An Investigation of the Economic Drivers of the Finnish Housing Market

Abstract

The objective of this thesis is to investigate the Economic Drivers of the Finnish Housing Market. The research is developed by firstly providing a background of the Finnish housing market including a historical perspective, the housing authority in Finland and general housing trends over the years. Data has been obtained from the Official statistics of Finland as well as IMF Staff Country Reports on Finland. Previous literature is discussed leading to points of investigating such as regional development of housing supply, demand and prices in addition to housing loans and housing debt. Stability and security both seem to play a crucial role in influencing buyers’ perspective in making housing purchase decisions. Finland continues to be a popular destination for immigration from all over the world while Helsinki seems to be the most attractive city for migration resulting in an overall increase in housing demand. The demographic changes were determined by comparing European and cross-regional data. It appears that if population density continues to increase, the population growth and income growth will result in higher price reactions and decrease growth in housing stock. Additionally, real estate taxation indeed seems to play a role in housing demand and housing consumption. Time-series modelling was analysed that indicated that the comparably slow growth of house prices following the financial crisis can arguably be attributed to low demand and abundant supply in the Finnish housing market. Certainly, the increased supply significantly slowed the rise in house prices. Furthermore, low interest rates boosted both supply and demand, and are expected to continue doing so for the coming years. The time series model has assisted in separating the relative influence of supply and demand on price and investment changes in residential real estate. Interest rates in Finland are projected to continue low for the foreseeable future thereby increasing demand. Overall, this thesis concludes that factors such as demographic changes, supply and demand appear to affect the Finnish housing market to a large extent.