Finland's Housing Market : Reducing Risks and Improving Policies

While pronounced cycles in house prices have been a major cause of macroeconomic instability in the past, current house price developments do not yet suggest an overheating of the housing market. However, several important concerns are related to both direct effects of housing markets on overall activity and to more structural and regional issues. A factor making housing markets and the macro economy vulnerable to interestrate shocks is the high share of mortgage loans linked to variable interest rates. Tax subsidies to housing may largely be capitalised in higher land prices rather than increasing housing availability to the extent that slow planning procedures and municipalities' unwillingness to provide building land have limited the growth of the housing stock in growth regions. This would argue for improving municipalities' incentives to provide building land, speeding up planning procedures and a phased removal of the tax advantage associated with housing. Furthermore, the provision of social housing and the housing allowance system should be better targeted on those most in need of affordable housing.