The Finnish Property Market 2012 - KTI

Government committee calls for moderately
priced housing in growth centres
The lack of moderately priced housing in growth centres,
especially in the Helsinki metropolitan area, is considered
the most serious problem in the Finnish housing market.
Lack of housing prevents internal migration and negatively
impacts the labour market balance.
In late 2011, the Ministry of the Environment set up a
housing policy committee to come up with suggestions
on how to enhance the production of moderately priced
housing. Specific attention is given to the Helsinki
metropolitan area, where the problems are the most
pronounced. The committee finalised its work in mid-
February.
According to the committee, the most critical issues in
increasing residential production include improving the
availability of land plots and enhancing the coherence
of urban infrastructure. State measures are needed in
order to balance the cyclical fluctuations in the housing
market. Specific attention should be given to improving
the housing quality of groups with special needs, such
as the homeless. In addition, construction processes
should be made more efficient and the quality of
construction improved. The committee estimates that,
in total, the suggested measures would cost ca. €180–
200 million in 2013.
The committee stated that poor economic conditions
should not prevent public subsidies targeted at the
housing sector, as efficient use of the labour force
is critical for the economy’s competitiveness. Upon
receiving the committee’s report, the Minister stated
that it creates a solid groundwork for future housing
policy actions that improve the housing markets.
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The Finnish Property Market 2012
increased. The government introduced quickly an attractive
interest subsidy model in order to both stimulate the
production of rental housing and soften the crisis’ impact
on the construction sector’s employment. Together with the
decreased construction costs, these stimulus actions worked
well, and, in total, the construction of some 26,000 new
rental dwellings were started in 2009 and 2010, of which
some 50% are located in the Helsinki region. In 2011, the
number of starts in the subsidised stock decreased to some
8,500 dwellings. In total, the construction of some 32,000
dwellings was started in 2011. In 2012, the number of starts
is estimated to decrease to ca. 28,000 dwellings, although
there is significant uncertainty related to this number.
Rental practices
Rents for free market rental dwellings were gradually
deregulated during the 1990s. Currently, there are no
restrictions for rental periods or rental levels. Rental
agreements are typically made for certain fixed period, such
as a year, and, afterwards, are usually valid for an indefinite
period. After the fixed period, the tenant has the right to
terminate the contract after an agreed notice period, typically
one month. The landlord can only terminate the contract
under certain specific conditions. Rents are typically indexed
with the cost of living index being the most used.
In the subsidised housing stock – depending on the form
of subsidy – there might be restrictions related to both rental
levels and tenant’s income. In so-called ARA-housing stock,
where state housing loans are used, rents are cost-based. In
the housing stock produced with interest subsidy, there are
varying conditions for tenant selection, but rents are typically
market-oriented. For instance, in the dwellings produced with
the interest subsidy in 2009–2010, there are no restrictions
for tenant selection or rental levels. In cases where the tenant
receives a housing subsidy, set criteria related to both the
tenant’s income and rental prices are applied.
The residential market in 2012
After a long and solid growth period, the financial crisis
turned the housing prices in a slight decrease between mid-
2008 and mid-2009. After that, as the availability of housing
loans eased and consumer confidence strengthened again,
transactions volumes and prices started to increase in all
major cities. The increase in prices continued until late 2011,
when the increased economic uncertainty started to impact
housing markets again. In the last quarter of 2011, residential
prices declined by 1.4%. However, for the whole year, an
increase of 2.7% was recorded in the prices of old residential
dwellings. In the Helsinki metropolitan area, prices rose by
3.3%.
Regarding the outlook for housing prices, some differing
views have been presented recently. According to some
specialists, housing prices are likely to decrease due to the
worsening economic outlook and tight financial markets.
Some others, however, estimate a clear increase in prices in
the growth cities, due to the strong demand and continuous
internal migration. According to the forecasts of Pellervo
Economic Research PTT, housing prices will decline by 1.8%
in 2012. The housing market is supported by the healthy
Finnish banks as well as slight increase in household income.
However, there is a lot of uncertainty related to the outlook
after 2012. If the euro area’s crisis will be solved efficiently,
“Increased uncertainty
related to housing
prices”