Housing market in Finland
The demand for housing began to rise in the late 1990s. The slowdown in economic activity at the beginning of the 1990s led to a fall in the prices of owner-occupied housing and to a reduction in the construction of such housing. After the recovery in the economy households began once again to invest in housing. This led to a fairly rapid rise in the price of owner-occupied housing and in the rents of free market rental housing. There was also an increase in the number of applicants for social rental housing.
However, the new demand for housing was concentrated in just a few growth areas in the country. This was because of the change in the structure of the economy: new jobs were created in these growth areas e.g. Metropolitan Helsinki and the surrounding area, and the Turku, Tampere, Jyväskylä and Oulu areas. Strong internal migration into these growth areas stimulated housing demand.
Compared with previous years, a new feature of migration in recent years has been its concentration, with migrants heading for ever fewer growth centres. In addition, the housing market is still being influenced first by the needs of households already resident in the growth areas who want to raise their standard of housing, and second by internal population growth within the areas. Owner occupancy
Home ownership has been promoted mainly through tax relief on the interest on housing loans. The limited stock of rental housing and its domination by small dwellings has also increased demand for owner-occupied housing. The owner-occupied housing market consists of the market for single family housing and the market for dwellings in the form of housing companies. Housing company dwellings are mainly in terrraced houses or in blocks of flats.
Housing companies are a typical housing system in Finland. The shares in a housing company confer on their owner the right of possession of a specific apartment. The shares are treated as personal property and can be sold and used as collateral for a loan. The company is responsible for the management and upkeep of the building and joint facilities. The housing company system makes it possible to have non-subsidised owner-occupied apartments and free-market rental housing, as well as State-subsidised owner- occupied or rental apartments all in the same building.
Sales of housing company shares and single family houses are most active among the seasoned housing stock. New production brought to the market by the building companies is only part of total yearly sales of apartments in housing companies. The number of dwellings changing ownership has varied greatly according to the economic trends, interest levels and the development of household incomes. Naturally, the prices of owner-occupied dwellings have followed supply and demand on the housing market. Free-market rental dwellings
Half the rental dwellings in Finland are State-subsidised. In this part of the rental housing market tenants are selected according to the legislation on State-subsidised housing. The rest of the rental market comprises free-market rental dwellings, mainly owned by private individuals. These dwellings are often situated in buildings owned by housing companies. Only a small proportion of rental dwellings are owned by institutional investors, such as pension and insurance funds.
The rents in free-market rental dwellings were gradually deregulated in the 1990s, leading to complete deregulation in 1995. Rental agreements between landlords and tenants can be very flexible, as there are no restrictions on the duration of the lease or maximum rent levels. However, the rent level must be reasonable.
Social rental housing
The municipalities and companies owned by municipalities own most of the State-subsidised rental housing in Finland. In addition to the municipalies non-profit housing companies also play an important role as investors in social rental housing.
The income level of households living in social rental housing is clearly lower than those living in other types of housing. About 90% of households living in social rental housing fall within the income limits applied to the selection of new tenants. The low-income households are not often in a position to purchase their own home. There are also many other factors involved in households` choosing to rent instead of buying their home. In terms of the effective operation of the rental housing market and in the interests of households living in rental accommodation, it is important that the market can offer rental dwellings with security of tenure, such as ARAVA rental dwellings.
Since the recession years of the early 1990s more than 200,000 households have applied yearly for an ARAVA rental dwelling. Almost one third of these applications have been succesful. Among the growth centres, the housing market situation has been toughest in the Helsinki metropolitan area, where less than one fifth of applicants have obtained a dwelling.
By law, the tenants for ARAVA rental housing are selected on the basis of social and financial need. More detailed criteria are specified annually by the Government, including the urgency of the applicant's housing need, level of income and assets. Priority is given to homeless applicants and to those in urgent need of housing. Tenant selection procedures are also determined and supervised by the local authorities. Each local authority is obliged to carry out random checks to ensure that selection criteria have been followed. Housing production
Traditionally, housing production in Finland has been divided according to the type of financing.
State-subsidised housing production is financed with State loans or with loans from private financial institutions with a State interest subsidy. Market-oriented housing production is financed with loans from private financial institutions.
State loans and interest subsidies are used mainly for building rented dwellings or right-of-occupancy dwellings. Owner-occupied housing production is financed mainly by the private finance market and the owners` own resources. Privately financed owner-occupied housing production
During construction, multi-family owner-occupied housing production is financed by the developer and/or a bank and/or the households who buy the dwellings. After completion, and when a household purchases the dwelling, a typical finance structure is a mix of cash, a personal loan from a bank and a housing company loan from a bank. A small share of dwellings are bought with cash only. When a household builds a single- family home, this is typically financed with a combination of cash and a personal bank loan.
A personal housing loan from a bank can typically cover some 70% of the price of the dwelling, with the rest being paid in cash. It is possible to finance up to 85% of the cost through a personal loan by using a state guarantee (see below). There are also other arrangements and special cases where banks are willing to lend an even higher share on a personal loan. The banks are by far the main source of personal housing loans. Personal loans are typically tied either to 6- or 12-month Euribor interest rates or to prime rates set by the banks, with a fixed margin varying from about 0.8 to 1.6 percentage points depending on the housing market, the bank and the customer. The State subsidises personal housing loans through tax relief on mortgage interest. The typical amortisation period for personal housing loans increased during the 1990s and stands today at approximately 20 years.
Housing company loans are loans taken by the housing company. The owners of the dwellings (shareholders) pay the loan interest and amortisation each month according to the number of shares they own. Housing company loans can cover up to 85% of the price of the dwelling. They typically have an amortisation period of approximately 20 years. State subsidies for the finance of owner-occupied housing production
The State currently supports owner-occupied housing production through an interest subsidy system for the construction of single family houses and an interest subsidy loan for multi-family housing.
In addition, the State guarantee for owner-occupied housing loans can be used when constructing a single family house, while tax relief on mortgage interest is available as well.
State interest subsidy based on social need can be granted to a housing loan for the construction of a single-family house. Privately financed rental housing production
There has been very limited construction of privately financed rental houses in recent years.
Privately financed rental dwellings are typically found in multi-family houses because of the flexibility of the Finnish housing company legal form. Some two thirds of the privately financed rental stock is actually owned by individuals and are therefore built along with owner-occupied dwellings. Social rental housing construction and acquisition
Social rental housing can be built or acquired by 1) local authorities or other public corporations (in Finland principally the municipalities), 2) corporations engaged in insurance business, 3) other corporations designated by the competent authority and fulfilling certain preconditions laid down in the regulations currently in force at any given time and, and 4) limited liability companies of various type in which one or more of the three organisations mentioned above have direct dominant authority. In many cases the limited liability company is owned by a municipality.
Social rental dwellings are to be used as rental dwellings for 40 years. The rent is based on the cost recovery principle. By law, the tenants for ARAVA rental dwellings are selected on the basis of social and financial need. More detailed criteria are specified annually by the Government, including the urgency of the applicant's housing need, low income and assets.
Priority is given to homeless applicants and applicants in urgent need of housing. The income limits are set annually by decree according to family size and region.
Social rental housing to be built or acquired is subject to cost and quality controls. The Housing Fund approves proposed developments to ensure the standards of architectural design and quality and geographical and social integration with the environment. The Housing Fund also monitors costs and quality and ensures the use of competitive tendering.
There are two finance alternatives for social rental housing construction and acquisition: the State housing loan and the interest subsidy loan.
The State housing loan administered by the Housing Fund covers a maximum of 90-95% of building costs and the price of the plot. The loan period is approximately 35 years. The interest subsidy loan is granted by a bank or other financial institution. The Housing Fund approves the loan, thereby providing the loan a State guarantee and paying interest subsidies. The interest subsidy loan covers a maximum of 90% (in the case of acquisition 80%) of the building costs and the price of the plot. The loan must be based on competition, and the Housing Fund bases its approval on the interest rate and the margin on the loan.
Right-of-occupancy housing production
Right-of-occupancy housing is a form of housing tenure that falls between owner occupancy and renting. Residents buy into the scheme by paying a specified percentage (15%) of the value of their home (this payment is redeemable at any time adjusted according to the construction cost index).
Residents also pay a monthly charge. The right-of-occupancy dwellings cannot be transformed to owner occupancy. Right-of-occupancy housing can be produced and owned by the same organisations as social rental housing with the exception of corporations engaged in insurance business.
The monthly charge is based on the cost recovery principle. Applicants for right-of-occupancy housing receive a queue number, on the basis of which they are chosen for right-of-occupancy dwellings. The eligible applicant may not own a dwelling that meets reasonable housing standards in the same locality, or have the means to acquire one.
The construction of right-of-occupancy housing is subject to cost and quality controls. The Housing Fund approves proposed developments to ensure the standards of architectural design and quality and geographical and social integration with the environment. The Housing Fund also monitors costs and quality and ensures the use of competitive tendering .
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