Wednesday, 15 September, 2021

New housing: the Pinel system does not keep its promises


A report published this Thursday by the General Inspectorate of Finance and the General Council for the Environment and Sustainable Development draws a harsh report on the Pinel device. In addition to being costly for the State, it directs many individuals towards unprofitable investments and encourages the production of housing which does not always correspond to local needs.

In addition to being costly for the State, the Pinel directs many individuals towards unprofitable investments and encourages the production of housing which does not always correspond to local needs.

The State invests billions of euros in rental investment aid, but is found there thanks to the revenues generated by the construction sector (VAT, social contributions). This is the argument put forward by real estate professionals to defend the tax incentives that have followed one another since the 1990s (Scellier, Robien, Borloo, Duflot, Pinel, etc.)

A report published this Thursday by the General Inspectorate of Finance (IGF) and the General Council for the Environment and Sustainable Development (CGEDD) questions this speech: “The net budgetary impact of the system is negative for the State whatever the assumptions used”, say the authors, from whom the government has commissioned an evaluation of the Pinel device, the deadline for which is currently set at 2021.

Read also:

Concerns around the removal of the new PTZ outside major cities

In the age of negative rates, the debate on the future of zero-interest loans is launched

This conclusion sounds like a response to a study published by professionals in September which concluded that the results were generally positive. According to the inspection mission, this study carried out by the Primeview firm compared the cost of the tax advantage to VAT revenues linked to construction and therefore did not measure the effect of Pinel on growth.

The mission assessed the effect of aid on public finances by testing several hypotheses depending on the behavior of donors and tenants. The results are negative each time. However, the total budgetary cost of rental investment aid is now close to 2 billion euros per year, against 500 million euros ten years ago.

An often negative return

For individuals, investing in the Pinel law is not always a good deal, in particular because of a 30% discount in prices for the old compared to the new. “The attraction of the tax reduction seems to mask in half of the cases a negative overall net return after 9 years, excluding the effect of the rise in the price of real estate”, notes the report.

Clearly, the “tax carrot” is most often the psychological trigger, and often eclipses the question of rental yield or capital gain or loss on resale. It is this last element which is decisive in the profitability of a rental investment. The mission shows that“A Pinel investment has a positive overall return, if property prices have increased by more than 11% in nine years, or an annual growth of 1.2%. “.

“Housing standardization”

Another negative effect is underlined by this report: the Pinel encourages developers to design housing to attract investors. Hence an offer which does not always correspond to local needs, for example in family housing. The authors found “A certain standardization of housing” and an “Faster degradation of condominiums in which the share of Pinel rental investments is significant”.

However, the report does not recommend removing all aid, otherwise housing construction may collapse. But you have to go from “Open window logic” at “Controlled and oriented support with regard to the housing needs of the inhabitants”. The main proposal is to limit the number of tax reductions granted and to allocate them in each region according to predefined criteria (demographic growth, vacancy and quality of the park).

This raises a question of equality before tax. “This requirement is not a priori incompatible with the quota of the device”, underlines the report, which also advances the track of transforming this tax reduction into budgetary aid.

A report published this Thursday by the General Inspectorate of Finance and the General Council for the Environment and Sustainable Development draws a harsh report on the Pinel device. In addition to being costly for the State, it directs many individuals towards unprofitable investments and encourages the production of housing which does not always correspond to local needs.

In addition to being costly for the State, the Pinel directs many individuals towards unprofitable investments and encourages the production of housing which does not always correspond to local needs.

The State invests billions of euros in rental investment aid, but is found there thanks to the revenues generated by the construction sector (VAT, social contributions). This is the argument put forward by real estate professionals to defend the tax incentives that have followed one another since the 1990s (Scellier, Robien, Borloo, Duflot, Pinel, etc.)

A report published this Thursday by the General Inspectorate of Finance (IGF) and the General Council for the Environment and Sustainable Development (CGEDD) questions this speech: “The net budgetary impact of the system is negative for the State whatever the assumptions used”, say the authors, from whom the government has commissioned an evaluation of the Pinel device, the deadline for which is currently set at 2021.

Read also:

Concerns around the removal of the new PTZ outside major cities

In the age of negative rates, the debate on the future of zero-interest loans is launched

This conclusion sounds like a response to a study published by professionals in September which concluded that the results were generally positive. According to the inspection mission, this study carried out by the Primeview firm compared the cost of the tax advantage to VAT revenues linked to construction and therefore did not measure the effect of Pinel on growth.

The mission assessed the effect of aid on public finances by testing several hypotheses depending on the behavior of donors and tenants. The results are negative each time. However, the total budgetary cost of rental investment aid is now close to 2 billion euros per year, against 500 million euros ten years ago.

An often negative return

For individuals, investing in the Pinel law is not always a good deal, in particular because of a 30% discount in prices for the old compared to the new. “The attraction of the tax reduction seems to mask in half of the cases a negative overall net return after 9 years, excluding the effect of the rise in the price of real estate”, notes the report.

Clearly, the “tax carrot” is most often the psychological trigger, and often eclipses the question of rental yield or capital gain or loss on resale. It is this last element which is decisive in the profitability of a rental investment. The mission shows that“A Pinel investment has a positive overall return, if property prices have increased by more than 11% in nine years, or an annual growth of 1.2%. “.

“Housing standardization”

Another negative effect is underlined by this report: the Pinel encourages developers to design housing to attract investors. Hence an offer which does not always correspond to local needs, for example in family housing. The authors found “A certain standardization of housing” and an “Faster degradation of condominiums in which the share of Pinel rental investments is significant”.

However, the report does not recommend removing all aid, otherwise housing construction may collapse. But you have to go from “Open window logic” at “Controlled and oriented support with regard to the housing needs of the inhabitants”. The main proposal is to limit the number of tax reductions granted and to allocate them in each region according to predefined criteria (demographic growth, vacancy and quality of the park).

This raises a question of equality before tax. “This requirement is not a priori incompatible with the quota of the device”, underlines the report, which also advances the track of transforming this tax reduction into budgetary aid.