All indicators show that consumer confidence and companies' future expectations have weakened. Different instances and information sources are reporting the same thing: production in the construction industry is shrinking. Professionals in the field do not bend to this, but present ways to manage in the near future.
Do we have ways to avoid recession? "Forecasting is difficult"
A year ago, the construction industry was in a hopeful mood. The construction industry reports that it has recovered from the corona virus better than predicted. The RAKSU group of the Ministry of Finance titled its September 2021 bulletin: "Economic growth accelerates construction." There was even a warning about overheating of residential construction. The construction confidence indicator showed positive readings.
According to Statistics Finland, the turnover of house construction in June 2022 had grown steadily compared to a year ago. In that period, growth had accumulated by 19,5 percent and the amount of sales by 13,4 percent. Things seemed to be going well.
When Russia launched hostilities in February 2022, we soon found out that the attacks were not only aimed at Ukraine. The economic structures we considered stable had taken a serious hit.
"Forecasting is difficult", commented Tommi Luukkonen, chairman of the Association of Civil Engineers and Architects RIA.
"We were in a boom. My best image is that we will go into some kind of recession", Luukkonen says about the future. "In my worst-case scenario, we go into a severe recession."
Luukkonen describes the time as rather restless and points to the time.
"Finland hasn't had such a good employment situation in a long time. The employment rate is good and the able-bodied population is almost entirely on the labor market. There are still jobs to be found. In many sectors, there is a downright dire shortage of manpower. The economic momentum is good", Luukkonen lists and he does not see the fear of mass unemployment in this situation.
"Finnish companies have strong balance sheets. Yes, construction companies can survive", Luukkonen reassures. The media tends to confuse. "That's why I talk about restlessness."
The report published by the RAKSU group of the Ministry of Finance in September 2022 predicts an increase in construction for this year of another 2-4 percent, but a contraction of 3-5 percent for production in 2023.
Banks one after the other have corrected their estimates of the development of the economy. Nordea's blunt assessment is that next year's economic growth will stop.
The war of aggression has pushed the whole of Europe into an energy crisis. "The building products industry, which uses a lot of energy in its production, is facing a tight spot with increased energy costs," says Tommi Luukkonen.
According to the statistics of July 2022, construction costs had increased by 8,3 percent compared to the same time of the previous year. There was a 12,8 percent increase in the costs of supplies. This has meant a 0,2 percent increase in the total index of construction costs.
Luukkonen is worried about the record low consumer confidence, the availability of financing and the rise in interest rates. Prices have started to rise and inflation is on the rise.
“These all have an unsettling effect. There is a fear of personal financial imbalance," Luukkonen formulates. "Construction of apartments has always been a big driver of the construction industry. Now the housing market is disturbed by a feeling of restlessness. Some of the projects have been shelved to wait for better times."
The Confederation of Finnish Business and Industry EK's indicators measuring confidence in various branches of industry turned downward in December 2021. Since then, confidence in industry has continued to decline, with the exception of the construction sector, which, according to EK's measurements, experienced a momentary revival of confidence in July 2022. The balance of the index strengthened by five points in August, ending at -16.
Now the direction must have turned to a minor victory again.
"The consumer confidence index has been a pretty good gauge to tell how you feel now," states Tommi Luukkonen and throws the question into the air: "Can millions of ears be wrong?"
Production in the construction sector is predicted to contract
Different data sources report the same thing: production in the construction industry is shrinking. Some professionals in the field have also agreed with the prevailing opinion. The media roars.
"This year, 2022, the amount of construction will even increase," says Lujatalo Oy's branch manager Heikki Jalkanen. "Last year there was a spike in construction. A record number of residential construction projects were started in Finland. After their completion, housing production will slow down."
Jalkanen is ready to believe the predictions of a slowdown in the pace of construction and sees several reasons for it: the general economic situation, weakening consumer confidence, accelerating inflation, rising prices of construction products, materials and fuels, rising costs of energy and its availability, and rising interest rates. Jalkanen is also worried about the government's debt collection and the expected maintenance costs.
"The municipalities' weak financial situation is holding them back and forcing them to move projects forward."
"Are the worst economic and cyclical scenarios just around the corner?" Lujatalo's Heikki Jalkanen asks.
At Lujatalo, housing sales have still been quite good, although the increase in investment prices has eroded profitability. The company has noticed signs of a decline in housing sales. "People's decision-making has become more difficult. They have become insecure and hesitant.”
"In the future, in our hard money housing production, we will carefully consider housing starts." Jalkanen estimates that if aggregate production decreases, some construction companies may move to the competitive market. According to Jalkanen, this development can mean tougher competition, a decrease in volume and a decrease in profitability.
Still, Jalkanen would not be ready to throw in the towel. After all, we had survived the corona.
The increase in construction costs is eating into profitability
"The increase in construction costs in this exceptional situation is reflected in all sectors, whether it's about building a library or an apartment," says Lujatalon Jalkanen.
The part of the individual home buyer who moves to the city from outside the growth centers threatens to become a challenge. "At the edges of the growth centers, property values have decreased. The fair value can be good, but realizing the property can prove to be difficult."
The implementation of projects is important
No one is left unskillful in the changes of business cycles. The ordering party also closely monitors the development of situations.
"Weak predictability of price changes and availability of materials has increased the risks," says the facility manager Hannu Väänänen From Kuopio Tilapalvelu. He considers it good that the risk assessment and their sharing could have been carried out in advance among the different parties of the construction projects. "It has enabled the implementation of projects."
"You could talk about the so-called from the contract technology class. It has led to the modification of the implementation forms of the projects to better suit the current situation."
In Kuopio Tilapalvelu, it is estimated that the volume of investments will decrease, both calculated in euros and in terms of project quantities, compared to previous years.
"The aim is to keep the amount of euros spent on maintenance the same as before. Collaborative project models must be further developed so that cost development and risks are better predictable," Väänänen reflects.
Resuscitation measures are needed now
At the beginning of September, in connection with the publication of the business cycle barometer for SMEs by the Ministry of Employment and the Economy, the Minister of the Economy Mika Lintilä stated that although "uncertain times are now painfully felt by many entrepreneurs, the results are not yet comforting." He encourages measures: "The prerequisites for entrepreneurship should be promoted in this situation."
"There are still plenty of opportunities for growth, and uncertain times can be overcome by seizing them and developing business opportunities," says Minister of Economic Affairs Mika Lintilä.
In the construction industry, we are used to cooperation and are ready to find solutions to looming problems. Hannu Väänänen of Kuopio's Tilalavevanten suggests supporting energy renovations and the promotion of the use of renewable energy sources. "It would speed up the start of projects."
Joensuu building inspector Jukka Hyttinen is on the same lines as Väänänen when it comes to investing in energy projects.
He says he expected that the state would have already included it in the selection of means. "Older apartments have big expenses and in this situation now would be the right seam. If it gets quiet anyway, it would be good to invest in energy renovations. It would extend the service life of the apartments, and the national economy would not come to a complete halt," Hyttinen says.
Building inspector Hyttinen considers it important to make urban zoning and building supervision work smoothly, especially now in this changed situation.
The situation in Joensuu's construction supervision is good, but Hyttinen knows that many municipalities suffer from a lack of resources. Municipalities are not allowed to fill vacant positions or building supervision lacks know-how and experience. In Hyttinen's opinion, the fact that zoning and building permit processing is slow or even that building permit applications are not even accepted is not in anyone's interest. "It's pointless to slow down and burden society."
Hyttinen has ready solutions for similar situations: "If the rest of Finland is a little quieter, could the freed up capacity be used to help the growth centers?", he asks. "An electronic system would allow that."
In the Joensuu building control area, the coming winter seems to be quieter. Construction has been suspended on the small house side. Land receptions have even been canceled in connection with land transfers. Small grinders have not started their targets and the booking rate has been increased.
However, Hyttinen finds something good: "The green transition is a positive thing. It should have been done earlier. Now it comes by force. Must be self-sufficient. In the longer term, it is an important advantage. Now we are investing in this renewable energy side. It's also good for the environment."
"Now we have to blow on one coal"
Like Jukka Hyttinen, Lujatalo's Heikki Jalkanen also thinks it is important that municipalities' zoning processes be made more agile. "It must be ensured that there is enough land in the plan to build on, and if new companies are created, the planning should be able to respond to demand quickly and flexibly."
If the economic outlook weakens, Jalkanen would like the state to initiate stimulus measures, for example by returning repair subsidies to housing associations, even if only for a limited time.
"The unemployment figures are not going to decrease, but they will also increase in the construction industry," fears Heikki Jalkanen. "If the construction industry starts to shrink to an increasing extent, the bottom is looming. If this continues for a very long time, our industry will no longer be attractive to young people."
Jalkanen encourages the initiation of pending school, daycare and nursing home projects. "Also in welfare areas there are investment needs, hospital construction and rescue station projects," asks Jalkanen. "The euros invested in investments are returned to the municipality to a large extent as taxes."
"There is a lot of repair debt in Eastern Finland and there is a lot of pressure to reduce it, but the municipal finances are a challenge in order to get repair projects started," says Heikki Jalkanen and calls for reviving measures from the state.
"Now we have to pull together, stay on the same front."
"Construction never ends, and it cannot be transferred to China to be done. Yes, it has to be done here on the spot," Jalkanen laughs.
A boost to ARA production
Chairman of the RIA Association Tommi Luukkonen has studied a lot about the future guidelines of the construction industry and has considered ways to cope with the possible challenges that lie ahead.
One solution that Luukkonen proposes is to make ARA production work: "Since the construction companies have had a lot of work until now, they have not submitted bids for ARA sites, or if they have, the bid prices are so high that they have not gone through in ARA .” He knows that in Jyväskylä, for example, no housing rights project has started in a couple of years. Luukkonen believes that in the near future the offering of ARA production and the offering of contract tenders from construction firms will increase. At the same time, he assesses that expectations may be given up.
"It would now be necessary to give ARA additional powers to grant funding for various projects as well as some flexibility in accepting prices."
Construction continues in the growth centers of Eastern Finland
In Eastern Finland, the migration movement is still strong and it maintains construction. The suburbs are quieting down. "A new phenomenon is that even pensioners have started moving from the countryside to the cities, to better services."
"In terms of construction, projects are still being implemented in the growth centers. Free-financed housing projects built in a good location sell," he says, but at the same time hopes that the prices would not rise too high due to price pressure in the construction product industry.
Improving energy efficiency as a solution to reducing repair debt
"The repair debt has not yet been widely discussed, but it will be noticeable in the next few years", Tommi Luukkonen paints. "Finland has set such climate goals that achieving them is a big challenge."
"Pretty fatally tough goals have been set for the current buildings." He insists on taking measures to improve energy efficiency. In Tommi Luukkonen's opinion, the issue applies equally to single-family houses and housing associations.
"The arrival of new forms of energy has created a positive expectation. There are already good experiences with solar panels. Air, water and geothermal heat pumps are also very good solutions."
If the volume of construction starts to drop, Luukkonen is ready to ask the state for ways to reduce the huge repair debt, both in buildings and in infrastructure.
"Our national wealth must not be ignored or decayed."
The construction industry does not bend in the face of economic forecasts.
Text and pictures: Heikki Luukkonen