Big cities in Finland are growing even as the countryside empties – at least we pay our mortgages (unlike the Swedes)

Jätkäsaari, Helsinki, Finland.
Reading time: 3 minutes

Finland’s capital city Helsinki attracts more than just tourists. Don’t get me wrong: tourists are great and without them, we would not have anyone to brag to about Finnish sauna or our achievements in ice hockey. Jokes aside. The metropolitan area of Helsinki, which includes Espoo and Vantaa, has around 1.5 million inhabitants. In Helsinki city alone, there are 650,000 people, and the number is growing. Pressure on Finland’s real estate market is mounting.

Helsinki Finland Apartments
Jätkäsaari, Helsinki, Finland.

Real estate market in Finland

Finland’s real estate market is a double-edged sword. Big cities (especially those with universities) are growing as the countryside empties. However, house prices grew in only three major city regions last year: Helsinki, Turku and Tampere. These are all cities located in Finland’s south. House prices in Helsinki are expected to rise by 2% in 2019 and by 1.5% in 2020. At the same time, half of the homes in Finland depreciated in value.

Housing real estate Helsinki Finland
Jätkäsaari, Helsinki, Finland.

Urbanization is a global trend and Finland is no exception. As the country’s fertility rate falls to an all-time low, Finns don’t need that big house with a big yard by the lake anymore.

Instead, nowadays many Finns, especially younger people, appreciate a good location close to the city centre. Owning a car is seen as an unnecessary option for many. Why pay for a car when you can use great public transport or pure muscle energy to commute while at the same time you are saving the planet? That would be a great question to ask of Americans!

Not everyone in Finland is happy with this kind of development. The Centre Party of Finland (in Finnish: Keskusta) supports agrarianism. They would like to “keep the whole Finland alive” by supporting rural areas so that people would have work options and services outside of big cities. However, Keskusta suffered a great loss in Finland’s last parliamentary elections (2019). Urbanization is not the only reason for the loss, but it definitely played a role.

Real estate market in other Nordic Countries

Finland is a Nordic country, and we like to compare ourselves to other Nordic countries, especially Sweden, our brother and great rival. Nordic countries are similar in many ways (Not discussing the Finnish language here…), but there are also some differences.

In Sweden, housing prices have gone through the roof, especially in the capital city, Stockholm. There were definitely signs of a housing bubble: house prices went up by 44% in the past 6 years. However, compared to 2018 Q1, house prices in Sweden went down by 2.09% in 2019 Q1.

From the two-year-old graph above we can see that house prices have stayed stagnant in Finland during the last 5 years. In Denmark, Norway and especially Sweden, house prices have risen a lot. One reason why Finland has not been able to keep up with its Nordic neighbours is that the economic situation in Finland was quite bad after the 2008 global financial crisis and the following European debt crisis. After 2011, Finland recovered very slowly from these crises compared to rest of the world. Finally after 2015, the economy of Finland started to recover.

Punavuori, Helsinki, Finland.

Nordic countries have different mortgage loan policies

There is one big reason why the house prices surged so much in Sweden before 2019. Sweden has a totally different mortgage system compared to Finland. In Finland, the longest mortgage term is now 45 years. However, mortgages longer than 30-years are rare in Finland. In Sweden, the longest mortgage term is 125 years! That is a huge difference and is the biggest reason why house prices are out of control especially in Sweden’s big cities.

Stockholm Sweden Real Estate New Housing
‎⁨Hammarbyhamnen⁩, ⁨Stockholm⁩, ⁨Sweden⁩.

Swedes do not necessarily pay the loan payments of their mortgages, because their mortgage policies and laws allow that. Instead, they might only pay the loan’s interest. This allows them to spend and invest more money, but it can (and probably will) lead to a housing bubble burst some day. Norway and Denmark are in the middle: people in these countries don’t pay their mortgages as fast as in Finland, but definitely faster than in Sweden.

Joonas Saloranta covers Northern Europe investing, macroeconomics and more at the Financial Nordic blog.

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