Local taxes levied on residential properties, in particular property tax, are calculated on the basis of cadastral rental values derived from an evaluation of the rental market dating from 1970. These rental values have not been subject to any significant revision since then, and have therefore not kept pace with developments in local rental markets. Homes in neighbourhoods that are now more highly valued by the market than they were 50 years ago are therefore currently under-taxed, unlike homes located in areas where rents have fallen relatively since 1970.
The 2020 Finance Act provides for a comprehensive revision of these rental values. This report aims to assess, in advance, the impact of this revision on the distribution of rental values across the twenty largest French urban areas, excluding Paris. Using recent data on the property market, we estimate a revised rental value for each dwelling in this sample, which we compare with the rental value currently used for local taxes. Such an analysis enables us to understand the changes in the allocation of local taxes amongst households within the same area that this revision entails.
Review of rental values for residential properties: an évaluation of major urban areas
The aim of this study is to present a robust and rigorous methodology that would enable rental values to be updated on a regular basis, and to compare the rental value estimates in the report with the rental (cadastral) values currently used to calculate local taxes.
Reference IPP Report No. 29
Presentation
Key Results
- We analyse the impact of the revision of rental values on the allocation of tax brackets, assuming that local tax revenue remains unchanged.
- In this context, the impact of the revision depends on the level of local government at which the tax rate is set: for example, a property may see its rental value rise more than the average for properties in its local authority area, which would result in a higher tax bill under a local authority tax, but its rental value might fall relative to the average for properties in its inter-municipal authority, which would result in a reduction in its tax liability under an inter-municipal tax.
- We analyse the impact of the review at the level of local authorities and public inter-municipal cooperation bodies (EPCI), which are the most significant levels in terms of local taxes.
- At the municipal level, the date of construction plays an important role: properties built before 1950 would see their rental value increase by more than 15 per cent on average, whilst those built in the 1960s and 1970s would see their value fall by an average of 16 per cent.
- Our results suggest that these differences are primarily linked to changes in property characteristics (e.g. renovations) rather than geographical phenomena (e.g. gentrification), although we also observe significant variation in rental values across different neighbourhoods.
- Analysis at the inter-municipal level reveals that city centres are overvalued, whilst undervaluation is concentrated in outlying towns. This finding can be interpreted as the result of urban sprawl, which has increased the value of housing in certain outlying municipalities—a rise not reflected in the rental values currently used.
- For both levels studied, dwellings occupied by the lowest-income households are, on average, overvalued, in contrast to those occupied by the highest-income households. These average effects are, however, of limited magnitude, with the revision resulting, at the local authority level, in an average fall of 5.6 per cent in the values of the 10 per cent of homes occupied by the lowest-income households, and an average rise of 9 per cent for the 10 per cent of homes occupied by the highest-income households.
Guillaume Chapelle
Brice Fabre
Chloé Lallemand
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