It somehow seems that housing prices have soared above the yield requirements that are immune to political influence.
In 1980, a two-room apartment in Tapiola could be bought for 36 average Finnish gross salaries.
In 1995, a two-room apartment in Tapiola cost the equivalent of 29 average gross salaries.
In 2019, a two-room apartment in Tapiola costs over 100 average Finnish salaries.
Does this spark any thoughts?
My own
I don’t know about that trend, but I just sold an apartment in Olari, Espoo. I sold it for about 20% below recent historical prices because I suspect prices won’t be rising in the next few years. I figured it wasn’t worth waiting for a new boom in that matter - even though the loss stung.
Yeah, I agree that housing prices in towns with demand and growth have gotten out of hand.
I mean, in a growing small town, an apartment costs 5000€ per square meter.
Then people wonder why a young couple starts with a detached house when it only costs 300k.
And businessmen have made too good profits on land deals, etc. Fortunately, at least the Nuorisosäätiö (Youth Foundation) parties are over and done with, and the police are investigating. It’s been wild, and there have been surprising high-profile actors involved in the earning chain, of course, even the big ones accept money.
But I agree that there will come a time when prices will fall more sharply and widely than now.
Another perspective on the development of housing prices:
The housing price bubble of the late 80s was indeed quite unique in its massiveness.
In 1989, my father sold his farm and bought a “good” investment studio apartment in the very center of a small town in Häme.
4-5 years later, a similar studio apartment in the same building was sold for almost 60% less than my father paid.
Adjusted for inflation, the value of the apartment has never reached anywhere near the same level it cost on that fateful day of purchase in 1989.
For the property to have retained its value against inflation, the apartment’s value in 2013 should have been 90,000 euros.
It wasn’t, I sold it for 58,000 euros, which was a good price compared to similar properties in the area. That was over 30,000 euros “lost” to inflation.
Today, the same apartment should fetch 93 thousand euros to have retained its inflation-adjusted value from those bubble peaks. Of course, it doesn’t. Prices are still hovering between 50-60 thousand euros.
If one had managed to buy 2 studio apartments from the same building in 1994, right at the bottom of the recession and at absolute rock-bottom prices, their value would have developed favorably. Not by much, but still.
The total value of the recession-era apartments, 320,000 Finnish marks, would today be about 110,000 euros, which is 10 thousand euros per apartment higher than the inflation-adjusted purchase price.
So, even buying at the absolute worst bottom of the recession, one would have achieved a value increase of about 0.3% higher than inflation. That’s not a very high increase in value.
In summary. On average, inflation-adjusted housing prices in small towns have decreased over the last 30 years. This is one reason why I have never wanted to tie up my capital in housing.
Even buying at the bottom of the recession, one hasn’t been able to make a proper “profit” from appreciation. Renting is, of course, the essential thing in returns, but if one imagined housing price development to have been favorable over the last 30 years, it has not been. We’ve fallen behind inflation, and significantly so.
As far as I know, the longest reliable data on housing price trends can be found in the Netherlands, dating back to the early 18th century. In the long term, price levels have followed the general development of income levels, but this is often forgotten due to the long credit cycles. In Western countries, interest rates have been coming down since the 80s, which has been reflected in housing prices.
Well, interest rates are hardly falling anymore. From this point on, there will be no more additional momentum for the markets; instead, income levels must rise or loan periods must lengthen.
Even if interest rates don’t fall, central banks have many ways to inject money into the economy. The interest rate level is not a limiting factor in that. For example, helicopter money has not yet been used. It is quite possible given how stimulus-oriented central banks are. It would even be the best and most equitable way to implement stimulus. In addition, it would create the fewest distortions in the economy. All stimulus is problematic when continued for this long, but helicopter money would be the best option if stimulus is necessary.
The biggest culprit for rising housing prices is central banks. Another significant reason is the inability of cities to zone enough plots. The prices of plots are absolutely outrageous, partly due to central banks and partly due to limited supply. Additionally, the right to deduct mortgage interest has raised prices. Fortunately, we are now getting rid of that.
In the Helsinki metropolitan area, you can get a rental income of about 700€/month for any apartment, guaranteed by the state. In such an interest rate environment, it’s no wonder that housing prices rise if a guaranteed return is known. When you combine this with the fact that there are not enough apartments in good locations due to zoning, the equation is complete.
Furthermore, I’m a bit puzzled by the claims that too much is supposedly being built now. We are definitely not building too many apartments in growth centers; in fact, we are building too few. The problem is that the price of land and building regulations raise the price so much that people can’t afford these new apartments.
The overheating of the construction sector is partly explained by the fact that construction was in a slump for a long time, and there simply hasn’t been enough construction capacity for this amount. The number of started apartments has not been unsustainably high.
All factors have thus been in favor of rising housing prices. There is unlikely to be any quick solution coming, and prices will probably continue to rise as long as central banks are on a stimulating path. Oh, but since inflation isn’t rising, there’s no problem. Naturally, the rise in housing prices is not included in inflation as such.
Yes, it was different before, back in uncle’s active days. A young, newly graduated university student could easily get their own small apartment and the loan was only moderate. Now, a career rocket from uncle’s inner circle, who graduated 2 years ago, just barely managed to save enough with ASP to get their own small studio apartment quite far from the center of Helsinki in a 60s apartment building, and debt is overflowing up to their hairline. I feel sorry for today’s young people…
Uncle Masse, FA, engineers have too low salaries or apartments are too expensive
Bloomberg’s morning brief today included a story on countries with the highest risk of a housing bubble:
https://www.bloomberg.com/news/articles/2019-07-12/canada-new-zealand-show-signs-of-housing-bubble-says-study
The article included the following table:
In Finland, housing prices seem to have remained at the same levels for the past few years (2015 as the comparison year in the table). Our western neighbor made it nicely to a high position, even though prices there already dropped slightly last year 
.
We spotted a property about 5 km from the center of our hometown, located in a truly magnificent rural landscape with stunning views and picturesque scenery. The price tag is about half the value of our current residential property.
The plot is roughly 10 times larger than our current one.
Our detached house went on sale ex-tempore. I suspect, however, that there won’t be a queue of buyers and changing our residence will remain a dream.
Worrisome news about the state of the economy is, I understand, already slowing down real estate transactions.
The photographer visited on Monday.
Great Inderes podcast on the topic! Thanks @Sauli_Vilen and @Jesse_Kinnunen. I was just wondering about the following scenario: Negative interest rates simultaneously increase the value of housing and reduce the number of rental residents. The former is a positive for housing funds, while the latter is negative. However, at present, we are in a situation where the impact of the former is significantly greater than the latter, so the net effect is positive for housing funds.
Question: Could it happen that the latter issue would grow, and rental apartments would start to sit empty, causing a negative spiral?
Yes, that’s how it goes nowadays. 5km is crucial! And the importance of kilometers grows exponentially as they increase: Helsinki 30m2 studio apartment in an old apartment building €200k; Jäminkipohja 24 x 30-50m2 apartment buildings (i.e. the entire apartment building!) €150!!!
Uncle Masse, FA, oh times, oh customs. Not funny at all
This urbanization is largely fueled by this absurd housing benefit system!
Over 2 billion in housing benefits annually… in the podcast, it was said that “we have a million homes in the wrong place.”
In my opinion, we have almost a million people in the wrong place (at others’ expense).
Housing loan interest deductions are being gradually phased out, and the same should be done for housing benefits, excluding students (conditional on completing studies on schedule).
Yeah, it’s quite strange that a large number of people (with self-earned income of 0 euros/year) can live in the best places in Helsinki (walking distance to Stockmann) completely for free, but if you start earning even a little, then off you go to a 60s suburban bunker à la GDR… And as a bonus, 200k€ of housing debt on your back just for a sweaty studio apartment.
Uncle Masse, FA, half of Finland march to Jäminkipohja 
It’s true that exclusion tends to accumulate. The housing benefit system partly supports the fact that there are no ghettos in Finland, for example. This way, the rich and the poor live in the same neighborhoods and buildings, which is only a positive thing.
Yeah, that too. But everything has its limits. A nurse coming to work in Helsinki should be able to afford to rent in Helsinki, even without any benefits. Now they can’t always – unless they become destitute and rely on the city.
Uncle Masse, FA, we used to get by on a salary without subsidies.
The table does not take regional differences into account. But with urbanization, in growth centers or Helsinki 001x0 either, will there be a bubble?
No, a working nurse doesn’t even get housing benefits. At least if the employment is according to the collective agreement. There is an income ceiling for housing benefits.
Exactly! Low pay and high rent, and no housing benefits. Just go to a “one-room owner-occupied apartment” in a DDR concrete suburb after a night shift. A deep bow to those who work so hard.
Uncle Masse, FA, relief awaits only if you surrender to the care of the city
Thanks for your feedback! Yes, I think it is likely that the demand for rental apartments in Finland would decrease if mortgage loans with a negative overall interest rate (margin + reference rate) were also available in Finland. However, it must be remembered that in Finland, banks are relatively cautious lenders, partly due to historical reasons, and they do not grant loans to just anyone. The Jyske Bank mortgage loan with a negative margin mentioned in the podcast works so that the loan still has to be amortized constantly and the bank still charges service fees for the loan. In practice, the debtor does not constantly receive money in their account from the bank, but the loan is repaid monthly by a slightly larger amount than what the mortgage debtor actually pays in amortizations.
Even if Finland were to move to mortgage loans with negative overall interest rates, Finnish banks would still carefully assess customers’ ability to manage their loans (the loan still has to be paid back), and in addition, Finland has a loan cap in place, which limits the granting of loans. Especially because of these, the demand for rental apartments would hardly radically collapse in this scenario. However, a decrease in rent levels could very well be seen.
Article on the subject.
I forgot to tell you how the sale of our own house went:
The detached property was on the market for 13 days when it was bought for the full price. During those 13 days, we received 6 offers, followed by the last one, the full-price offer.
Quite effortless and an easy ten grand for the real estate agent too.
That’s how the wheels turn.
