IRL and Rent Review: Understanding Rent Increases

IRL and rent review: why this index matters for your buy or rent choice

Most tenants discover the rent increase index only when their landlord notifies a rent review. Yet this index is a key parameter if you want to compare, with numbers, whether it is better to buy or rent over 10, 15 or 25 years.

In our buy or rent simulator, this mechanism is modelled via the parameter augmentation_annuelle_loyer (annual rent increase). Understanding how the index works, how rent revision is calculated, and how it affects your long‑term budget is essential before deciding whether to buy or rent.

What is the rent increase index (IRL)?

Definition and legal role

In France, the Indice de Référence des Loyers (IRL) is a quarterly index published by INSEE. It is the legal benchmark for the annual revision of residential rents (main homes, unfurnished or furnished), except in special cases (rent caps, new tenancy, etc.).

Its role is to:

• Limit rent increases so they follow inflation rather than exceed it dramatically.
• Standardise rules: a landlord cannot raise the rent arbitrarily; they must refer to the IRL and to the revision clause in the lease.

Recent IRL levels

With the return of higher inflation, the IRL has accelerated. Indicatively:

• 2020: around 0.5% year‑on‑year
• 2021: around 1%
• 2022: up to about 3.5%, with a legal cap
• 2023: around 3.5%, still capped

In a high‑inflation context, the rent increase index becomes a decisive factor: the higher it is, the more your annual rent increase weighs on your long‑term budget, and the more your buy or rent decision needs hard numbers rather than intuition.

How is rent revision calculated with the index?

The official formula

For a standard French residential lease, rent can be revised at most once a year, and only if:

• there is a rent review clause in the contract, and
• the landlord respects the anniversary date (or the specific date mentioned).

The legal formula is:

New rent = Current rent × (New IRL / Reference IRL in the lease)

In practice, both landlords and tenants often think in terms of an annual percentage, which is exactly what the augmentation_annuelle_loyer parameter in our buy or rent simulator represents.

Simple numerical example

Assume:

• Current rent: €900 per month, excluding charges
• Reference IRL at lease signing: 135.00
• New IRL: 139.05 (i.e. +3%)

Calculation:

• Increase factor: 139.05 / 135 = 1.03
• New rent: 900 × 1.03 = €927

The rent goes up by €27 per month, or €324 per year. Over one year it looks minor; over 10 or 20 years, repeated increases like this have a clear impact on your buy or rent comparison.

From IRL percentage to the "augmentation_annuelle_loyer" parameter

Why model the index as a yearly rate?

The IRL is published quarterly and varies year to year. To compare buying vs renting, you need a simplified, long‑term assumption:

• Convert IRL changes into an average annual rate (e.g. 1.5%, 2.5%, 3.5%).
• Apply this rate as a constant augmentation_annuelle_loyer in the simulator.

This allows you to project a starting rent (say €900) over 10, 20 or 25 years and compare:

• the total cost of renting (rents + indexation),
• with the total cost of owning (mortgage at ~3.6%, closing costs, property tax, insurance, maintenance, etc.).

Three annual rent increase scenarios

Take an initial rent of €900 and three IRL‑based scenarios:

• Scenario 1: augmentation_annuelle_loyer = 1%
• Scenario 2: augmentation_annuelle_loyer = 2.5%
• Scenario 3: augmentation_annuelle_loyer = 4% (high‑inflation period)

After 15 years, the monthly rent becomes roughly:

• Scenario 1: 900 × (1.01)^15 ≈ €1,044
• Scenario 2: 900 × (1.025)^15 ≈ €1,280
• Scenario 3: 900 × (1.04)^15 ≈ €1,620

In other words, depending on the rent increase index, you might be paying €240 or €720 more each month at year 15. This is exactly what the buy or rent simulator lets you visualise by adjusting the augmentation_annuelle_loyer setting.

Long‑term impact: 10, 20 and 25 years of indexed rent

Total rent paid over time

Let’s keep the example of a €900 starting rent with augmentation_annuelle_loyer of 2.5% (in line with recent IRL levels). Over 20 years:

• Year 1: annual rent ≈ 900 × 12 = €10,800
• Year 10: monthly rent ≈ 900 × (1.025)^9 ≈ €1,115 → annual ≈ €13,380
• Year 20: monthly rent ≈ 900 × (1.025)^19 ≈ €1,430 → annual ≈ €17,160

Summing all 20 years (a geometric series), the total rent paid is around €275,000. That is the lifetime cost of staying a tenant in this scenario.

You need to compare this figure with:

• the cost of a mortgage at about 3.6% over 20 years,
• notary/closing costs (roughly 7–8% for existing properties, 2–3% for new builds in France),
• property tax (often equal to 1–2 months of rent per year, sometimes more),
• borrower insurance (around 0.25–0.45% of the loan amount),
• repairs and upgrades (roof, boiler, energy retrofit to improve the energy rating).

The question is never simply "renting is throwing money away". The answer to buy or rent depends on the rent increase index, the purchase price, the loan rate, property tax, and what you do with your savings if you keep renting.

Rent index vs inflation: your housing purchasing power

IRL, general inflation and your income

Historically, the rent increase index has tracked inflation quite closely. When inflation is low (0–1%), rents barely move. When inflation jumps (3–6%), the IRL is sometimes capped but still high compared with previous years.

Your ability to absorb rent increases depends on:

• how fast your income grows (pay rises, promotions),
• the share of rent in your budget,
• and your ability to save at the same time for a future down payment or investments.

In the buy or rent simulator, you can combine:

• an assumption about annual inflation (erosion of purchasing power),
• a value for augmentation_annuelle_loyer based on the rent increase index,
• and an investment return rate (for example 3–5% for a diversified ETF portfolio) if you invest while renting.

Depending on whether the IRL stays low or high, and on your investment returns, the financial outcome of buy or rent after 20 years can flip either way.

Indexation, rent caps and legal limits

Cities with rent controls

Some large cities (e.g. Paris, Lille, Lyon, Montpellier, Bordeaux) have specific rent control rules with reference and maximum allowable rents. The rent increase index still applies for annual reviews, but the landlord faces stricter limits when re‑letting the property.

If you live in such a city:

• your yearly increase is still driven by the rent index (augmentation_annuelle_loyer),
• but increases between tenants are constrained, slowing long‑term rent escalation.

For realistic buy or rent calculations, it can make sense to choose a more conservative augmentation_annuelle_loyer if your current rent is already close to the legal ceiling.

Temporary caps on the index

In response to the recent inflation shock, the French government temporarily capped the rent increase index (for instance at 3.5%). That limits rent hikes in the short run, but says nothing about where the index will be in 5–10 years.

In the buy or rent simulator, you can:

• test an "optimistic" scenario with augmentation_annuelle_loyer = 1–1.5% (inflation under control),
• and a "stress" scenario with augmentation_annuelle_loyer = 3–4% (sustained inflation).

Comparing these scenarios shows how sensitive your buy or rent outcome is to rent indexation.

Indexed rent vs fixed‑rate mortgage: opposite dynamics

Rising rent vs stable monthly payment

As a tenant, your rent follows the rent increase index (augmentation_annuelle_loyer). As an owner with a fixed‑rate mortgage (around 3.6% over 20–25 years in the current French market):

• your monthly payment is stable in nominal euros,
• but its share of your income typically shrinks over time if your salary grows with or above inflation.

Example:

• Loan: €250,000 over 25 years at 3.6% → monthly payment ≈ €1,266 (excluding insurance)
• Borrower insurance at 0.3%: about €63 per month initially
• Total starting payment ≈ €1,330

If your income grows by 2% per year, this payment becomes more and more manageable. By contrast, a rent indexed at 2.5–3% annually may surpass €1,330 after a few years and keep climbing.

But ownership has extra costs

You cannot compare "index vs mortgage" in isolation. As an owner, you also need to factor in:

• Closing/notary fees (e.g. about €20,000 for a €250,000 resale property),
• Property tax (often €1,000–2,000 per year, and subject to annual reassessment),
• Maintenance and major works (façade, roof, boiler, energy retrofit to improve your EPC rating),
• Agency fees (3–5% when buying and potentially when selling),
• possible prepayment penalties if you repay your loan early (capped at 3% of remaining principal or 6 months of interest).

Only after adding these items can you fairly compare buying vs renting with rents indexed to the rent increase index.

Rent index, savings and investments: renting can also build wealth

If you keep renting: what do you do with the difference?

In expensive markets, the monthly mortgage payment on a comparable property can be much higher than the rent, even once you account for the rent increase index. In that case, remaining a tenant may free up a monthly surplus to invest:

• in cash savings (low yield but liquid),
• in bond or euro funds,
• or in equity ETFs (higher expected returns but higher volatility).

If your investment return over the long term (say 4–6% annually) exceeds the augmentation_annuelle_loyer, your financial assets can grow faster than your total rent bill. The buy or rent simulator explicitly allows you to set this "taux de placement" to compare strategies.

Numeric illustration

Assume:

• Starting rent: €900 (augmentation_annuelle_loyer = 2.5%)
• Mortgage payment if you buy: €1,300 per month
• Potential surplus if you keep renting: €400 per month to invest
• Average net investment return: 5% per year over 20 years

Investing €400 per month at 5% for 20 years can lead to a capital of about €160,000–170,000. The key question then becomes: does this future capital compensate for not owning a property that might also appreciate in value? The answer depends on property price trends, the rent increase index, inflation, and your saving discipline.

How to use the rent increase index in a buy or rent simulation

Picking a realistic augmentation_annuelle_loyer

To set the buy or rent simulator correctly, you can:

• review the historical path of the rent increase index over the last 5–10 years,
• consider the current inflation environment,
• and adjust for your local market (tight urban area vs more relaxed, rent controls, etc.).

Some benchmarks:

• Very low‑inflation context: 0.5–1% per year
• "Normal" recent context: 1.5–2.5% per year
• High‑inflation context: 3–4% per year (possibly capped temporarily)

Testing multiple scenarios before deciding

Because the future of the rent index is uncertain, it is wise to simulate at least:

• a low scenario (augmentation_annuelle_loyer = 1%),
• a middle scenario (2–2.5%),
• a high scenario (3.5–4%).

For each scenario, compare:

• the total rent paid,
• your net housing equity if you buy (property value minus remaining debt),
• and your financial wealth if you rent and invest the difference.

The "best" option in a buy or rent analysis will depend on your time horizon, job mobility, risk tolerance, and investment behaviour. There is no one‑size‑fits‑all answer.

Conclusion: the rent increase index is crucial, but not the only variable

The rent increase index (IRL) drives the augmentation_annuelle_loyer used in simulations. Over 15–20 years, even a moderate 2–2.5% yearly rent increase can turn a seemingly affordable rent into a heavy cost, with total payments in the hundreds of thousands of euros.

At the same time, buying a home comes with its own costs: closing fees, rising property taxes, borrower insurance, maintenance and renovation, agency commissions, possible prepayment penalties. Depending on your income, savings capacity, assumptions about the rent increase index and your investment returns, the outcome of a buy or rent comparison can change dramatically.

This article is for educational purposes only and does not constitute personalised financial advice. To clarify your own situation and test different rent index scenarios, you need a quantitative tool.

Simulate your situation on buy-or-rent.net