Hollande Eyes Insurers’ EU1.38 Trillion to Boost Housing

Didier Ridoret has a fix for France’s construction slump: prod Axa SA and other insurers to plough more of their 1.38 trillion euros ($1.86 trillion) in domestic life insurance policies into new housing.

The chairman of the French Building Federation says President Francois Hollande “should twist the arm of insurers so that they devote a part of their resources on mid-level housing.” Ridoret, who’s taking part in talks between the government, builders and insurers to rekindle housing, said in an interview that “all indicators are on red alert, from housing starts to renovation to non-residential” construction.

Hollande, who faces a slumping economy and joblessness at a 15-year high is under pressure to support construction as households have become reluctant to buy homes with prices near record highs. He said on Feb. 1 that his pledge to build 500,000 homes annually won’t be reached in 2013, and promised to increase affordable lodging with a new law this year aimed at luring more of insurers’ investments into real estate.

Housing starts and extensions slid 18 percent to about 346,000 in 2012, hurting prospects for companies from building-material makers Cie. de Saint-Gobain, Imerys SA and Vicat SA, to builders Bouygues SA, Eiffage SA and Maisons France Confort.

‘Thorny Issue’

“Housing starts statistics haven’t been good, and will have an impact in 2013,” Saint-Gobain Chief Executive Officer Pierre-Andre de Chalendar said on a conference call yesterday, after Europe’s biggest supplier of building materials missed analysts’ 2012 earnings estimate.

Today, the shares of Saint-Gobain rose as much as 3.1 percent in Paris trading while France’s CAC40 stock index dropped as much as 1.7 percent. The shares of Vicat were up 0.1 percent as of 9:29 a.m.

The situation is set to worsen as housing permits, a gauge of future construction, fell 7.3 percent last year after Hollande raised income and property taxes to shrink the country’s budget deficit.

“France will build 300,000 houses in 2013 and less in 2014, so the issue will become extremely thorny because it will lead to job losses and value-added tax revenue shortfall,” said Alain Dinin, CEO of Paris-based property developer Nexity SA, said in an interview. “Prices can’t drop, so the lower-middle class with weak incomes will struggle more and more to lodge and the political pressure will become huge.”

Construction costs have climbed 55 percent in the past 12 years because of swelling environmental and safety rules. That and the lack of available land in the most coveted areas around Paris and other large cities mean developers struggle to offer cheaper homes.

Job Losses

“There’s a shortage of at least 500,000 housing in France,” Olivier Eluere, an economist at Credit Agricole in Paris, said in an interview. “The sector has a strong impact on employment. Everything that can underpin construction in tight areas would allay the shortage, improve households’ solvency and prolong the current soft landing of prices.”

In spite of record-low borrowing costs, the reining in of tax incentives on property purchases will crimp the market and may result in 40,000 industry job losses in 2013, after 14,500 in 2012, the building federation forecasts. The government has tightened requirements for tax breaks for buy-to-let investments and interest-free loans for first-time home buyers.

Luring Insurers

Demand for housing loans has fallen, according 42.9 percent of banks surveyed by the Bank of France in January, while 57.1 percent said it was little changed. The average mortgage rates fell to a record low of 3.16 percent in the month, according to a study by lender Credit Logement SA and polling company CSA.

“If household confidence isn’t here, and if they’re concerned for their jobs and income for the months and years to come, they won’t invest,” Raoul de Parisot, the chief operating officer of cement maker Vicat, said in an interview. French 2013 cement consumption may fall as much as 7 percent, he said.

Households also got cold feet after the government threatened to cap rents and to seize empty housing, said Guy Nafilyan, CEO of property company Kaufman & Broad SA.

To reverse the building slump, the government is working on a tax incentive for insurers, which would lead to the construction of 20,000 to 40,000 homes-to-let each year, Nafilyan said. Insurers are wary because governments have consistently changed rules, said Nexity’s Dinin.

Government Land

Insurers would also like to own their new housing investments while the government is pushing for a common real-estate investment vehicle that would pool their contributions, Paris-based Kaufman’s Nafilyan said.

French insurers have been abandoning housing in the past decade to seek higher returns in commercial real estate. Of their 1.88 trillion euros of investment, 56 percent is put in private sector assets, 2 percent of which is in real estate, according to the French Insurers’ Federation, FFSA. The industry currently has 16 billion euros in housing, and will “do its part” to revive construction of mid-level housing, the federation said in an e-mailed response to questions.

To cut construction costs, Hollande is also pledging to give away or sell government land and properties at a discount.

There’s resistance on the ground because mayors are reluctant to give construction permits since new buildings require more infrastructure spending and alienate voters, the Nexity and Kauffman chiefs said.

‘Abusive Appeals’

Red tape and “abusive” appeals against permits are slowing developments, they said.

“If we don’t tackle the structural issues of housing, we will never solve the problem and we’ll certainly not build the 500,000 housing pledged by Mr. Hollande,” said Nafilyan, whose company Kaufman is predicting financial performance in 2013 that will be comparable to last year, only thanks to its backlog.

“The real challenge is 2014 and 2015, as the market is really sluggish,” he said.

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