Residential rent indices in a long-term trend for the french case: An application of the hedonic method

The purpose of this paper is to understand the housing rents formation and their dynamics over almost half century (1970-2013) by sector (private/public) and location (Paris region, big, medium and small urban areas). We underline the role played by physical and locational characteristics in the formation of rents. Dynamics and cycles in rents over the period are tackled using macro-economic factors as well as market variables and housing policy. Likewise, we are able to show the impact of specific housing policies such as APL on rents. This stratified approach, will give a relevant overview of the French market for international investors. Likewise, valuation of asset prices is relevant and useful for practitioners (appraisers, brokers, developers, investors, fund managers, analysts and market researchers) but also policy-makers. In order to conduct this analysis we will use the French Housing Survey from the French Statistical and Economic Study Institute (INSEE). This survey describes the French housing stock as well as the household tenure choice and their housing consumption. Physical characteristics and dwelling quality such as size, sanitary convenience, heating, location, environment and security are topics addressed by the survey. The physical and contractual variables used in the empirical strategy got a high power of explanation of our stratified model. Regarding time variation, we expect a positive change of rents over the period 1970-2013. Nevertheless, when we focus on the real rent variation, we find that variation is spatially heterogeneous across urban areas. We also find several cycles in the rental market with a strong decrease in real rent in all urban areas over the period 1970-1984. Likewise, we highlight the inflationary effect of APL (housing subsidy) on rents.