The Finnish housing market is poised for a revival in 2024, according to the latest forecast from the Pellervo Economic Research Institute (PTT). After a period of stagnation, the market is expected to see an uptick in activity and a modest increase in the prices of old condominiums by 0.5 percent nationwide, although regional variations will be significant. The growth in rents, particularly for state-subsidized (ARA) apartments, is set to accelerate, driven by increasing immigration that boosts demand for rental housing in major cities.

PTT emphasizes the need for more ambitious efforts to combat segregation through diversified housing policies and ensuring quality education across all areas.

"As we emerge from a deep trough, housing prices are beginning to climb, supported by falling interest rates and positive developments in household incomes, which energize home buying plans," explains PTT economist Veera Holappa.

Despite a plentiful housing supply curbing price surges, especially in the capital region where investors' retreat from the market dampens price recovery, investment demand is expected to bounce back with declining interest rates, albeit not to previous levels.

Price growth could outpace expectations if households' pent-up demand for home purchases and changes accelerates. Conversely, the broader economic malaise and unemployment uncertainties could maintain a cautious stance among households, potentially weakening price growth.

Varied City Housing Markets

Housing price trajectories are set to diverge significantly among Finland's largest cities. In 2024, Espoo will see a 1.7 percent increase in housing prices, Helsinki will see no change, and Vantaa will experience a 1.1 percent decline. The supply of new apartments in the capital region is decreasing, which is expected to lift prices within the year, although Vantaa faces downward pressure due to weak demand for owner-occupied homes.

Tampere's housing market remains robust, fueled by significant population growth and a corresponding surge in housing demand, predicting a 2.1 percent price increase. Conversely, Oulu's housing prices are forecasted to continue their decline by 2.0 percent this year, due in part to a strong performance last year, making a positive annual growth unlikely.

Rental Market Dynamics

The growing population in large cities, largely driven by immigration, is spurring demand for rental housing. However, an abundant supply is tempering rent increases in the early part of the year. Landlords are still unable to implement rent hikes that match rising costs. Free-market rents are projected to rise by 2 percent this year, with increases accelerating towards the year's end.

ARA rents are set to rise by an average of 5 percent, significantly outpacing free-market rents due to the need to adjust rents in line with increased costs according to cost-based pricing. This repeats the unusual situation experienced last year where ARA rents increased more than free-market rents.

Combating Segregation

With immigration to Finland on the rise, concerns about segregation - the separation of different social groups into distinct neighborhoods - are growing. Although Finland does not experience segregation as intensely as some major European cities, immediate action is needed.

"Policy makers must find effective ways to mitigate segregation. Housing policy is not the only tool available, but failure in this area complicates other measures. If segregation advances in some areas, reversing it becomes increasingly difficult," says CEO Markus Lahtinen.

Housing policy should promote affordable and diverse housing options across areas, blending ownership, rental, and social housing. This can be achieved through urban planning and zoning, for example, by building housing suitable for both low- and high-income individuals in the same area.

"Ensuring equal and high-quality education across all areas is crucial. Schools should cater to the needs of different social groups and secure resources for quality teaching. Employment opportunities in areas must be developed to make them broadly attractive, and comprehensive public transport facilitates movement between areas," Lahtinen adds.

The regional housing market forecast is available on PTT's website, funded by the Ministry of the Environment, the Association of Finnish Local and Regional Authorities, ARA, Rakli, the Construction Industry, and the Real Estate Federation.