The Finnish housing market
Strong year for the housing market
It seems that the impact of the coronavirus crisis on the Finnish housing market was short-lived. The pandemic put much of the housing market activity on pause for a few months last spring, but we saw a quick rebound over the summer. Ultimately, the number of housing transactions completed in 2020 matched that of the previous year.
While housing prices typically fall in a recession, this wasn’t the case in Finland despite the challenging employment conditions. On the contrary, housing prices in the Greater Helsinki area were 6% higher in November compared to the year before, and the prolonged decline elsewhere in Finland also stopped.
The housing market has been propped up by various factors. The quick job recovery after the temporary lay-offs in the spring together with the payment holidays granted by banks have softened the impact of unemployment on the housing market. In addition, the pandemic’s disruption to the jobs market hit the under-25s working in the service sector the hardest, and they are typically not yet looking to buy homes.
The low interest rates and the next upturn in rates moving even further into the future have made it easier for people to manage their home loans. With the Finnish Financial Supervisory Authority’s decision to raise the cap on home loans, the affordability of homes has also improved.
People’s home-buying criteria have also changed, as they have started to spend more time at home and work from home due to the coronavirus crisis. Moreover, some of the money that would have normally gone into consumption has been channelled into the housing market.
Economic growth is forecast to rebound strongly this year on the back of the coronavirus vaccines, which will also boost employment. The pick-up in economic activity together with low interest rates will also support the housing market, and we expect the housing prices to continue to rise this year, too.
Interest rates and migration drive the housing market
The Finnish housing market saw a big regional divide in the 2010s. Housing prices in growing cities continued to rise, whereas the prices in depopulated areas were stagnating or falling.
Population is constantly growing in the regions of Uusimaa, Southwest Finland, Pirkanmaa and North Ostrobothnia but dwindling elsewhere in the country. These trends have been reflected in the divide between the housing prices in the growing cities and the rest of Finland. According to the population forecast of Statistics Finland, urbanisation is expected to continue in the 2020s, causing the population to shrink in most Finnish municipalities. This means that the housing price divide is expected to widen going forward, too.
Until recent years, house-building in the Greater Helsinki area was outpaced by population growth. The number of new homes built between 2005 and 2017 lagged far behind the growing number of people living in the area. This chronic shortage of new housing supply has pushed the prices higher. In many depopulated areas homes are hard to sell, as supply exceeds demand.
Low interest rates in the 2010s enabled people to get a larger home loan for the same income and thus supported the price trend in the growing cities. But housing supply reacts slowly to growing demand, which has accelerated the rise in housing prices. The decline in interest rates is reflected in rising prices especially in more expensive areas where the capital costs are high in relation to other living costs, such as the charge for common expenses. The fastest rise has been seen in the city centre of Helsinki where the prices per square metre were the highest in the country to begin with.
Migration to the Greater Helsinki area has been slowed down by the coronavirus temporarily, which has resulted in slower rent growth. Last year, rents increased by 1.0% across the country and by 1.3% in the Greater Helsinki area.