Construction production is at a historically low level, but construction investments are no longer declining. The Construction Industry Association's forecast for this year for all types of construction is positive. However, growth will start cautiously and with great uncertainty. If the trade war intensifies, the construction recovery will be short-lived.
Last year, construction contracted by 8 percent, while a 4 percent increase is expected this year. Growth is coming from housing production, commercial premises, renovation and infrastructure construction.
However, there are exceptionally high levels of uncertainty in the investment environment. A prolonged recession, an escalation of the trade war, and rising costs driven by the reconstruction of Ukraine would pose a significant risk to the recovery if they materialize.
"Construction must be prepared for both faster and weaker development than expected. The expected pick-up in economic growth and purchasing power and the further falling interest rate outlook support growth. The sharply increased economic and security policy uncertainty, on the other hand, constitutes a major downside risk. If the trade war pushes Finland's economic growth to zero, construction will not have the conditions to recover," Chief Economist of the Finnish Construction Industry Association RT Jouni Vihmo says.
Housing construction is still plowing deep
Housing starts have remained at 17–000 units in the previous two years. The drop in building permits to the lowest level in statistical history predicts low production for this year as well. RT estimates the number of starts at 18 units.
A possible surge in housing market demand combined with low supply could lead to rapid fluctuations in production and rising housing prices. At present, neither consumer or investor demand nor government-subsidized production is sufficient for proper growth.
"Without rapid economic growth or backup power, housing construction will recover slowly and may take a long time before reaching a level that matches the need. According to a study by VTT, the annual housing production need corresponding to rapid population growth is 36 homes. This is the third year in a row that we are far from this number," Vihmo says.
CEO of Rakennusteollisuus RT Aleksi Randell's believes that tighter banking regulations threaten sufficient housing construction.
"The increased capital requirements and other financing conditions required by regulation are becoming an obstacle to freely financed housing production. It would certainly be possible to ease regulation without jeopardizing macro stability," says Randell.
"It would also be a good idea to examine the terms and forms of housing loans aimed at consumers. For example, the repayment periods for housing loans could be extended."
Clean transition, security and data drive the business
Growth in business premises will come mainly from industrial construction. EK predicts that clean transition investments will increase from EUR 3,0 billion to EUR 8,5 billion. In the future, the focus of investments will be on security and data.
The volume of renovation construction is already one fifth higher than that of new construction, even though renovation construction has contracted for seven consecutive quarters. A nice upturn is starting this year, and a growth rate of around one percent is expected.
Infrastructure construction supports all construction. There is growth in road and rail construction, as well as in investments related to energy, mining and defense. Foundation work for building construction is also growing slightly. The basic road maintenance repair debt package will continue this year, but will be eaten up after that unless the necessary additional appropriations are received.
Construction employment is recovering slowly and with a delay. The sector has lost around 30 jobs during the recession. The new upturn will require a large number of new experts.
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Jouni Vihmo
Chief Economist
jouni.vihmo@rt.fi + 358 50 520 1636Confederation of Finnish Construction Industries (CFCI)
Aleksi Randell
CEO
aleksi.randell@rt.fi + 358 9 129 9201Confederation of Finnish Construction Industries (CFCI)
Assistant: Lotta Räty
Merja Vuoripuro
Director, Communications and Responsibility
merja.vuoripuro@rt.fi + 358 40 587 2642Confederation of Finnish Construction Industries (CFCI)