The effects of the corona crisis on construction production have remained small so far, and construction shrank by only one percent last year. This year we will be in the red by two percent, but next year we will return to near zero, Rakennusteollisuus RT estimates in its spring economic review.
The good momentum of housing construction and the revival aimed at land and water construction have kept construction afloat in the economic recession. As the economy recovers, construction is looking for direction and the different types of construction are differentiating.
Corona has increased interest and consumption at home, which has accelerated housing production. Instead, the digital leap of online working and shopping has increased the uncertainty of demand for space and frozen office and business construction. Investment decisions in industry are spurring exceptionally large projects, such as the construction of the Kemi bioproduct factory.
Repair construction plays an important role in achieving Finland's climate goals, and there is a lot of pent-up demand, especially in housing associations. In addition to the direct effects caused by the pandemic on construction sites, the corona restrictions may slow down the decision-making of building societies and the planning of repair projects in the current year as well. Renovation of business premises is held back by the tenants' ability to pay rent, an oversupply of business premises and uncertainty about demand.
Civil engineering is shrinking, and there are a few leaner years ahead. There is going to be a hole in the funding of the basic road maintenance in 2023 and 2024, as well as in investments in 2024, unless it is decided otherwise in the mid-spring rush.
"Optimism in the economy and with it also in construction is growing. However, the low confidence of companies and the declining development of permits keep the outlook for construction subdued for the time being. In Finland, new construction has long remained at a high level compared to old European countries. The economy is undergoing a structural change and it remains to be seen at what level the volume of construction will settle in the new normal", Chief Economist of Rakennusteollisuus RT Jouni Vihmo toteaa.
According to the fifth corona survey conducted by Rakennusteollisuus RT between February and March, the general uncertainty of companies in the construction industry seemed to have eased a bit and the financial situation has improved. However, companies are preparing for a worsening epidemic and are trying to use even stricter measures to keep construction sites operating safely.
Investors and low interest rates have enabled a sufficient housing supply
Last year, housing production rose against expectations to almost 41 apartments, as housing sales have been exceptionally brisk. Housing construction is estimated to remain at a good level this year as well, although it is slowing down by about ten percent. Next year, the number of starts is expected to drop to 000 apartments.
"Floor building production has largely been driven by investors. In recent years, the supply of self-financed rental apartments has met the demand in growth centers. This has reduced the rise in rents and increased the choice of those who need housing, i.e. the market has worked as it should", CEO of Rakennusteollisuus RT Aleksi Randell toteaa.
Low interest rates continue to maintain both consumer and investor demand and intensify regional differences. Urbanization continues, and jobs are created in cities. A functioning labor market and labor mobility require cities to provide housing in line with demand and efficient planning.
"Investor demand is not weakening if it is not deliberately weakened. If housing association loans are regulated too strictly and the tax treatment of apartment investors is weakened, construction companies' own housing production can quickly decline. This should not be done, because privately funded apartment buildings need investors in addition to home buyers to get started, and cities need a sufficient supply of housing to grow," says Randell.
"It is good to remember that the possibility for private landlords to deduct the capital consideration from the rental income is not a direct tax benefit, but the tax will be paid later, in connection with the sale of the apartment."
In small houses, Korona has caused a spike in demand, which was already visible last year in the rise in the prices of old single-family houses. The trade volumes of the small house industry also turned to a clear rise. However, the lack of plots limits the construction of small houses in large cities, and the growth of single-family house construction will probably focus on the framework municipalities.
Randell points out that the need for terraced and small house lots must not be forgotten when drawing up master plans for central cities. Here, too, for cities, it is largely a question of supporting and enabling supplementary zoning.
Materials:
- RT's 24.3. the published economic cycle review in its entirety and the results of the financial and corona surveys and the housing production survey can be found on RT's website www.rakennusteollisuus.fi/suhdanteet
- You can download key business cycle graphs and other up-to-date graphs from the Construction Industry pattern bank www.rakennusteollisuus.fi/keskeiset-suhdannekuvaajat
For more information:
- Chief Economist Jouni Vihmo, tel. 050 520 1636
- CEO Aleksi Randell, tel. 0400 500 822
- Director of Communications Merja Vuoripuro, tel. 040 587 2642
E-mails firstname.surname@rakenskunteollisuus.fi