What sets the price: The monthly payment, the land, households, the address

Why does a flat cost what it costs? We think of the walls, the floor area. The real engine is elsewhere.

Most buyers borrow. And what they look at first is not the price. It is the monthly payment.

Say one thousand euros a month, for twenty-five years. How much can you borrow with that?

With a rate of one per cent: about two hundred and sixty-five thousand euros.

With a rate of four per cent: about one hundred and eighty-nine thousand. The same payment, nearly seventy-six thousand euros less.

The salary has not moved. Nor has the flat. Only the rate has changed.

That is roughly what happened in France between two thousand twenty-one and two thousand twenty-three. And prices ended up falling.

Conversely, when rates fall, buyers can pay more. And sellers know it.

Second force: supply. You can make more cars. You cannot make land.

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And building takes years: finding a plot, getting a permit, building. Supply reacts only slowly.

So when demand rises fast, it is prices that move. Not the number of homes.

Third force: demographics. But we do not count inhabitants. We count households.

A household is an occupied home. A single person, a couple, a family: one household each.

Take a city of one hundred thousand people, two and a half per household on average. It needs forty thousand homes.

People live longer, separate, live alone. Say two per household: it needs fifty thousand.

Ten thousand more homes to find. Without a single extra inhabitant.

Last force, the most stubborn of all: location.

You can redo a kitchen, insulate a roof, add a room. You cannot move the building.

The same flat is not worth the same price depending on the street, transport, schools and jobs around it.

It is the only variable you cannot correct after buying. You choose it once, for good.

So, four forces. The rate, supply, households, location.

And the fastest of the four is the rate. A property price is first of all a monthly payment.