The cyclical crisis in construction and the economic recession feed each other in a harmful way. The strength of the fall in construction has been underestimated in many forecasts, and its impact on economic development has not been fully taken into account.
Now that the economy has fallen into recession, it further deepens the cyclical hole in construction. Since the share of construction in investments, employment and tax collection is significant, it in turn tends to worsen and prolong the recession.
During the fall, the confidence of both consumers and companies and the economic outlook have weakened. The wave of bankruptcies and layoffs has hit the construction industry in particular, the increase in unemployment follows.
The drastic turn of the economy in the construction industry started with the acceleration of inflation that followed the war in Ukraine, the exceptionally fast rise in interest rates and, with them, especially the freezing of the demand for housing.
Housing construction starts were still at a fairly high level last year. The uncertainty of consumers and the cancellation of deals have increased the number of ready-made new apartments for sale and at the same time halted the beginnings of self-financed housing production.
This year, the number of apartment starts is at a historic low, at the level of the 1940s. In the near future, a record few apartments will be completed in growth centers at the same time as, for example, the population of Helsinki is growing at a record pace.
If housing production is allowed to fall too low, it will mean a housing shortage in the next few years, which will raise the price of housing and make labor mobility difficult. The low state of the housing and labor markets also directly affects consumer confidence and thus private consumption, which is the largest component of the gross domestic product.
Consumers now avoid buying consumer durables. Large branches of specialty trade, such as hardware and decoration trade and home technology, are particularly affected.
The cost crisis and tight financing have also hit the repair and are increasing the repair deficit even more. At the same time, improving energy efficiency and the goals of the green transition are getting further and further away.
It would be good for the government to quickly re-evaluate the effect of the cyclical specific measures in the construction industry decided during the budget rush and add temporary repair subsidies to the toolbox. The household deduction should also be periodically increased for construction services and extended to cover housing association renovations. Correspondingly, the functioning of the financing after the regulatory changes must be evaluated, and all means must be put into use to lift housing construction out of the hole.
If the construction industry is in the doldrums, even weak economic growth cannot materialize. It is therefore worthwhile to aim for faster growth and to quickly connect construction and, with it, trade's extensive and employing value chains.
Solutions have their price, but so does the loss of tax revenue and the increase in unemployment. Waiting can become much more expensive.
The article was published on Helsingin Sanomat's opinion column on 24.11.2023 November XNUMX.
Mari Kiviniemi, CEO, Trade Union
Aleksi Randell, CEO, Construction Industry RT
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