Impact of the five rings

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For about 2 weeks, the eyes of the world were on Paris as it hosted the Summer Olympics. The highly-anticipated sporting extravaganza is a mammoth event to pull off. An event like the Olympics coming to the city can be a cause for celebration and worry. Getting a city ready with venues and other infrastructure is a tall order.

Apart from the actual games, there's also a massive business component. Events like the Olympics drive people and money toward new housing. They can increase prices, generate demand for rentals, and change the landscape of a city's property market.

Bonjour Paris

In the run-up to Paris 2024, property prices had been on a modest decline even though they were holding up well compared to other big European cities. Property owners were biding their time to reap the reward once the games began.

Thanks to higher interest rates, since the beginning of 2022, the borrowing capacity of Parisians decreased by 25%. Before the Paris Olympics, a Deloitte study on Airbnb showed that about 1.3 lakh hosts geared up to welcome 5.6 lakh tourists during the games' duration.

Let's look at one example. In the Saint-Ouen suburb of northern Paris, many of the country's biggest real estate companies have built residential towers that hosted thousands of athletes. They're being converted into private homes, social housing, and student accommodation.

In July, the Icade Group put up 88 apartments for sale. It sold about 10, according to a company executive. Prices have been reduced to about 6,900 Euros per sq m. The city's average is around 10,000 Euros. Another company, Vinci, said it sold less than half of the apartments it had put up for sale.

Olympics Effect

Cities often experience the "Olympics Effect" before and after the games. One study showed that property prices surged by an average of 17% between the year preceding the Olympics and the following year, beginning with the 2000 Sydney Olympics. Take the 2016 games in Rio De Janeiro, Brazil. In the five years prior, the market was in a downward spiral. The Olympics halted that. London saw a 24% price increase over two years when it hosted the 2012 games.

The Olympics Effect can have varied results. There's still a debate on whether hosting the Olympics is a net benefit for the host city once all the costs and revenues are tallied. Hosting the Olympics has gotten more expensive every time it comes around. The high costs have scared away cities from even bidding. All said and done, cities spend tens of billions of dollars on hosting.

One thing's for sure, they inject billions of dollars into the local economy. That inevitably touches the real estate sector.

Strong or weak effect?

Every city, the way it prepares, and its necessities are different. The extent to which prices rise or fall depends on construction and labour costs and the size of the labour pool. According to Kontokosta, professor of urban science and planning at the NYU Marron Institute, there are three broad determining factors to keep in mind:

• The city's status in the global economy. A mid-tier city has more potential than an already established world-class city like Tokyo or Paris. A good example here was Sydney.
• What are the host city's goals? Some, like Atlanta, extended way beyond their means ahead of the 1996 Olympics. There was a negative impact on real estate prices in Atlanta, similar to Calgary in 1988 and Los Angeles in 1984.
• A make-or-break factor is the size and planning of investments. Legacy planning (keeping and maintaining facilities after the games) is important. Half of Sydney's 66.4% increase in home prices is attributed to its legacy program.

Looking ahead to Los Angeles

Los Angeles, a city no stranger to the spotlight, will host the next summer Olympics. Even though it's a few years away, developers expect things to kick off by 2026. One thing to look for is sustainability - no new permanent structures solely for the event. Then there's the transportation aspect. The city plans to upgrade its airport, expand the rail systems, and boost other transport options. It's all going to affect the real estate market.

Some estimates show that average home prices in Los Angeles are nearly $900,000. That will likely increase. The same goes for the rental market, particularly in the short term. For those who own property near Olympic venues, there's potential for lucrative short-term rental income during the Games.

Investors will look for opportunities to snap up rental properties to prepare for the influx of tourists. Buyers will have to pay more for prime properties as competition increases. The opening ceremony will be at the SoFi Stadium in Inglewood. It's already seeing growing home values. Other places close to sporting venues are expected to see lasting price gains.

One thing’s certain, hosting an event like the Olympics generates plenty of excitement and buzz for the local community and economy. What remains to be seen is if the city continues to benefit once the smoke and confetti have cleared.