Édition #5

Real estate: both a jackpot and a weakness for local authorities

Nicolas SAVELLI Senior Consultant, Head of the Management Methods division at Stratorial
In finance, even with a will there may not be a way. Since the publication of the 4th edition of the Mountain[s] Trend Book at the end of 2022, the financial issues facing local authorities that support winter sports resorts have been highlighted in a number of ways: the closure of resorts and reallocation of resources for tourism development policy, increases and/or surcharges in residence tax on second homes (THRS), a sharp fall in transfer tax (DMTO) while awaiting the delayed impact on development tax (TAM) in a highly inflationary context for financing rates, or simply huge increases in tax on built property (TFB), through political choice and/or by mechanical effect, with inflation alone generating +7.1% in flat-rate revaluation in 2023.

At the same time, price increases by ski-lift operators are generating additional resources for local authorities, through the Taxe Loi Montagne (TLM) which, in these uncertain times for public finances, makes such increases acceptable, possibly accompanied by additional marginal self-financing capacity for the operators. In short, everyone must increase their resources in line with the challenges they face. In the background, the common denominator is nothing new: real estate, both a (temporary?) jackpot and a weakness.


In municipalities with medium to large ski areas, government grants generally account for only 5-20% of the local authority’s revenue, compared with 50-80% for municipalities with the same permanent population but no winter sports resorts in their territory. Other local authority revenues consist of:
»Local taxes based on real estate land coverage¹.
»Production taxes (correlated with land coverage, a condition for tax liability) and economic reality².
»Other levies collected by the State³ or directly by different levels of regional government4.
»Taxes paid by customers and collected by tourism operators in the name and on behalf of the local authority5.
»As well as concession fees, which become a net product used for the financing of regional attractiveness for the rare areas that achieve economic equilibrium.

It is not surprising, therefore, given the correlation between tourist numbers and the consumption of land for permanent, tourist and economic property, that there is a mathematical correlation between the turnover of ski lift operators and the operating revenue of local authorities:

Mathematically, the link is demonstrated on the basis of a sample of 49 ski areas (with linked areas counting as a single ski area) with an R² coefficient of determination of around 84%. So, by comparing the turnover of ski areas and the operating income of the regional authorities in which these areas are located, in 84% of cases there is a proportional development, which constitutes a very marked correlation and therefore demonstrates a direct link between the finances of the local authorities the resorts depend on and the turnover of their ski areas, each constituting an interconnected business model.

As 50% of local authority revenue is made up of local taxes based on the land on which properties are built, as well as production taxes correlated with the land base, their growth (tax on built-up land, business property tax, residence tax on primary and secondary residences, as well as business value added tax) has supported the local authorities’ financial model at a time when State subsidies have fallen and levies (such as the FPIC, the national fund for the equalisation of inter-communal and communal resources6) have increased. Even more than the half of their revenue, taxes based on land coverage are the adjustment variable for local budgets, as well as for the State budget.

According to IFRAP (the French Institute for Research on Administrations and Public Policies)7, this “tax jackpot” shared between local authorities and the State doubled from 1984 (€20.5 billion) to 2003 (€42 billion) and again between 2004 (€45.5 billion) and 2021 (€90.5 billion). It should also be stressed that the tax rate (expressed as a % of GDP) on the real estate sector is more than twice the EU average (2.4% in France compared with 1.1% on average); only Greece has a higher property tax rate.

This means that in France, taxing property and land consumption is one of the traditional ways of raising resources for the public sector, even more so than in other competitor countries when it comes to mountain tourism. This makes the issue of the related taxation all the more significant in the context of the gradual and programmed suppression of land consumption in mountain areas, given the limited growth in the associated financial resources that have hitherto enabled the construction of the business model of local authorities.

“Taxing property and land consumption is one of the traditional ways of raising resources for the public sector, even more so than in other competitor countries when it comes to mountain tourism.”


The real estate sector (both tourism and business) is currently a source of vulnerability, as it is subject to a number of contradictory injunctions, with everincreasing regulatory, legal, judicial (increase in
litigation) and ecological constraints, in a financial context that has become considerably more complex, given the cost of financing construction projects and works on the one hand and the depletion of the stock of land available for use on the other.

In addition to Net Zero Artificialization, there will be new constraints on the rental market (a gradual ban on renting homes with the worst EPCs): these threats are likely to generate a greater scarcity of land which will therefore be more expensive. And yet, in order to remain places where people live and work all year round- a sine qua non for maintaining many public services– whilst providing housing for season workers, the challenge for mountain communities today to produce permanent, affordable housing is essential.

However, given the scarcity and high cost of land and the strain on public finances, how can the cycle of investment and financing for new housing, then any operating deficits be financed? How can we implement what Angèle Richard calls a “sustainable and innovative business model”8? This is the challenge posed by the French residence tax on second homes (THRS)9.


The impacts of an increase in the tax on second homes (THRS) cannot be simply summarized as the consideration of a “tax increase”, due to “competition” between taxes, including the business property tax (CFE) on the one hand and the tax on vacant homes (TLV) on the other.

As the increase in TLV is set by local authorities, it is possible to consider setting it at a level that is consistent with other taxes, the CFE in particular, thereby enabling a strategy that leaves landlords the choice of tax optimisation, whether they own the property personally and are subject to income tax, or own it professionally via their company and are subject to corporation tax (provided that the property is not declared vacant and therefore subject to a rate of 34%).

In practice, the aim is to examine the distinction between income tax and corporation tax, particularly in the very frequent case of a person who simultaneously owns property on a personal and professional basis, allowing each player to make their own calculations based on their own situation. It should also be noted in this context that individual choices influence the distribution of taxation between local authorities and the State: for municipalities now classified by decree as “zones tendues” (areas with a housing shortage), the tax on vacant homes (TLV) and industrial and commercial profits (BIC or micro-BIC) will go to the State, the tax on second homes to the municipality and the business property tax (for housing transferred to businesses) to the municipality or inter-municipality, depending on the type of local taxation.

The principle of tougher taxation for individual property owners is the subject of much political, strategic, financial and fiscal debate, both within local authorities and within guilds of individual or professional renters. However, until now it has tended to become the norm, even for the financing of new infrastructure (such as a high-speed line).

As regards the planned THRS (residence tax on second homes), we think it is wise to look at this project in the context of other texts aimed at reducing new construction (zero net artificialisation, limitation of local town planning schemes), whilst preserving the financial model of local authorities and tourism operators, linked by their business model: indeed, the number one challenge is to generate warm beds without consuming land, since professionals then know how to generate overnight stays and local consumption through the attractiveness of destinations, then products shared between economic and public operators.


The effects of the real estate sector on local authorities’ or the government’s resources remain differential and competitive. Lastly, owners of property in resorts, on which the French ski model has historically been based, seem to have been taxed once again with the increase in the residents’ tax on second homes (THRS), unless it is used to increase the region’s attractiveness or to house workers or visitors. Nonetheless, the strength of the debate on the THRS demonstrates once again that producing a tax system that promotes sobriety of land use without a complete reform of the tax system of municipalities and inter-municipalities is never neutral. Indeed, what remains of the tax system of local authorities and their dependence on the growth of associated resources, run counter to the injunction to reduce land consumption, since there is no source of revenue without land consumption in the existing system: this is the main limitation to development strategies in mountain regions today.

1 Taxes on built property (TFB) and residence taxes (TH), as residence tax on primary residences (TH) has been abolished and compensated for, but taxes on second homes (THRS) or vacant housing (THLV) have been developed in tourist areas and even, for certain major projects, the Special Equipment Tax (TSE) that is distributed across individuals or companies liable for TFB/THRS/CFE.
2 Business property tax (CFE) and Business Value Added Tax (CVAE).
3 Such as Value Added Tax (VAT) or Property Wealth Tax (IFI).
4 Such as the transfer tax for valuable consideration (DMTO) included in notary fees depending on the number and value of the property transactions, as well as the Development Tax (TAM).
5 Such as the Mountain Law Tax (TLM) or the Tourist tax (TS), which is even used, after being increased in a geographical area through a Finance Bill, for financing infrastructures such as the Bordeaux-Toulouse and Bordeaux-Dax high speed lines (34% increase for property owners).
6 National fund for the equalisation of inter-communal and communal resources, €1 billion deducted from the municipalities with the largest tax resources to benefit the municipalities and inter municipalities with the lowest resources and the highest costs.
7 Foundation for Research on Public Administration and Policy.
8 Official report 2023 Savoie Mont-Blanc on the perspectives of development in tourism, p15.
9 Local councillors have indeed lost jurisdiction over the residence tax (TH), but not over residence tax on second homes (THRS), for which they can set the rate and, for the communes listed in the decree of 25 August 2023 relating to the scope of the annual tax on vacant homes, increase it by 5 to 60%. The 2,263 municipalities added to the decree through this amendment include almost all the mountain municipalities.

Head of the Management Methods division at Stratorial, a local authority finance consultancy (based in Grenoble). A former Chief Executive for tourist municipalities (mountain resorts and outdoor activities), he works on economic, fiscal and development models for tourist areas, with a dual approach to public and private
finance and taxation