Real estate taxation in France appears as a “pure aberration” to Frédéric Cherbonnier. He is calling for a radical overhaul of property taxation to better exploit an “underutilized source” of budget revenue...
Real estate tax is a blind spot in French economic policy. By the most basic economic standards, it even seems like pure nonsense. The first obvious principle is not to tax mobility. France, along with Belgium, is the OECD country where the costs associated with buying and selling a home are the highest, three times higher than in Anglo-Saxon countries. This is partly due to the presence of transfer taxes paid to departments and municipalities, known as “notary fees,” which the government has just allowed to increase again.
In a recent study with economists Christian Bontemps and Thierry Magnac, we show that these high transaction costs prevent households from making the right choice between renting and owning. As a result, they become homeowners later in life (for fear of having to sell if problems arise) and decide not to sell their homes when their situation requires it. Ultimately, this has a serious impact on the labor market, as homeowners find it difficult to move to another region to find work.
Ancient cadastral values
A second principle is equally disregarded: taxing at fair value. Property tax is based on cadastral values that have hardly been updated in fifty years. They take into account neither home renovations nor price changes. As the Court of Auditors recently showed, this tax is consequently three times higher in Seine-Saint-Denis, the poorest department in metropolitan France, than in Paris. The administration has been preparing a reform for years to base this tax on rental value, but it has been systematically postponed.
Furthermore, a substantial portion of capital gains on real estate is exempt from tax (through exemptions for primary residences or allowances linked to holding periods), even though these gains have been one of the main factors in the enrichment of the wealthiest over the past thirty years. The value of French households' real estate assets has thus tripled in twenty-five years, mainly as a result of rising prices.
More generally, taxation should be designed to encourage wealth creation rather than the accumulation of unearned rents. By taxing labor rather than property, France penalizes employment and economic activity while creating a shortage of housing at excessively high prices. In their book "Le Grand Retour de la terre dans les patrimoines" (The Great Return of Land in Wealth), economists Alain Trannoy and Etienne Wasmer show what an ideal tax system should look like: replacing property tax and transfer duties with a tax on land value, while shifting part of the tax burden from income and productive capital to this new tax.
Taxing only land and not buildings would encourage better use of land. A significant proportion of building land in areas under pressure remains unused today, with owners speculating on price rises (a practice known as “land hoarding”). And more than 3 million homes, or 8% of the total housing stock, are currently vacant.
Ultimately, our country has the lowest urban density in Europe after Belgium, with half as many inhabitants per square kilometer in its large urban areas as in countries such as the United Kingdom and Spain. At a time when the government is struggling to reduce the public deficit, it should take a greater interest in the untapped potential of French real estate. A reform of property taxes would inevitably create winners and losers. It would need to be a long-term project, with a gradual shift towards a more efficient tax system.
Article published in Les Echos on June 5, 2025.
Photo illustration by Veronika Jorjobert on Unsplash
