A million apartments in the wrong place

The Housing Production Demand 2040 survey by VTT was announced at the end of January. The most important result of the survey was that in the future the production of new housing will be strongly focused on large urban areas. Helsinki region's share of the entire country's needs is half. If the three next largest urban regions, Tampere, Oulu and Turku, are added to this, the share of the four largest already rises to 75 percent of the total need. This is on the assumption that the population of large urban areas will continue to grow as in previous years.

The differentiation of the market started to show strongly already last year. Although the number of housing starts for the whole of 2015 is not yet known, based on the first three quarters, it can already be stated that the production is strongly focused on the capital region. About half of the housing starts were directed to Uusimaa.

When the future need for housing production is reflected in the current regional location of the housing stock, the difference is almost dramatic (Figure 1). There are currently around 2,9 million apartments in Finland. Out of the current housing stock, every third apartment is located in an area where there will be little need to build new apartments in the future. In other words, we have a situation in Finland where about one million apartments are in the wrong place in relation to the future need for new construction. Since the vast majority of the current housing stock was built in the past decades, it is understandable that the social structure of the 60s no longer corresponds to today's Finland, where large urban areas are growing as a result of population growth.

If you look at the situation from the point of view of where new apartments have been built in the last 25 years and how different the need will be in the next 25 years, the situation is also very unusual. In the last 25 years, every fourth apartment has been built in the wrong place in relation to future needs. Cumulatively, this means that approximately 200 apartments, or 000 apartments per year, have been built in areas that will lose their population in the future.

Why is it important to know how to build new apartments in the right areas in the future? The need for new apartments is increased by population growth and a decrease in household size. Increasing the supply of apartments is a slow process, even if there is enough zoned land and land use is flexible. Increasing the supply of apartments where there is the most demand for apartments, i.e. the highest prices, is the only way to respond to rising housing costs.

The growth prospects of the Finnish economy are weak due to the aging of the population, and growth must be sought above all by improving productivity. Urbanization and its controlled promotion offer an excellent opportunity for this, which a graying Finland should not miss. Therefore, it is also justified from the point of view of public finances to support development, for example by participating in public transport investments in urban areas. In this sense, the government's proposal to participate in the construction costs of Raide-Joker was a very positive surprise. Implementation decisions must always be made about sensible and financially profitable investments and only then look for their financing solutions and not the other way around.

Sami Pakarinen
Chief Economist
Confederation of Finnish Construction Industries (CFCI)