see: Gotham, 2009) 5 . The objective is therefore to highlight the intertwining of policy opportunities and constraints emanating from the local and national levels. These opportunities and constraints structure the practices of real estate developers.
How national tax expenditures have fostered the rise of developers
Political motivations for the development of tax breaks for buy-to-let investments
Economic and fiscal instruments impacting the activities of real estate developers have existed in French housing policies since the 1930s, but did not gain momentum until the late 1990s. From then on, one of these tax expenditures has been particularly favorable to real estate developers: tax exemptions for buy-to-let investments. These schemes, frequently named after the Minister in charge of housing at the time of their introduction, benefit households that buy a property in a new building and commit to renting it for a fixed period of time (usually about 9 years). Some schemes have provided tax benefits for taxpayers over a much longer period, for example up to 24 years in the case of the Périssol scheme 6 , which was launched in 1996. They are intended to encourage individuals to prefer real estate investment to other types of investment. But they also provide crucial support – albeit indirect – to companies in the real estate sector. Among the main stated political objectives of these measures are promoting the supply of new housing, providing a certain stock of rental housing outside the social housing sector, and supporting economic activity in the construction sector.
For political actors, such tax expenditures free up room for maneuver in a constrained budgetary context all the while acting in respect of the politically dominant objectives and norms aimed at reducing public spending and controlling public debt (Bezes and Siné, 2011). Tax expenditures are a means of producing public policies in a context of “petrification of public spending” (Siné, 2006). They are indeed easier to set up than budget expenditures. They are not accounted for, but only estimated, and are not subject to quotas, which again distinguishes them from budget expenditures. Moreover, their costs are diffuse and spread over time 7 . Another advantage of tax expenditures for policy-making lies in their temporality: investors and private economic actors in the building sector react quickly to their creation or reorientation. In a sector of mainly long-term, tax breaks are a means of acting in the short term. One example is a scheme created in the wake of the 2008 housing crisis to boost investment in private rental property. This new, highly fiscally attractive scheme, called the Scellier scheme 8 , was established in the autumn of 2008. Its consequences, measured in terms of accelerated sales, were announced after only a few months by real estate developers.
The large share of housing sold by developers through these schemes indicate that they have become key support tools for these actors. Since the introduction of the Périssol scheme in 1996, the percentage of sales to individual investors among total sales by developers has most often exceeded 50% 9 . There were also some peaks: in 2009 and 2010, around 64% of sales were made to individual investors under the Scellier scheme. Fifty-four percent of the sales made by developers in 2017 benefited from the current scheme (Pinel scheme 10 ). For 2022, the corresponding tax expenditure is estimated at around €2 billion for all these schemes, the oldest of which was introduced in 1996. Through this instrument, private economic actors are placed clearly in a position to benefit from public resources.
Representations and adaptations of developers faced with tax schemes to boost rental investment
The collective mobilization of developers to defend these instruments provides an initial indication of how developers have appropriated them. The professional association of French real estate developers (Fédération des promoteurs immobiliers), as well as the major developers, have indeed become fierce advocates of these schemes over the last decades. They are particularly quick to defend them whenever they come under criticism or are challenged. They constantly put forward arguments on the societal benefits of this type of instrument and try to ensure their continuity. Concerns are expressed about the frequent political redefinition of the instrument, especially when there are changes of government.
Within the companies themselves, the major developers strategize to get the most out of these mechanisms. They may change their marketing practices and redefine territorial strategies and internal processes in order to maximize the sale of units benefiting from these schemes. The rest of this section details these strategies.
First, developers have adapted their communication strategies to promote these instruments. The websites of the largest French developers systematically include information and advertisements praising the profitability and advantages of incentive schemes for rental investment. Nexity, the top French developer, boasts on its Web site: “Rental investment is one of the most profitable investments today, thanks to a range of tax exemption schemes put in place by the government! 11 ”. A similar statement is provided by Bouygues Immobilier, Nexity’s main competitor: “Buying a new home is an investment that is all the more advantageous because it offers significant tax benefits, which will help you make your property profitable. Before investing, don’t hesitate to ask our advisors about all the tax incentives available and the advantages you can expect 12 ”. Real estate developers present themselves as essential contacts for individuals to advise and support them in their investment. In addition, some also canvass actively through mail, email, or the telephone.
Second, the largest developers also organize specific in-house training courses for their sales representatives, which aim to make them experts in tax schemes. The objective is to prepare them to sell apartments by targeting and communicating to potential investors. Indeed, the government creates the schemes but does not promote them itself. Those who call themselves experts and present them directly to potential individual investors are private economic actors (real estate developers, but also financial advisors and asset managers). This of course raises questions about the content of the information provided to individuals: experts presented as “neutral” are part of the development of these mechanisms and thus benefit from them.
Third, these schemes have also guided the location strategies of a number of companies, which have chosen to build in areas where market prices made it possible to optimize the tax exemption benefit. In addition, a number of major developers produce housing specifically intended for sale to investors, i.e. “products” that are calibrated to maximize the tax advantage. Dwelling size, for example, is a parameter that may be adjusted for optimal tax breaks: studios and two-room flats allow for a maximum tax benefit.
For other players, often smaller developers, the effects of these schemes have been even more radical. Some companies have become entirely specialized in the construction and sale of this type of housing only. They have been qualified as “tax exemption developers” (promoteurs défiscalisateurs) as they focus all their activities on the sale of housing as tax exemption products (Vergriete, 2013). This strategy has led to the spectacular growth of certain companies, such as the developer Akerys in the 2000s. However, this type of specialization has been denounced by local public actors, as well as by the Fédération des promoteurs immobiliers, which has seen in this extreme use of tax incentives a form of perverting the profession.
Outcomes of this policy instrument
The expansion of the activities of real estate developers over the last two decades has been based on these mechanisms put in place by successive national governments. To understand the extent to which the rise of developers has been politically regulated, one has to consider in greater detail the implementation of these mechanisms. An analysis of the outcomes indeed reveals a contrast between national measures and local regulations. Developers have expanded their reach thanks to national public schemes, but tensions with local political actors have not been absent. Territorial effects of tax exemptions for buy-to-let investment have been particularly striking outcomes of the policy. From the mid-2000s, the failure of these tax exemptions to account for the diversity of local territories was widely denounced by housing sector experts 13 and within Parliament.
For example, rental housing was overproduced in some parts of France due to these schemes. Even though these schemes were supposed to promote construction in financially strained areas, new rental housing was concentrated in areas far from markets with the highest demand. In his research, Patrice Vergriete showed that western and southwestern France were overrepresented as zones where real estate developers widely developed their construction activities thanks to these tax breaks. He also showed the expansion of the developers’ activities to medium-sized towns and rural areas. Such a shift went so far as to create imbalances in certain local rental markets and to saturate the rental market in certain cities, in particular for small dwellings (Vergriete, 2013).
Critics point also to the gap between maximum fixed rental prices and the diversity of local markets. Private individual investors tend to demand rents based on financial calculations that make their investment profitable, but that are too high in comparison to local prices. Investors thus risk failing to find a tenant at the risk of losing their tax advantage (Herlin-Giret and Spire, 2019). This is accentuated by the fact that developers and their marketing networks often sell investors buy-to-let housing units far from where they live. The real estate investment is therefore sold as if it were a financial investment like any other, minimizing the critical importance of location. Despite the succession of schemes intended to correct the problem of the inadequate territorial effects, which included the refining of zoning, the perverse effects reported have remained persistent. Public intervention developed in this way has been denounced as being blind to the territories (Dupuy and Pollard, 2014).
Difficulties of controlling the activities deployed by real estate developers relying on these public measures have been stressed with increasing intensity. A January 2018 note from the French Court of Auditors 14 makes very critical observations. The document confirms that these measures remain sparsely used in areas where the need for rental housing is particularly acute because of lower expected rental profitability, which in turn is due to high acquisition costs. The report also points to the high cost of these tax exemption schemes for the community, their limited economic impact in terms of increasing the number of accessible rental units, uncertainties about the windfall effect generated, and recurrent evaluation difficulties. The document even suggests that private economic actors such as real estate developers may be addicted to these schemes. The Court of Auditors calls for a gradual phasing out of these measures. But there has been no action carried out thus far.
The rise of developers is based on tax exemption policies set up by national governments, both on the right and left of the political spectrum, but whose effects, particularly at the territorial level, are partially beyond the control of political actors. Relying on real estate developers and supporting their activities depends on political decisions. These schemes thus embody a strong tension between decision making and implementation. While political actors control the creation of these schemes, their implementation largely escapes them.
How building social housing has fostered the rise of developers
Building social housing is the other key aspect of the expansion of real estate developers’ activities over the last two decades. It is also the result of changes in policies, initially provoking some reluctance on the part of developers. Impelled by local governments, social housing construction by developers has been gradually framed and promoted by national policies. National and local dynamics have thus combined to turn developers into central players in the construction of social housing.
Political motivations to drive developers to produce social housing
Until the 2000s, French housing policies were largely structured around a differentiation between professional stakeholders on the supply side. On the one hand, social landlords (HLM organizations) produced and managed social housing; on the other hand, real estate developers produced and built housing at market conditions. This segmentation, which had its origins in the differentiation of public intervention after the Second World War (Effosse, 2003), de facto legally excluded real estate developers from the construction of social housing.
A shift began to occur in the early 2000s (Gimat and Pollard, 2016). Local elected officials had to face growing regulatory and financial difficulties, which included an increase in construction costs, scarcity of available land, and more complex financing procedures, in building social housing on their territory. Specific regulations on social housing related to public procurement exacerbated these difficulties. At the same time, national injunctions, some of them coercive, reinforced local elected officials’ obligation to build social housing. For instance, the Law of December 2000 on Solidarity and Urban Renewal (Loi Solidarité et Renouvellement urbain) provides that social housing must represent at least 20% or 25% (depending on the case) of the housing stock for municipalities with more than 50,000 inhabitants. In this context, local governments have explored new ways to produce social housing. Among them, the involvement of real estate developers has gained ground. Local governments have therefore introduced, initially informally, new requirements when granting building permits to private developers to urge them to include a quota of social housing in their operations 15 . Beyond this local impulse, national policies have also contributed to the intervention of developers in the field of social housing. A turning point occurred with the 2008 crisis, which was an accelerator at the national level of this form of social housing production (Hincker Jourdheuil, 2019). As part of the 2008 French Economic Recovery Plan (Plan de relance de l'économie), a program was set up to support actors in the real estate sector. Through the program, social landlords bought back 30,000 housing units built by real estate developers. This arrangement benefited developers in financial difficulty at the time of the crisis by allowing them to sell part of their unsold homes.
In practice, the new use of an older tool was adapted to social housing construction and made this evolution possible. This device, called Vente en l’état futur d’achèvement (VEFA, meaning sale under construction) had been used since the 1960s by real estate developers to sell their new homes to private individuals. It consists in a specific contract that gradually transfers ownership of the building during its construction. This type of contract has been adapted to transactions between developers and social landlords to allow developers to sell part of a project to social landlords even before construction begins – one speaks then about VEFA-HLM. Housing units built by developers are then managed by social landlords. The adaptation of this tool has been gradual. Successive decrees and circulars have regulated it since 2000, at which point loans to finance the production of social housing could be obtained for VEFA operations. The 2006 National Commitment to Housing Law (Loi Engagement National pour le Logement) allows for the imposition of a new easement (referred to as social mix easement) consisting of legally imposing a quota of social rental housing in the Urban Development Plan for a given area. In this way, local governments can enforce a quota of social housing to be included in future construction programs by developers.
As a result, the 2000s and especially the 2010s saw a gradual and sharp increase in the importance of developers in the construction of social housing. They were virtually absent from this activity in the first half of the 2000s. In 2018, they built more than 50% of social housing in France – more than 60% in the areas with the highest housing demand.
Representations and adaptations of developers faced with building social housing
When asking developers about this policy change, responses are quite mixed and evolving over time. As the conditions for the production of social housing were first imposed and framed by local political actors, developers and especially their professional representatives were initially reluctant and quite suspicious. Building social housing imposes on real estate developers a significant set of adaptations and compromises. In the early 2000s, this was a new mission in a sector whose rules and needs developers were only remotely familiar with. Social landlords and real estate developers were indeed not used to working together and had long relied on different processes, actors, and norms in their construction programs. These new mixed projects (i.e. including social housing sold to social landlords and housing intended for private individuals) necessitated collaborative work processes among an increasing number of stakeholders. It also required developers to integrate specific norms imposed by social landlords, representing additional costs. The latter are indeed particularly concerned with the architectural and technical design of their properties, because they must ensure long-term rental management, and because their financing is conditional on compliance with certain standards (thermal standards and room sizes, for example). Specific requirements are thus recorded in a set of specifications, transmitted by the social landlord to the real estate developer, around which the sometimes conflicting negotiations are organized. For developers, because sales prices of social housing are lower than market prices, the arrival of social housing threatened the profitability of their activity. In the 2000s, developers interviewed also mentioned that the integration of social housing would result in a loss of value for housing sold at market price in the same operations.
However, discourses have largely evolved with the generalization of these practices in the 2010s. In the 2010s, these socially diverse operations, although still the subject of bitter negotiations, were better anticipated by the actors involved thanks to greater knowledge of each other’s expectations and the joint work practices that had been established (Hincker Jourdheuil, 2019). The development of VEFA-HLM has contributed to the evolution of some practices, especially in terms of financial balances, in order for real estate developers to maintain their profitability levels but has not led to a complete reevaluation of their operating methods. To limit the impact of the shortfall, linked to the lower price of housing acquired by social landlords, and to continue to generate a margin, control of land charges has become one of the main issues in the feasibility of mixed operations. Negotiations between developers and landowners, often facilitated or even supervised by the public authorities, have become more crucial. In some cases, developers have increased prices of home-ownership housing when not regulated by public authorities.
In terms of their practices, most developers have fully embraced the production of social housing. Today, about a quarter of the housing units produced by developers are sold to social landlords. Ultimately it has become a new source of profit. Indeed, the production of social housing constitutes a counter-cyclical activity, which ensures that real estate developers remain profitable even during periods of less dynamic real estate markets. Because it relies in part on public financing, it is less sensitive than other products to the broader economic context. Moreover, producing social housing is a secure business for developers. Indeed, when a social landlord commits to a project, it generally purchases a significant share, rarely less than 20% of the housing units. For the developer, this commitment reduces the number of buyers involved and the number of units to be commercialized, the results of which include savings on marketing costs, faster release of bank loans, and a reduction in risk. In addition, social housing is also a gateway for developers to a new market, that of low-income households. This leads them to diversify the housing production segments in which they are present. Finally, social diversity has also become, since the 2000s, a public communication argument for the main French real estate developers. Indeed, they are increasingly seeking to present themselves to local actors as capable of taking sustainable development and social issues into account. Social inclusion and the construction of housing for less well-off populations have thus become one of the tools in marketing and corporate social responsibility strategies. The economic interest of such operations for developers has even led some of them to specialize exclusively in building for social landlords. This is for example the case of developers like ALILA or UNITI, which have been founded at the beginning of the 2010s and present themselves as “social real estate developers”. Interestingly these actors also stand out for their outstanding growth over the last decade.
Outcomes of this policy instrument
When analyzed from the developers’ perspective, and despite some initial reluctance mostly on the part of their professional federation, this evolution clearly marks the opening of a new market for developers. It is an extension of the developers’ activities that was promoted by public actors.
Effects of this new practice are paradoxical in several ways. Criticism, sometimes fierce, has been expressed with regard to this tool, in particular on the part of professional representatives of social housing organizations. First, despite being politically driven, these arrangements raise legal problems on several levels. They have been denounced as circumventing the public procurement code and the procedures for competitive bidding. This applies, for example, to the organization of competitive bidding procedures for construction companies or for the selection of architects, which developers are not required to comply with, unlike social landlords. Second, negotiations between elected officials, social landlords and real estate developers prior to the granting of a building permit, although in principle prohibited by law, are becoming widespread with the development of VEFA-HLM. Third, further questions are raised about the outcomes of this development and about the capacity of political authorities to control its consequences in the medium term. When social landlords choose this method of production, or are forced to use it, they relinquish direct control over the construction of their housing – control which has traditionally been integral to their mission. In addition, they must give up some of their freedom to choose construction site locations. In the long term, because VEFA-HLM has largely replaced direct project construction, social landlords may risk losing one of their core competencies, that of housing construction. What will be the effects of depending on profit-driven actors to produce social housing? Concerns have also been raised about the quality and durability of such operations.
Faced with the rise of this means of producing social housing, new attempts at regulation have been introduced by local governments. Construction charters aimed at regulating the activities of real estate developers are becoming widespread at the local level, particularly in the Paris metropolitan area. In these charters, measures to supervise VEFA-HLM are frequently included. For example, for the inter-communal government of Plaine Commune (heart of the former red belt suburbs of Paris, today a zone of intense real estate development), one objective is clearly to contain the share of VEFA-HLM in the production of social housing. Taking into account the higher cost and higher rent levels for operations purchased from developers (compared to those carried out directly by social landlords), the Plaine Commune charter thus provides a framework for VEFA-HLM operations on several levels: their percentage is limited, and price ceilings are established. Such provisions reveal the ambiguous attitude of local governments today towards the construction of social housing by developers.
Conclusion
The key role of real estate developers in the production of urban space has largely been explored in the literature. Among the issues studied is how policy and institutional frameworks have contributed to favoring the activities of real estate developers. A range of research shows how, starting in the 1980s and more intensely since the 2000s, local governments have promoted the financialization of real estate by putting in place measures to encourage real estate investment and to attract developers (Savini and Aalbers, 2016; Searle, 2014; Weber, 2010). Research has demonstrated the growing fit between the expectations, values and targets of developers and the local policy landscape that support their activities and practices (Fainstein, 2001; Leffers, 2018; Romainville, 2017). Neither the logic of financialization nor that of privatization can explain the expansion of developers in the housing sector in France since the 2000s. The article takes a closer look at the political conditions that favored the growth of developers in the years 2000 and 2010 in a context of low housing financialization. The key role of two political instruments has been emphasized: the first one favoring households’ investments in real estate and the second one enabling social housing construction by real estate developers. The impact of these instruments extends to the entire real estate development industry. All professional developers sell housing to individuals who benefit from tax breaks; and all professional developers build social housing. The few exceptions are the handful of players who have become specialized in social housing construction or tax-exempt housing sales, or who have been created ad hoc in order to concentrate exclusively on the same. The top developers are therefore all beneficiaries of public policies in the housing sector. Understanding their rise means paying attention to the changing policy landscape in which they operate.
Beyond this empirical overview, the driving force of the evolutions at work must be emphasized. Focusing on policy instruments is a way to empirically operationalize the political conditions for the rise of developers and to characterize the change, that led to this rise. Political motivations have been at the core of the setting up of these instruments. The rise of developers is the result of political strategies aimed at regaining room to maneuver in a constrained financial environment by relying on the implementation capacity of private actors. Over the past two decades, the tension between two types of policy objectives in the field of housing has grown. On the one hand, constraints on public finances push to limit the costs of housing policies. On the other hand, political actors continue to set ambitious political objectives for housing policies. Involving private real estate developers has been one way of fulfilling these ambitions while limiting budgetary expenditure. All in all, real estate developers have been delegated roles in housing policies neither as the outcome of an overarching deliberate political project, nor as part of a strategic overall view for the sector. The rise of developers is rather a side effect, partially uncontrolled, of the policies put in place. These instruments put in place to delegate the implementation of policy objectives to developers were introduced at the margins of existing policies, but they subsequently gained more prominence. This was the case with tax incentives for rental investment. Broadly speaking, the creation of new tax expenditures and the increase of the share of tax expenditures in the housing sector did not correspond to a radical change. Rather, these evolutions are equivalent to the gradual rise of an instrument, initially not very visible. In the same way, the production of social housing by real estate developers through VEFA-HLM also constitutes a progressive change. Indeed, it is an existing mechanism that is used under new conditions. The discrete and incremental dimension of change carried by these two instruments is central.
Lastly, implications of such evolutions can be contrasted with recent literature on other national cases. Significant changes that have been described are consistent with observations in other national contexts: growing dependence on developers for housing policy implementation and delivery of public services and goods (such as social housing); increased importance of collaborative instruments (such as charters) between local governments and developers; more flexible planning regulations and case-by-case (informal) negotiation processes; setting up of policy instruments to involve developers in mitigating the impacts of their projects (Elsmore, 2020; Holsen, 2020; MacLeod, 2011; Martel et al., 2019; Muñoz Gielen and Lenferink, 2018). State-market relations are therefore also evolving in the French case. And an increased co-dependence between state actors and real estate developers also appears in this case. This observation is all the more remarkable given that, in Europe, the French case is traditionally presented as the closest to an ideal-typical model of state-led spatial development, with a high level of public control over the activities of private economic actors (Berisha et al., 2021). However, while considering these common developments, differences between cases should not be downplayed. Firstly, as described above, the origin and drivers of change are diverse. Secondly, behind these common, allegedly “flexible” and “collaborative” dimensions, there are varying power relations and regulatory capacities for public authorities. Local conditions of implementation have become particularly decisive. Due to increasing role of developers, political actors face growing uncertainties about the effects of the policies they plan. French local governments are now in closer relationships of negotiation and mutual dependence with developers. A major consequence is that regulatory capacity has become more context-dependent. While the municipalities with the most resources (such as expertise or land ownership) retain a strong capacity to steer the interventions of real estate developers, this is not the case for all of them. Territorial disparities generated by these evolutions would be worth documenting in more detail. Also, a long-term perspective would be needed to assess the evolution of political commitment and public regulation to maintain the supply of social and affordable housing.
Footnotes
Acknowledgments
I would like to thank Claire Dupuy, Pierre Burban, Pierre Wokuri and Jill McCoy for reading earlier drafts of this article. I am also grateful to the Editor and reviewers for helpful remarks on this paper.
Declaration of conflicting interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
