Construction will still grow by 2 percent this year, supported by the old workforce and continued strong housing construction. Volume growth has waned after the spring and will drop to freezing in the end of the year. Strong inflation and the end of zero interest rates are now eroding consumer confidence and construction projects in an exceptional way, Rakennusteollisuus RT estimates in its autumn economic review.
Photo: Photo office Kuvio
The construction industry is facing its third crisis in a short time. Construction has given up through the sudden economic shock caused by the corona pandemic and restrictions on the operation of construction sites, as well as cost jumps and material availability problems intensified by the Russian war of aggression. Now we are dealing with inflation fueled by the energy shortage and a new recession in the economy.
"Construction will decrease by an estimated 2 percent next year. Our forecast still follows the development we predicted in the spring, although surprises are sure to come. Consumer confidence is already on the canvas, but a sharper drop in construction would also require a loss of confidence in the rest of the economy and the financial markets", Chief Economist of Rakennusteollisuus RT Jouni Vihmo says.
Housing starts are down from record levels
Accelerated inflation and economic uncertainty have depressed household confidence, raised interest rates and lowered real house prices. This, together with the increase in financing and construction costs, makes some new projects unprofitable and reduces housing starts.
According to Rakennusteollisuus RT's housing production survey in October, independent housing production will decrease by about a third this year compared to last year and the survey conducted in May. However, the companies expect consumer demand and, with it, self-built housing production to recover next year. On the other hand, self-financed rental housing production is expected to decrease.
"The situation in the Finnish housing market is stable. The development of apartment prices has been moderate and mainly follows the development of the domestic economy", says Jouni Vihmo.
Housing construction received a growth spurt from the corona virus and had record readings last year. There were as many as 47 housing starts, and this year too a little over 000 starts have been accumulated. The increased detached house construction accounted for a good 41 of this in both years. Next year, the starts are estimated to be at the level of the long-term housing production need, around 000 apartments.
The growing uncertainty of the economy is already reflected in construction
The construction of office premises, as well as land and water construction, will decrease both this year and next year. The state's bus funding falls to a very low level, although the budget has to some extent patched up previously made cuts to basic bus maintenance. Growth is expected only in renovation construction.
"Uncertainty is currently high, and a recession is likely. The change can already be seen in construction, even though it is a post-cyclical sector, where economic upheavals are usually reflected with a delay. We have to react proactively to this", CEO of Rakennusteollisuus RT Aleksi Randell says.
"Construction directly affects the national economy and employment. The public sector should now set an example by ensuring a sufficient level of funding and by refraining from such regulation that makes investments or mortgage lending more difficult. "
"In terms of Finland's accessibility and security of supply, the development of transport infrastructure in particular is now necessary, but the state budget's investments in it will be non-existent in the next few years. In the spring at the latest, it's time to make stabilizing decisions if the situation deteriorates from here."
Materials
RT's 12.10. the published economic cycle review in its entirety and the results of the autumn housing production survey can be found from RT's website.
You can download key business cycle graphs and other current graphs From the design bank of the construction industry.
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