Risks of a Real Estate Bubble in France: 2026 Outlook

Photo: Optimhome

The French real estate market in 2025 combines momentum with caution, notes the Optimhome portal. Three possible development scenarios are outlined — optimistic, realistic, and pessimistic. Analysts do not rule out the formation of a bubble if overly accessible credit, speculative demand, and limited supply converge.

Market 2025: Uneven Recovery

In 2025, the French housing market is gradually recovering after a period of reduced activity. The number of transactions is increasing due to steady demand and improved lending conditions, although banks still restrict access to loans for the most risky categories. This limits the possibility of a sharp rise in prices that could indicate speculative behavior. Across most regions, trends remain moderate: stabilization is observed in major urban areas, while smaller towns show a smoother rise reflecting real construction costs and land shortages.

The market remains uneven: steady demand is recorded in Paris, Lyon, Lille, and coastal regions, where housing shortages persist. In smaller and mid-sized cities, activity is constrained by buyers’ solvency and a lack of new developments. Another source of pressure comes from the rental sector: a portion of urban apartments is used for short-term tourist rentals, reducing the supply available for permanent residents and pushing prices upward.

To mitigate this effect, the government expands the Loc’Avantages program, under which property owners receive tax benefits for long-term rentals at below-market prices, and increases taxes on second homes. These measures help partially stabilize the situation, though the structural housing shortage and rising construction costs continue to influence the market.

Development Scenarios

Optimistic — if steady economic growth continues and interest rates decline, household purchasing power will improve. Demand will remain strong, driven by real needs rather than speculation. A gradual increase in new housing construction will help ease local tensions. In this case, prices will rise moderately or remain stable, and the likelihood of a bubble will be minimal.

Realistic — under the baseline scenario, rates will stay at moderate levels, and demand will be driven by structural factors such as demographics, internal migration, and limited supply. Some buyers will face borrowing constraints, leading to price stagnation or slight increases depending on the region.

Pessimistic — if economic conditions worsen and unemployment rises, activity could slow. Higher rates will reduce credit accessibility, and in certain segments — particularly overheated markets — local price corrections may occur. In this scenario, the risk of a bubble is highest, but even then, Optimhome does not expect a major crash, as cautious banking policy and limited speculation act as stabilizing factors.

Segments: Housing and Commercial Real Estate

In the secondary market, prices in 2026 are expected to stabilize in high-demand zones and decline slightly in regions where activity is limited by incomes and lending capacity. In new developments, pressure will persist due to rising costs and land shortages, though tax incentives and government programs may offset these effects. The prime property segment will remain the least sensitive to fluctuations, supported by international demand and wealthy buyers focused on long-term investment.

The commercial sector will continue structural transformation. The spread of hybrid work formats will reduce demand for traditional offices but support the development of flexible workspaces and logistics assets. Warehousing and distribution centers will remain resilient due to e-commerce growth, while some retail spaces will adapt into mixed-use formats — housing, services, and coworking. Such diversification should reduce investment sensitivity to short-term fluctuations.

Paris and the International Context

According to UBS, Paris has
moved into the low-risk category under the bubble index, which fell below 0.5 in 2025. Housing prices have fallen by about 20% over five years. Demand remains stable due to structural shortages and steady employment, yet Paris remains among the least affordable cities in Europe: purchasing a 60 sq. m apartment requires about nine annual salaries. The average rental payback period reaches 25 years, indicating moderate overvaluation and limited investor appeal.

In the same category as Paris are London, Milan, New York, San Francisco, and São Paulo. The most overheated markets are Miami, Tokyo, and Zurich. Los Angeles, Dubai, Amsterdam, and Geneva fall into the elevated-risk zone, while Singapore, Sydney, Vancouver, Toronto, Madrid, Frankfurt, and Munich are in the moderate category, where price growth has slowed but imbalances persist.

UBS analysts note that global housing bubble risks have been declining for the third consecutive year: prices have stabilized and speculative demand has weakened, though affordability remains historically low. The longest payback periods are in Zurich (43 years) and in Geneva, Munich, and Frankfurt (around 30). In Milan and Paris they stand at 27 and 25 years respectively, while São Paulo shows the shortest — about 12–13 years.