The French are seeking to protect their domestic property rental market against overseas buyers. Foreign buyers tend to push house prices up, so it becomes more and more difficult for young people to get on the property ladder. In Europe and America especially, wages are stagnant and their real values are actually falling as costs of living increase. House prices rising pushes up rents and makes governments unpopular, and since the actual causes of the financial crisis seem beyond the power of elected officials to control, it falls to government to attempt to control the symptoms; Hong Kong announced recently that it would bar foreigners from buying certain types of home, and now France has followed suit.
The difference is that Hong Kong remains an aspirational island, the world’s freest economy, and the complaints that the system there is unfair are the voice of those who want the rules changed, not those who want to play a different game. The US has a history of voting for rightist demagogues or do-nothings like Hoover in times of financial crisis, but the French have responded by electing the Socialist party. And now the opponents of the Socialist party are accusing M. Hollande and his comrades of driving wealth creators out of the country.
Bernard Arnault is the world’s fourth-richest man, with an estimated personal worth of over $41bn. He is a personal friend of ex-President of France Nicolas Sarkozy, and spent the years of Francois Mitterand’s Socialist government in the United States. Now he hopes to take his fortune, and his position as CEO of LVMH, the luxury goods group behind brands like Louis Vuitton, and move to Belgium. The news came on the same day as M. Hollande vowed to follow through on his electoral pledge to introduce a 75% €˜wealth tax’ on all incomes over €1m.
Predictably, the response to both pieces of news has been polarized. Business leaders and rightist politicians have roundly attacked M. Hollande’s policy. Britain’s free market-happy leader David Cameron, who subscribes to the theory that it is entrepreneurs who enrich society, offered to ‘roll out the red carpet’ to people fleeing the new French tax. And Francois Fillon, M. Sarkozy’s old Prime Minister and a candidate for leadership of the UMP party, called M. Arnault’s actions the ‘troubling results’ of M. Hollande’s ‘tupid decisions.’ One Socialist Party MEP pointed up a different angle on M. Arnault’s actions, however, saying, ‘when you leave France, you don’t leave it in difficult times.’ M. Arnault put out a statement saying he ‘is and will remain’ a French citizen, including for tax purposes.
Yet while M. Hollande attacks the wealth of the wealthy in approved Socialist style (and reaps the rewards of increased left-wing support at the ballot) his government is also working on ways to make the French housing market more attractive for investors. Just like in the US and Hong Kong, rents are soaring. Just like in the UK, housing is in short supply. So M. Hollande’s government has scrapped the ‘Scellier’ initiative, and set out to get the French property market into more manageable shape. This is to be achieved through a mixture of carrot and stick.
The stick is to be an increased tax on empty property, intended to alter the maths of being a landlord so that it’s in rentiers’ interest to rent, rather than to use empty properties as bargaining chips to drive up prices and rents. The French Housing Minister Cecile Duflot told journalists last week that getting 10% to 15% of France’s empty housing stock back into circulation could produce the needed change. But there’s a carrot too, also in the form of taxation. Investors who put in to property developments intended for rent were to be given tax breaks under the ‘Scellier’ scheme, but this has now had to be abandoned in the context of the clamped-down 2012 budget. Sarkozy is attempting to enact social justice by way of the public purse, but as in other European countries, the IMF hold one set of purse strings, and the ECB the other. France’s left-wing government must make their Socialism on the cheap and perhaps without their entrepreneurs, for good or ill.