Friday, 2 February 2007

Themes - Housing (First Draft)

The population of Greater Helsinki is expected to grow from a figure of 1.3 million today to over 2 million in the 50 years time. An additional 70 million square metres of residential development are expected to be needed to meet the demands of this enlarged population. If this additional housing is to be developed in a sustainable manner a number of existing challenges need to be met.

Efforts to improve the housing of workers in Helsinki began during the nineteenth century. After World War II significant measures were taken to subsidize housing through what is known as the Arava legislation. These laws came into force in 1953 and became the basis of a housing policy that helped foster the surge in construction that followed over the next two decades and beyond. This boom in construction has meant that the majority of homes in the region are relatively modern. By the 1980s about 75% of residential dwellings in the city had been constructed since the Second World War.

Population movements during the first half of the 1970s saw a rapid growth in residential construction in the region, when as many as 70,000 dwellings were built in a single year. By the first half of the 1980s this figure had dropped to 48,000 units. Additionally, the type of dwellings being built had changed. During the 1960s and 70s about two-thirds of new dwellings were apartments, and a third houses. By 1980 this ratio had reversed and much of the construction work involved the renovation and refurbishment of existing buildings. Migration into the region continued in the latter half of the 1990s with population growth in the metropolitan area running at 1.5% per annum, compared to an average of 0.5% for other European metropolitan areas.

In 2004 there were 42 million square metres of residential floor area in the Greater Helsinki Area. Two thirds of the housing stock was in blocks of flats, half were owner-occupied and 40% were rented. The various municipalities show a marked difference in the make-up of their residential building stock, with a concentration of flats in Helsinki and large numbers of detached houses in the more affluent suburbs. There are around 300,000 dwellings in the City of Helsinki and a further 300,000 in the wider region. The majority (86%) of homes in the city are in blocks of flats. The size of dwellings in the region is relatively small. In 2004 the average was around 34 square metres/person, this figure having doubled since the 1960s. The average size of dwellings in the city is 62m2.

Since the 1970s housing policy has been based on a concept of social integration, with special attention having been paid to the spatial dispersion of ethnic minorities. The idea has been to avoid the formation of disadvantaged enclaves and deprived neighbourhoods. To a large degree these policies have been successful, making Helsinki one of few European cities without neighbourhoods with concentrations of poverty. However, in recent years the situation has begun to decline and an east/west divide has started to develop.

The private sector housing market in Finland has been prone to instability since the 1980s. House price fluctuations have been greatest in the Helsinki region, due to the strength of the local economy and the effect of inward migration. A boom occurred in the years 1987 & 1988, with real house prices rising by over 50% followed by 3 years of heavy falls, when almost all of the preceding gains were lost and thousands of households were exposed to negative equity. One of the main factors that contributed to this house price bubble was the deregulation of the Finnish banking sector. Before deregulation, interest rates on home loans had been rationed and kept at low levels which, together with generous tax relief, often lead to negative interest rates. When the banking system was deregulated loan to value ratios increased, sometimes to 100%, and repayment periods doubled to between 12 and 15 years. Pent up demand was released and prices soared.

Another gentler but more sustained period of house price growth took place between 1996 and 1999, when real house prices again rose by 50%. It is generally believed that these increases were brought about by a growth in real disposable incomes, at the same time as a fall in real interest rates. In recent years prices have levelled out and remained stable. Although loan subsidies have been reduced, owner-occupied housing still has a favoured position within the Finnish taxation system. Interest rates for the purchase of new homes are amongst the lowest in Europe. The government operates a mortgage guarantee scheme which covered 25% of new loans in 2004.

The Finnish rental market was regulated until 1995. Government control over rents controls often meant that their real rates were continuously falling and consequently supply was restricted. Since deregulation rents have risen considerably along with the supply of rented accommodation.

Public housing in Helsinki has an international reputation for its attractive design and its mix of tenures. In Helsinki 18% of dwellings are owned by the state, with rents set below the market rate. The City of Helsinki owns 55,000 residential properties which are home to 100,000 of its inhabitants. There is no upper income limit for public housing in Finland although it is assigned on the basis of need. Nearly three-quarters of Finland’s population are eligible for social housing programmes and even relatively high income earners live in government subsidized housing. While public housing is in physically good repair there are increasing problems with vandalism, crime and property repair. If these issues are not adequately addressed there is a danger that those tenants with greater mobility i.e. the better educated and those with higher earnings will move out, leaving public housing as a last resort for those with no other option. Something the region has strategically avoided until now. Although public housing and socially equality are in decline, compared to many other European cities, it is still at an early stage.

Recently, the City of Helsinki has been aiming to increase the total housing stock by 3,500 units a year. Since 1997 an average of 3,000 dwellings have been built per annum, and since 2003 this figure has been around 3,500: in line with the city’s targets. 23 public housing corporations account for a third of the total number of new homes built each year. Current spatial policy results in most new housing production being met in existing urban areas, tending to be concentrated on major development sites of between 2,500 and 10,000 homes, quite often on former industrial sites. These large developments are often controversial with local residents as their scale is likely to greatly affect the existing character of an area. Municipal authorities produce detailed plans for new developments which are tendered on a combination of price and quality to private sector developers.

Around half of Finnish income tax is collected locally by the municipalities and is used to fund the provision of local services and infrastructural investment within the individual municipalities, as opposed to them being funded centrally. The result of this is that individual municipalities compete for high income (high tax paying) residents, with housing and other services for lower income earners being put under pressure. Property taxation was introduced in 1993 with municipalities able to levy property taxes at rates between 0.22% and 0.5%. These only account for 2% of the municipalities’ total income compared with the 50% generated from local income tax.

One of the major issues concerning housing in the Greater Helsinki area is the imbalance between supply and demand, with a lack of development sites resulting in an upwards pressure on house prices. Compared with the rest of the country, prices of homes in the region are as much as double and rents one and a half times as much. For historical reasons, the municipalities own a large proportion of the land within their borders. This is particularly the case in Helsinki where around 70% is owned by the city. The municipalities are able to exercise a large degree of control over housing production through their direct influence on the housing corporations and their release of development sites in their ownership.

The general shortage of sites in the regions may partly reflect the municipalities’ disincentives to provide sites for new housing, as they are responsible for financing expensive infrastructure required to support population growth. The current system causes municipalities to balance the gain from tax income against the added cost of new infrastructure and services. They are disincentivised to release land for social housing schemes because of the resulting imbalance between tax income and the cost of services. Another factor restricting the supply of new housing is the lengthy and bureaucratic planning procedure.

In Helsinki the city regulates the price and quality of owner occupied buildings by what is known as the HITAS system. In using the system the city aims to provide affordable housing for middle income groups. Around 500 Hitas homes are built on leasehold sites owned by the city every year. The system helps to regulate housing construction and ensures that the price of new homes correspond to their actual build cost. The resale price of Hitas homes are also regulated as part of the system. The city works with a number of major developers in the application of the system.

Population density in the region is very low considering its metropolitan status. In Helsinki there are 3,000 inhabitants per square kilometre which, compared to other European cities, is quite spacious: Dublin 4,300/km2; London 4,700/km2; Amsterdam 4,500/km2; Barcelona 15,700/km2; Paris 25,000/km2. For the whole region the population density is a sparse 415 inhabitants per square kilometre.

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