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Plummeting permits signal end of Finland's housing boom

The two-year record pace of construction looks to be over as permit applications are down by a third year-on-year.

YIT:n rakennustyömaa Lauttasaaressa
The Finnish housing market is strongly divided along geographical lines, with construction brisk in Helsinki and Espoo while many provincial centres are seeing a slump. Image: Markku Pitkänen / Yle

A significant drop in the number of building permit applications represents a clear sign that Finland's two-year record-breaking construction boom may soon be over, according to the Confederation of Finnish Construction Industries (CFCI).

The federation cites a report by Statistics Finland, which found that only 11,598 permits were issued in the second quarter of this year, down from a 15,261 over the same period last year - a drop of nearly 25 percent.

In 2017, a total of approximately 44,000 permits were issued for the building of new homes, and the figure was roughly the same again in 2018. This year however, that number will decrease to an estimated 39,000, and next year to 36,000, which represents a fall of 20 percent.

In May, the number of permits issued for the construction of high-rise apartment buildings fell by a whopping 45 percent compared to last year, while in June it was down by almost 30 percent.

Story continues after graphic.

Graphic
Image: Statistics Finland and Construction Union of Finland, Harri Vähäkangas / Yle

Forecon, a construction industry consultancy firm, recently estimated that the number of new residential apartment block building projects had fallen by about a fifth in the early part of this year compared to the same period last year, the trade magazine Rakennuslehti reported.

Yet although question marks remain over how steep the downward trajectory of the industry may be, the direction has been visible since February 2018, says CFCI's chief economist Jouni Vihmo.

"Housing construction is slowing down as expected, but during this spring and summer the pace has clearly accelerated," Vihmo explains.

Geographical divide

The number of applications for permits to build new homes has been at an unprecedentedly high level across Finland over the last couple of years, especially as provincial urban centres such as Seinäjoki, Jyväskylä, Kuopio and Joensuu have grown rapidly. However, these cities are seeing huge drops in the number of permit applications.

Despite the slowdown, large construction firms such as YIT and SRV say they do not believe the industry is headed for a collapse, but rather that construction will return to the pre-boom levels.

"In Finland, the standard level is approximately 35,000 homes per year. Now, perhaps, we will return to that level," says Antti Inkilä, Business Director of the construction company YIT.

Story continues after photo.

Antti Inkilä, johtaja, YIT
Large investors are interested in real estate investments due to the low level of interest rates, says Antti Inkilä, Director, YIT Image: Markku Pitkänen / Yle

Antero Nuutinen, Head of Housing at SRV, says his firm are preparing for a drop in construction levels.

"Finland has built a lot recently while demand has been strong. If the total number of new builds decreases, we will certainly start to see the effects as well," Nuutinen says.

Chief economist Vihmo of CFCI estimates that the drop will be most significant in provincial cities, while the Helsinki region will continue to grow.

"The downward trend will be especially evident in smaller cities, which have seen quite high rates of housing construction in recent years. The Greater Helsinki area is going counter-current and growth will continue," he predicts.

Why housing production matters

According to the construction industry, 150,000 new homes will be needed in Finland during the four-year tenure of the current government. This means that 37,500 new homes should be completed each year for the next four years.

Construction is a huge source of employment for people, and the sector will become even more important if Finnish exports start to struggle.

Ultimately, Vihmo believes that the construction of new houses facilitates economic growth as well as the movement of labour, which is the ability of workers to move after jobs when needed.

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yleiskuva
The Helsinki region accounts for almost half of the construction of new builds in Finland. Image: Mikko Koski / Yle
Vihmo also urges the current government to support urbanisation by speeding up zoning as part of the reform of the Land Use and Building Act, and also fast-track major rail projects. According to Vihmo, the urbanisation debate has ground to a halt since last spring's elections.

"The government now needs to boldly accelerate major rail projects and take into account intra-city projects such as the Espoo City Track. The effects of the projects are obviously lagging behind, but new housing is needed with urbanisation, even though economic growth is slowing down," Vihmo says.

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