Jussi Halme has made a video about the construction industry
The construction industry contracted by a record 16% last year, and the decline continues this year. Residential construction has almost come to a standstill, and the situation does not look bright. How does this affect the Finnish economy and construction companies? And is now the time to invest in construction sector stocks on the Helsinki Stock Exchange, such as YIT, SRV, or Solwers?
In the video, I go through construction statistics, industry outlook, strategies of the largest companies, and investment opportunities and risks. We also consider how interest rates, construction costs, and the economic situation affect the markets. If you are interested in a more detailed analysis of YIT’s and SRV’s Q3 results or other companies’ shares, comment below!
It’s certainly an interesting curve.
At the level of a year or two, the difference can be understood, but a 15-year streak??
It would be nice to understand, as housing shortages have been discussed for a long time, except for these last two years. Well, now there’s no shortage, but it’s said there will be soon if new production doesn’t start. At least if the population grows due to immigration and urbanization continues
Weak GDP growth in Finland? Yes, real GDP has barely grown in 15 years
Expensive construction in Finland? Probably somewhat, e.g., heating. Construction costs have risen
Empty houses built in Finland? Not historically
High profitability of construction in Finland? Well, not particularly, I guess
The final stretch of rural-to-urban migration in Finland later than in the rest of Europe? Maybe, who knows?
Do Finland’s housing benefits attract and enable moving ‘at the company’s expense,’ i.e., the state’s expense, more than in Europe? Maybe, who knows
Has housing been tighter in Finland than elsewhere in Europe? Who knows
Of course, residential construction is only one part of construction; there’s also infrastructure construction and commercial property construction.
But I can’t really think why they would be offering any special boost to construction either…
Such a trend is on the rise in America, young people are increasingly living with their parents. I grabbed a screenshot from the video:
Finland and other Nordic countries still stand out quite a lot in this regard from the rest of the world, but I argue that this difference will diminish as housing prices rise and subsidies decrease. It will curb housing demand in the future if something is not done about housing costs. Young people’s wages are hardly rising(?)
Interesting table. It’s hard to see how the same trend wouldn’t increasingly appear here in the Nordics as living costs rise.
However, the significance of the trend for overall demand is difficult to assess, as at the same time there are many other positive trends concerning rental housing, e.g., rental housing is increasing its share as a form of housing, the number of people living alone is growing, and urbanization continues. A considerable number of new homes will be needed in the coming years, even if population growth is not taken into account.
In the long run, it’s concerning, as this type of development is unlikely to support an increase in birth rates. In the top five, over 70% of the population under 34 lives with their parents; I wonder what percentage of this group has grandchildren under the same roof…
The awaited turnaround is now a reality: Developers are waking up from their sleep
Construction is recovering. According to information gathered by Kauppalehti, at least YIT, T2H, and JM Suomi have recently started new self-developed residential apartment buildings.
The headline is pure click*bait and the article starts with some individual MP’s opinion piece, but it seems we’ve moved from ‘something needs to be done’ → to ‘let’s do something’!
“One of the bottlenecks in construction has long been the processing times for building permits. Now, with the Building Act, a much-needed change will be introduced, as a three-month processing time guarantee will be implemented.”
"Obtaining building permits is also being made easier by limiting the scope of information required to obtain a permit.
– In the future, building supervision can only request additional documents for a specifically justified reason. Also, removing the climate assessment and material statement requirement, mandated by the previous government, for small house builders saves effort and money.
The repair package, among other things, limits the right of appeal for museum authorities to only nationally and regionally significant sites. The right of ELY Centres to appeal is also restricted."
“– It is more sensible for those working in different agencies to influence projects during their preparation phase and preferably by seeking solutions, rather than appealing against the decisions of other officials afterwards, Heinonen explains.”
So building permits would be processed within reasonable timeframes in the future
Authorities couldn’t appeal each other’s decisions endlessly back and forth
Issues would be addressed in advance, not too late
Small houses wouldn’t need a “climate assessment”
Fresh morning statistics for the period September-November. So, not quite according to the orthodox quarter.
I am interested in following these building permit numbers, as they are early indicators that tell something about construction. And of course, the ratio of granted and completed cubic meters.
Unfortunately, no festive figures, as the numbers were already low in 2023, and now we didn’t even reach those. This certainly doesn’t surprise anyone following the industry. As can be seen from the charts, projects were applied for and permits were granted in early 2020 more than could be built, but since then, as the number of granted permits decreases, completed projects “eat into the permit reserve” so that the number of so-called pending permits decreases. Fortunately, even now, some previously postponed projects are emerging, and they are being started at a lower cost level.
It’s also good to note that the construction of right-of-occupancy apartments will end after this year. So now, during the downturn, ASO operators have built as many new properties as they could. I don’t remember exactly if it was that loan decisions must be obtained during the current year, after which no new right-of-occupancy projects will be initiated. Surely some new interim solution will come sooner or later, but before that, the construction sector will face more headwind from the cessation of right-of-occupancy construction.
Good point. And this is also a matter to be closely followed.
Specifically, the decisions made:
The Finnish government has decided to stop financing the construction of new right-of-occupancy (ASO) housing with state-guaranteed interest-subsidy loans. Applications for interest-subsidy loans for new ASO projects had to be submitted by 31.12.2023, and loans for these will be approved until the end of 2025. New construction will thus still take place during 2025 and 2026.
In addition, the government has decided that interest-subsidy authorizations will continue to be granted for renovations of ASO buildings to ensure the maintenance of existing buildings in the future.
The Ministry of the Environment has indeed launched a study to find a solution (an “intermediate model” for housing). The progress of the study can be followed here:
When considering general life experience, the most common reason to move out of home under the age of 20 is likely studying. With urbanization, this is no longer as necessary, as it’s more probable that one already lives in or near a locality with study opportunities. A more interesting statistic would be for those over 25, because at that point, many have already finished their studies.
Grim news continues, and sentiment in the construction sector has once again weakened.
“– The situation in the construction sector has taken a turn for the worse. Part of this downturn is due to the government, as taxation has tightened with cuts to the household deduction. The distress of housing funds also affects the situation, says SY’s CEO Mikael Pentikäinen.”
The household deduction is quite insignificant. It only affects small renovations in old apartments over 2 years old.
Other factors are bigger hindrances:
Property transfer taxes were raised for first-time homebuyers, meaning new owners don’t enter the beginning of the sales chains as easily.
Loan interest can no longer be deducted either. This affects the entire market, especially at a time when interest expenses are higher than rent.
Subsidies have been widely cut, which particularly affects the rental market. Rents have little room to rise unless tenants’ income levels start to increase.
Furthermore, the communication is predicting global destruction. A third world war is imminent. If there’s anything worth investing in, it’s a shotgun.
We won’t get out of this swamp for a long time, but surely the bottom will be reached within 2 years. Because sentiment cannot be endlessly pushed to the bottom.
JM doesn’t have its own thread, even though it seems to be one of the Nordic region’s highest quality property developers. According to the company, construction in the Nordic region bottomed out in 2024, but the industry’s challenges are structural. Cost levels are not decreasing after the inflation of recent years, but no significant increase in housing prices is expected either. This weighs on profitability, which needs an overhaul if the levels of previous years are ever to be achieved.
Addition. Based on the share price (both the longer term and today’s reaction to the results and outlook), investors are not pleased with this structural deterioration in the industry.
When will we dare to admit that for the “compact apartments” built in less desirable locations in growth centers, there will no longer be enough wealthy or foolish buyers at this price level?
Urban greed drives this. In a market economy, prices should adjust according to supply and demand, but it’s more convenient to seek tax revenue through land. In Helsinki, too, there’s a terrible rush to ruin all urban environments and cut down natural areas, so that as many more apartments as possible can be built and the population raised to a million.
They don’t want to lower prices, so the fine construction projects planned a few years ago are largely on hold, and at this rate, not many construction companies will be left to start building those apartments in a couple of years when demand begins to recover.
Wait, how is it greedy to zone for new apartments? Municipalities have a monopoly on zoning, so they can regulate the amount of building rights and thereby the potential supply of housing. Of course, the city is also a large landowner, so it benefits from the increase in value “created” by zoning, but if the alternative is not to zone enough, that’s a worse option and restricts supply.
(My own opinion is that green areas should be preserved more, and correspondingly, the square footage of buildable areas should be increased by building significantly taller buildings).
It’s not about all construction companies stubbornly refusing to lower prices. The cost of construction has risen significantly over the last five years, even though the sharpest peak in building material prices has come down a bit. At the same time, there’s a demand for housing prices to be at a discount store level. This doesn’t sound like a very attractive equation in an industry where profit margins haven’t been among the highest, even in good times.
I, for one, don’t believe in any Klaukkala phenomenon or migration occurring outside Ring Road III in the capital region.
People want to move to the city center or immediately close to it, preferably within reach of good transport connections.
The old wisdom regarding a home’s value and its development has been and always will be location, location, and location.
Now that interest rates are falling and purchasing power is improving, housing prices will start rising again very soon, and at the latest when things weighing on the general mood, such as the war in Ukraine, are brought to an end.
I still remember the early 1990s, when almost everyone was of the opinion that Finland and its housing market would never recover. Now we are in a situation where, at least in the Helsinki city center area, the square meter price of apartments is the same or more in euros than it was in the mid-1990s in Finnish marks.
There is little land for building in good locations, and no more will become available, so housing prices will only continue to rise in growth centers because of this, and even more so the more migration-positive the municipality in question is.
How could construction companies lower prices when they have hardly ever made a profit, as all benefits from new construction are extorted by the city? Even though city dwellers pay exorbitant prices for those apartments, the developer still gets nothing, so construction companies are completely innocent in the fact that construction is not profitable.
The purpose of zoning is to maximize the city’s revenue, not to create well-being for city dwellers or businesses. For example, in Helsinki, decision-makers have megalomaniac visions of massive new residential areas (such as the forced annexation of Itäsalmi to Helsinki), but at the same time, they don’t want to zone too many apartments at once, so that the highest possible price can be obtained for the plots. When these two mindsets collide, an area is often just messed up, and then watched from the sidelines as apartments are built there at such a slow pace that essential services for residents cannot emerge.
For the same reason, the city’s own companies prefer to pay huge dividends rather than lower prices, which would enable cheaper services for city dwellers and improve their well-being at the city’s expense. The city should lower its return expectations to get construction started again and keep housing prices at a more reasonable level.
