Construction decreased by 11 percent last year, clearly more than during the financial crisis. All sectors of construction froze, but the drop in housing production was the most dramatic. According to RT's economic forecast for the construction industry, there are still no signs of a turnaround. This year, construction is expected to decrease by 5 percent.
The exceptionally fast rise in interest and cost levels, the quiet life of housing sales, and the tightening of credit policy have hit housing construction in particular.
The total number of apartment starts halved last year to an estimated 17 apartments. Last year, self-financed apartment building construction saw the biggest jump in statistical history, no less than 500 percent.
This year, the number of housing starts is still slightly lower than last year, even though the government has raised the interest subsidy powers of the state-supported Ara housing production to its highest level so far.
"As far as housing construction is concerned, this year has already been tapped. The conditions for the start of production have not improved, and we can only promise subdued growth for next year", Chief Economist of Rakennusteollisuus RT Jouni Vihmo says.
There are plenty of apartments available at the moment, because projects that were started before the housing trade standstill are still being completed. However, there is a housing shortage and market disruption in the growth centers, as the number of new properties will remain very low in a couple of years and the project turnaround times will last a year and a half.
"Even if interest rates start to fall, demand picks up and the stock of newly completed apartments for sale melts, tight financing is still a strong brake on apartment construction. Right now, there are few market-based solutions to correct the situation," says Vihmo.
Achieving a quick turnaround requires confidence-building actions from the government
According to the Bank of Finland, the continuation of the recession in housing construction is the biggest threat to economic development this year.
"Even after previous crises, production has not started immediately without backup power. In the budget rush, the government should decide on the preparation of a temporary filling guarantee for self-built housing projects, which would increase the confidence of financiers and the housing market. It's more affordable for the state than having to keep subsidized housing production at a high level", CEO of Rakennusteollisuus RT Aleksi Randell toteaa.
The vast majority of self-financed owner-occupied apartments have been implemented with the RS system, which protects the interests of the apartment buyer during the construction phase. Housing association loans have been used in 90 percent of RS properties.
"Based on the statistics, housing association loans are not a problem, but by exaggerating the risks, suspicion has been planted in people's minds. A filling guarantee would also strengthen consumers' confidence in buying a new apartment," says Aleksi Randell.
Both new and renovation construction have slowed down
The economic crisis has also hit office building more than expected. Office buildings have shrunk since the beginning of 2022 to the lowest level of the 2000st century. The much-talked-about industrial investment boom is not yet reflected in construction statistics.
"Getting large international industrial investments to Finland is very important. Many good projects threaten to remain intentions. Investments in the green transition must be actively promoted, as in Sweden, and not be left waiting for them to materialize," says Aleksi Randell.
According to the Statistics Finland, repair construction has declined since the beginning of 2022. Last year, the value of repairs fell by a total of 5 percent from the previous year, and the decline accelerated at the end of the year.
While the availability of financing has weakened, the requirements for improving energy efficiency have become stricter and the repair gap has grown even more.
"Finland must immediately take advantage of the EU's available guarantee and financing opportunities. In addition, we are hoping for a temporary ten percent subsidy for the renovation of residential communities from the state to replace the subsidy that ended last year," says Randell.
Civil engineering decreased by five percent last year. The state's level of highway investments in the 2024 budget is clearly lower than in 2023. The situation will improve if promises about new infrastructure investments are fulfilled in the spring budget rush. On the other hand, a 250 million euro appropriation increase is coming to the maintenance of basic roadways this year to make up for the road repair deficit.
The recession of the Finnish economy last year was practically entirely caused by a decrease in construction. In terms of employment and unemployment in the construction industry, the worst is yet to come. 20 jobs are leaving construction by the end of next year. The companies' employment outlook predicts a contraction of employment to the pre-boom level, an estimated 000 employed.
Materials
The business cycle overview with attached materials can be found here
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