Despite the recession, the Finnish economy is calm. Housing construction, on the other hand, is in an exceptionally difficult situation. The need for new apartments remains despite the weak economic cycle and the good level of housing construction in recent years. Political decisions are now needed to ensure sufficient housing production and economic growth for the next few years. There are proven methods.
In June, Rakennusteollisuus RT published a forecast of the level of housing production its housing production survey. The results suggest that housing construction almost stopped in the second quarter of the year. Apartment builders' housing starts more than halve compared to the previous survey conducted in the spring. At the end of the year, the number of housing starts would be only slightly higher than at the beginning of the year. For now, they are also just wishful thinking.
Housing construction is therefore now slowing down strongly throughout Finland. The simultaneous rise in interest rates and costs has frozen mortgage lending and housing sales. Withdrawals of new home loans by households have fallen to the level of 20 years ago.
Apartment prices have fallen almost everywhere in Finland. The decrease in the price of the old capital base, together with the increase in financing and construction costs, makes it impossible to start new projects. Compared to previous crises, cost development has continued rapidly, which is why state-subsidized housing production has also collapsed.
This year, housing production may even be halved from last year's 38 housing starts. The outlook for the next few years is also alarmingly weak.
Due to last year's lively housing construction, there will still be plenty of apartments completed by the summer. However, the apartments completed this year will not replace the new construction of apartments. According to forecasts, the temporary oversupply of apartments will melt from the end of the year as the housing market recovers. If nothing is done, in the next few years we will be in a situation in the housing market where there is mostly a no-go.
Urbanization has continued briskly after the corona virus. The predicted strong growth in households' disposable income will already increase the demand for apartments towards the end of the current year. According to VTT's needs calculations, a total of 700 new apartments will be needed over the next two decades, i.e. 000 each year.
The need to build new apartments will therefore remain regardless of the economic cycle. When it is difficult to promote free-financed housing production, the importance of state-subsidized housing construction is emphasized.
Does the state have any means to change the course of the slow-turning construction ship before Finland heads towards a housing shortage and deepens the cost-of-living crisis even more?
There are proven and tried-and-tested methods. And you don't have to stick your hands very deep into mothballs.
The stimulus measures for housing construction as a result of the financial crisis between 2008 and 2011 quickly increased housing construction. In the recession that started in 2008, the national economy was strongly revived with the help of rental housing production. In connection with the economic crisis, the so-called intermediate model. Thanks to the stimulus measures, housing starts grew strongly. They avoided massive unemployment in the construction industry. In addition, housing investments generated income for the public sector that would not have been generated without the stimulus.
In the current situation, the Construction Industry has presented four quick ways to speed up Ara production. First of all, in an exceptional situation, you simply have to accept the increased cost level. At the same time, it is necessary to lower the deductible proportion of the interest subsidy, to reform the short interest subsidy model and to use the financing authority more flexibly. New tools and a model for securing funding must also be built into the repair grants.
Housing construction is in an exceptionally difficult situation, which weakens the availability of housing as well as economic growth, employment and tax collection. Housing construction needs quick political decisions to maintain sufficient housing production. Now it's just a matter of will and speed. There are ways.
The article has been published On the A-crown's blog 16.6.2023.
Jouni Vihmo
Chief Economist
jouni.vihmo@rt.fi + 358 50 520 1636Confederation of Finnish Construction Industries (CFCI)
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