BUILDING AFFORDABLE HOMES Challenges and solutions in the Nordic Region

Edited by Moa Tunström NORDREGIO REPORT 2020:2

nordregio report 2020:2 1

BUILDING AFFORDABLE HOMES Challenges and solutions in the Nordic Region

Edited by Moa Tunström

NORDREGIO REPORT 2020:2 Building affordable homes Challenges and solutions in the Nordic Region Nordregio Report 2020:2

ISBN (print) 978-91-87295-83-6 ISBN (pdf) 978-91-87295-85-0 ISSN 1403-2503 DOI: doi.org/10.6027/R2020:2.1403-2503

© Nordregio 2020

Nordregio P.O. Box 1658 SE-111 86 Stockholm, Sweden [email protected] www.nordregio.org www.norden.org

Editor: Moa Tunström Contributors: Curt Liliegreen, Antti Kurvinen, Jón Rúnar Sveinsson, Berit Irene Nordahl, Anna Granath Hansson

Cover photo: Brandon Griggs/Unsplash

Nordregio is a leading Nordic and European research centre for regional development and planning, established by the Nordic Council of Ministers in 1997. We conduct solution-oriented and applied research, addressing current issues from both a research perspective and the viewpoint of policymakers and practitioners. Operating at the international, national, regional and local levels, Nordregio’s research covers a wide geographic scope, with an emphasis on the Nordic and Baltic Sea Regions, Europe and the Arctic.

The Nordic co-operation Nordic co-operation is one of the world’s most extensive forms of regional collaboration, involving Denmark, Finland, Iceland, Norway, Sweden, and the Faroe Islands, Greenland, and Åland. Nordic co-operation has firm traditions in politics, the economy, and culture. It plays an important role in European and international collaboration, and aims at creating a strong Nordic community in a strong Europe. Nordic co-operation seeks to safeguard Nordic and regional interests and principles in the global community. Common Nordic values help the region solidify its position as one of the world’s most innovative and competitive.

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The Nordic Council is a forum for co-operation between the Nordic parliaments and governments. The Council consists of 87 parliamentarians from the Nordic countries. The Nordic Council takes policy initiative s and monitors Nordic co-operation. Founded in 1952.

Stockholm, Sweden, 2020 Table of contents

Preface...... 6

Why does the contemporary Nordic welfare state lack affordable housing? Moa Tunström, Nordregio...... 7

Housing construction in the market periphery – Denmark Curt Liliegreen, The Knowledge Centre for Housing Economics...... 13

Housing construction in the polarized Finnish housing market Antti Kurvinen, Tampere University...... 23

Assisted Housing in Iceland Before and After the Crash of 2008 Jón Rúnar Sveinsson, The Reykjavík Academy...... 47

Newbuilds and households in the market periphery – Norwegian housing and planning policy at a glance Berit Irene Nordahl, Urban and regional research institute OsloMet – Oslo Metropolitan University...... 59

Sweden: How could new-build be made affordable to lower-income groups? Anna Granath Hansson, KTH Royal Institute of Technology...... 71

nordregio report 2020:2 5 Preface

As part of the Nordic Co-operation Programme This report is the result of work done for the for Regional Development and Planning 2017– thematic group Sustainable Cities and Urban De- 2020, three Nordic thematic groups have been es- velopment. The group focuses on: 1) social sus- tablished in the following areas: tainability and gender equality; 2) spatial plan- ning; 3) urban qualities in small and medium-sized 1. Sustainable rural development cities, and the urban-rural relationship; and 4) the 2. Innovative and resilient regions growth and development of Arctic cities. Within 3. Sustainable cities and urban development these broad themes the group decides what ac- tivities to conduct, and the researchers involved The groups have been set up by the Nordic Commit- are responsible for the results. tee of Senior Officials for Regional Policy (EK-R), The topic of this specific report, affordable under the Nordic Council of Ministers for Sustain- housing, is an issue that is high on the Nordic agenda, able Growth, and the members are representatives and one where there is potential for Nordic learning. of relevant ministries, national authorities, regional authorities and cross-border co-operation commit- tees. One purpose of the thematic groups is to im- plement the co-operation programme by contrib- uting to the exchange of knowledge and experience between regional policy stakeholders, by promoting Kristian Elleby Sundquist Nordic perspectives and by highlighting the impor- chair of the Nordic thematic group tance of regional policy issues for sustainable devel- Sustainable Cities and Urban Development opment and growth.

nordregio report 2020:2 6 Why does the contemporary Nordic welfare state lack affordable housing?

Moa Tunström Nordregio

nordregio report 2020:2 7 An in-depth study of Nordic housing policy devel- mon policy model, or that everyone should learn opment (Bengtsson 2013), whose title translated the same thing. It may imply, for example, that to English reads “Why so different?”, makes clear the Norwegian policy model could find inspiration that housing policies vary between the Nordic from the Danish system, or that Swedish hous- countries. Despite the common understanding ing policy could draw on the Finnish experience. that a Nordic welfare model was developed during Since housing policy and housing construction are the 1900s under political systems with many com- largely local responsibilities, some chapters also monalities, e.g. the central role of the local level in report local examples that may serve as inspira- urban planning, there are important differences in tion for municipalities, developers, or NGOs across housing policy strategies. In the study, Bengtsson the Nordic region. (2013) calls these differences an unsolved mys- The focus of this publication is primarily on new tery. Conceptual confusion is common in housing building for low-income and vulnerable groups, of- policy comparisons, and this is indeed the case in ten referred to in English as ‘affordable housing’, the Nordic context. The Nordic countries do not that is, housing for groups on the market’s periph- agree on the meaning of the concept of public or ery who suffer from high barriers. The financial as- social housing, they do not agree on the role of lo- pects of housing are central, especially as regards cal government in housing provision, and there are new-building costs, subsidies, social housing mod- forms of tenure with similar names but quite dif- els, and affordability. Nordic cities are segregated, ferent implications for residents, developers, and and new housing development, application of di- local governments. This means that a Nordic dis- verse forms of tenure, and housing subsidies are cussion of housing policy can be challenging. How- examples of tools that can either worsen or reduce ever, housing affordability is an issue in all Nordic segregation, depending on how they are used. The countries, as is a mismatch between the need for market seems unable, on its own, to supply enough housing and its current or anticipated availability. suitable housing for students, young people, low- Another commonality ian the Nordic region is a income groups, and newly arrived immigrants, strong housing ownership norm. Housing is con- among others. This is of political interest since it sidered a private commodity and an investment, challenges the whole idea of the Nordic welfare to a large extent, at the same time as it is a right. model, and of social cohesion and equality as char- This presents Nordic municipalities, which seek to acteristics of the Nordic region. strengthen social – inclusion, with challenges when Nordregio invited knowledgeable scholars from trying to regulate – or not – the availability and the Nordic countries to share their perspectives. appropriate location of housing. More specifically, they were asked to describe: The immediate reason for this report, and for inviting scholars knowledgeable about housing 1) the ‘market periphery’, i.e. the groups that are policy to give their perspectives on housing for the victims of high barriers to the urban housing mar- ‘market periphery’ – or affordable housing as it is ket, and often termed – is to address a recurrent question 2) current policy and/or planning initiatives aiming in the urban planning debate: Why is new-build to strengthen the position of low-income and vul- housing always too costly for the groups that re- nerable groups in the housing market: What is be- ally need it? Urban planning for social sustainabil- ing done to increase the supply of affordable hous- ity by, for example, mixing functions, increasing ing, or to support vulnerable groups in the housing density, and providing attractive public spaces, market? appears insufficient. What then is the condition of the Nordic welfare state if it can only provide new The contributors have drawn on their own ex- housing for the wealthiest? Another reason for pertise and their own and others’ prior research. this report is that Nordregio, as an institution, and They have focused primarily on national housing the Nordic Thematic Group on Sustainable Cities affordability policy initiatives and the role of dif- and Urban Development, as part of the Nordic ferent funding models, but also mention local ex- co-operation, would like to contribute to learning amples and ‘experiments’. The primary focus is on across countries and their various policy models. the urban context, where there is a lack of housing, Such Nordic learning, or Nordic added value, does pressure to build, and a crowded market, even for not imply that everyone should agree on a com- those who can afford to be there. nordregio report 2020:2 8 In her contribution covering the situation in Curt Liliegreen emphasizes that Denmark still Sweden, Anna Granath Hansson points out that has a significant stock of good-quality affordable recent policy and debate have focused on new- housing, but that there are some development build and supply-enhancing measures, rather than trends that threaten its accessibility and afford- on what to do with existing housing or on influen­ ability, and thereby threaten to gentrify Danish cing demand. However, the high costs involved in cities and force economically vulnerable groups new buildings, putting them basically out of reach to move outside the major cities. This would not of lower-income groups, mean that affordability is only affect the vulnerable, but also long-term ur- gaining increasing attention. Increasing the hous- ban and regional development more broadly. First, ing stock is apparently not sufficient in the current Liliegreen mentions mismatch and the effects of situation. Investment subsidies have been intro- urbanization as a housing market challenge. The duced, serial housing production is being promot- mismatch is particularly visible in university cit- ed by the state, and land models for affordable ies where there is a lack of, and high demand for, housing are being tested. There is also small-scale small and affordable housing. Second, there is a experimentation with co-operative solutions and low vacancy rate in social housing in major Dan- rent-to-buy schemes. The effects of these initia- ish cities, and the social housing is concentrated tives, however, remain local and limited. in certain urban areas – a precondition for spatial Granath Hansson also reports that direct al- segregation. In turn, refugees and immigrants are locations to specific groups and temporary rental concentrated in the social housing, creating both contracts are increasing, and that the somewhat a socio-economic and ethnic segregation. Third, changing approach to the concept of social hous- housing affordability is affected by renovations, ing should be seen in this light. In the Swedish which raise rents. So, despite the existence of sev- housing policy debate, the concept of social hous- eral tenure forms, there are signs of segregation ing has been, for a long period, very controversial and an affordability crisis in Danish cities. and associated with low quality and segregation. Among the strategies applied to increase the In addition, there are now proposals and practices supply of housing, Liliegreen mentions attracting in Swedish municipalities that could be referred to more private investors, increasing the industriali- as a type of residual ‘social housing’. Obviously, the zation of the building process, and use of the Plan- market cannot secure housing for all in Sweden. ning Act to secure the production of social hous- Several of the contributions in this report in- ing. Other proposals are directed toward easing dicate that high barriers to the housing market demand, e.g. to restrict Airbnb renting. These ex- negatively influence urban development and at- amples of proposed, and implemented, strategies tractiveness by reducing access to employment illustrate the political nature of the issue – some and education and by increasing segregation and actors suggest more regulations and some fewer, gentrification. Cities with a lack of available and some suggest regulating supply, and some regu- affordable housing risk becoming unattractive to lating demand. There is simply no unified position new residents. Students might seek another uni- here, although in Denmark there is perhaps less fo- versity, and potential employees might be reluc- cus on providing subsidies to tenants. tant to accept an offered position because of the In her contribution concerning Norway, Berit challenge in finding housing; they may choose to Irene Nordahl argues that municipalities lack the settle somewhere else or be unable to enter the power to create a socially sustainable housing labour market. A city with available housing for situation. Because the Norwegian housing market different income groups allows individuals and is so heavily dominated by ownership, municipal groups of different socio-economic backgrounds, housing is only a marginal phenomenon. Rental ages, income levels, and places of birth to access tenure is considered a temporary solution in Nor- higher education or employment opportunities way and this, in turn, means tenure-form policy is in the city. While social inclusion has value on its currently not an issue. The market creates segre- own, this also allows people in those low to mid- gation through price variations and, following the dle income professions that are necessary in cit- Norwegian Planning and Building Act, the munici- ies, to reside there. The question remains however: palities cannot reduce the effects of the market Should housing primarily be accessed in a buyers’ by specifying financial models or forms of tenure market, or distributed with rental tenure? when planning for new housing. In some cases, nordregio report 2020:2 9 according to Nordahl, the market raises barriers homes, credit institutions have become powerful not only for the most vulnerable groups, but also landlords, Airbnb renting to tourists is crowding for the relatively stronger ‘middle bracket’. Re- out residents, and work immigrants are residing in acting to this problem, the city of Oslo currently spaces not designated as housing. emphasizes the necessity of integrating both mu- Finland is increasingly polarized between grow- nicipal housing and housing tailored to low-income ing and declining regions and this affects housing households that are just over the income limit for markets. While similar changes are occurring in assistance, in new developments. It is apparent the other Nordic countries, because of urbaniza- that not only the usual vulnerable groups are be- tion and slow population growth, the phenomenon coming important in policy discussions, and that is particularly strong in Finland where migration is there are local responses to the lack of influence concentrated in just a few urban growth centres through the Planning and Building Act. with high housing prices. As a result, low- and even As the Planning and Building Act is a weak tool middle-income households find it hard to settle in in Norway, the options for more inclusive hous- these growth areas. At the same time, many mu- ing are housing allowances, a very small supply of nicipalities are facing both population reduction means-tested municipal housing, and – perhaps and population ageing and, as a result, a declining most importantly – assisted purchasing schemes housing market. In his contribution on the Finnish via the Norwegian State Housing Bank. This kind situation, Antti Kurvinen discusses the complex- of financing body, supporting both households and ity, when aiming for an inclusive city, of choosing developers, is of central importance in a situation between providing subsidies to tenants and pro- so dominated by ownership. ducing subsidized housing. In general, the trend Jón Rúnar Sveinsson starts out by calling Iceland, in Finland has been towards more tenant-based with its very strong ownership tradition and only subsidies, while place-based production subsidies a marginal rental sector, a Nordic outlier in hous- have decreased. However, there are contrasting ing policy. In this sense, however, it is like Norway studies and opinions, with some proponents push- and, as in Norway, the state agency responsible ing for more state-subsidized housing. This fur- for housing finance has a key role. On the other ther complicates the quest for ‘affordability’. How hand, Iceland is a small country and therefore is is affordability to be achieved primarily – through very sensitive to global development trends. It was housing production or through policy measures heavily hit by the 2008 financial crisis and this has directed to households? Kurvinen concludes that influenced the current housing policy situation. production of subsidized housing should be used Initially housing prices fell, while household debts primarily to reduce the effects of economic down- and unemployment increased drastically. This turn and be directed to those who cannot other­ meant that people lost their homes and that the wise find a home on the private market. This rental sector became more important. These dras- points to an important role for production subsi- tic events raised questions about the ownership dies in locations where regular privately funded norm and led to increased political activism about housing production would not otherwise meet de- housing. There were protests about evictions, new mand, particularly for groups with special needs. landlords were criticized for raising rents, and a According to Kurvinen, the most effective tool for Homes’ Association and a Tenants’ Association inclusion would probably be measures directed to were formed. improvement of the employment situation, mak- Sveinsson’s contribution portrays Iceland as a ing it possible for households to meet housing fragile welfare state, peripheral but at the same costs themselves, coupled with infrastructure and time intimately connected – and sensitive – to transport measures that reduce the pressure on international developmental trends. It is in tran- attractive areas. sition from a country where, historically, there This report began with the premise that plan- has been affordable housing available and rental ning officials, seeking to plan and build inclusive housing, for selected vulnerable groups, has been a cities, need to understand more about the costs means-tested form of tenure alongside the strong and financing aspects of housing construction. All ownership norm. It is now a country in which es- the contributions have shown, however, that the tablished households have experienced losing their housing market situation is intimately connected to

nordregio report 2020:2 10 broader trends and planning practices. It is fitting, therefore, to close this introduction by remarking that the initial focus on costs and financing aspects has revealed that specific urban planning needs and strategies must also be considered.

References Bengtsson, B. (ed.) 2013. Varför så olika?: nordisk bostadspolitik i jämförande historiskt ljus. Malmö: Égalité.

nordregio report 2020:2 11

Housing construction in the market periphery – Denmark

Curt Liliegreen The Knowledge Centre for Housing Economics

nordregio report 2020:2 13 Background – housing stock in were demolished and not replaced as a result of Denmark urban renewal, especially in Copenhagen in the What is the housing situation in Denmark for those period 1985–2005. A number of small apartments on the periphery of the market – such as students, were also merged, particularly during Copenha- the elderly, immigrants and other economically gen’s urban renewal period. It was commonly un- vulnerable groups? In order to assess the situation derstood that Copenhagen had an excess number for these groups it is necessary to look at the sup- of older, small apartments that had to be merged ply and affordability of adequate homes. to make ones that suited modern needs. Lately, the In Denmark, affordable housing has tradition- appearance of Airbnb in Copenhagen has removed ally been provided by a relatively large social hous- from the market rooms that used to be rented to ing sector and one of the most strictly regulated students. Instead, owners are renting out whole private rented sectors in Europe (Whitehead, apartments for shorter timespans. In this way 2012). In addition, cooperative housing in Denmark they are earning the same, or even more, than be- is also still highly regulated, and cooperative dwell- fore. Airbnb is now spreading rapidly across the ings do not sell for anything like a full market price, rest of the country. All in all, there remains a high especially in Copenhagen.1 Until recently this has demand for small and cheap apartments in Den- provided Danish cities with a large stock of afford- mark’s cities. able housing. In 2019, social housing amounted to Immigrants and their descendants, especially 21% of total stock, while private rental housing those from non-western countries, mostly live in amounted to another 18% (Statistics Denmark, social housing. An important reason for this has 2019). However, urbanisation and an ageing popu- been Danish legislation regarding refugees. When lation, along with rising prices for owner-occupied refugees arrive in Denmark, they are distributed housing, has begun to alter the situation in the between the different municipalities by the Minis- country’s major cities. There are large differences try of Immigration and Integration. Municipalities between the housing stock in the major Danish cit- used to have a legal obligation to secure each ref- ies in terms of types of tenure (See Figure 1). ugee permanent accommodation, in accordance Denmark does not operate with an official with the Integration Act. In order to do so each definition of affordable housing. However, rele- municipality would use its right to assign tenants vant data can be found in the EU-SILC indicators to the social housing sector. A municipality may, (European Union Statistics on Income and Living according to the law, use up to 25% of the apart- Conditions), an analytical instrument aimed at ments in its social housing sector for social pur- creating comparable, multidimensional microda- poses, and this also includes housing refugees and ta for income, poverty, social exclusion and living immigrants on low incomes. It was possible for a conditions. The EU-SILC indicators include data on municipality to use more than 25% of apartments housing costs in Denmark and the other Scandi- for such purposes, provided that agreements can navian countries, subdivided into cities, towns and be reached with housing associations. This legisla- rural areas. It shows that 21.2% of the households tion was changed in 2019. Municipalities now have in Danish cities spent more than 40% of their an obligation to secure temporary accommoda- disposable income on housing in 2018, compared tion, not somewhere permanent to live. with 14.9% in Norway, 10.1% in Sweden and 5.4% Because social housing is not evenly distribut- in Finland. ed between municipalities, there is a certain level More and more young people are now going of segregation between those of different ethnici- into higher education, and this is putting pressure ties and socioeconomic backgrounds. Also, there is on affordable housing for students in the larger a tendency to concentrate social housing in par- university cities (primarily Copenhagen, Aarhus, ticular areas within the individual municipalities. Aalborg and Odense, although smaller university The more vulnerable tenants are concentrated departments are located in other cities, too). At in clusters in the major cities. Over the past few the same, time many small and cheap apartments years the degree of segregation has been declin- ing in the largest cities, Copenhagen and Aarhus (Hansen, 2019). 1 Cooperative housing is called andelsbolig in Danish. It can The government operates what is known as be compared to the Swedish bostadsrätt, before these were deregulated in 1968. a ‘ghetto list’ which defines some social housing nordregio report 2020:2 14 100% 2168 5516 1777 Other 20023 1677 984 3755 4870 2960 4511 Public authorities 90% 6916 Cooperative 24914 80% Social housing 96762 45353 Private rented 70% 28545 Owner-occupied

60%

25265 50% 59977 40120

40%

30% 62800 24171 20% 39485 57217

10% 55693

4402 0% Copenhagen Odense Aarhus Aalborg

Figure 1. Housing stock distributed by tenure i major municipalities in Denmark 2018. Source: Statistics Denmark, table BOL101.

areas as ‘ghettos’, reflecting a high level of seg- building private housing, or by converting family regation. Before this they were simply called ‘vul- dwellings into social housing for the elderly or for nerable areas’).2 This list is based on indicators young people. Some tenants will have to be moved of ethnicity, income, labour market participation, to other areas within the municipalities, and it will education and the crime rate among the residents. be necessary to build new social housing. This will It is based on a political viewpoint, rather than inevitably lead to rent increases for these families, on a scientific analysis of the segregated areas. since the annual rent in new-build social housing is Many of these areas were built in the 1960s, 1970s DKK 1,200 per m2, while the corresponding average or 1980s and have low rents. The problem here is for family dwellings across all social housing was not affordability, but the difficulty of being a seg- DKK 811 in 2019 (The National Building Fund, 2019). regated area with poor integration. In May 2019, An analysis of segregation in Danish social the former government and the major opposition housing for the period from 1986 to 2017 can be parties concluded a so-called ‘ghetto agreement’.3 found in Hansen (2019). This analysis is based on Under this agreement, DKK 10 billion will be used microdata for each tenant and each dwelling in the for renovation and urban regeneration. The share social housing sector. The project defines the most of ’family dwellings’4 is going to be reduced to 40% vulnerable and segregated areas based upon the overall. This will happen through demolition, by tenants’ income, labour market participation, edu- cation and criminal records. There is a high degree of correspondence between vulnerable areas iden- 2 Udsatte områder in Danish. 3 The agreement is officially called Aftale om finansiering tified in this way and the government’s ‘ghetto list’. af indsatser for at forebygge og nedbryde parallelsamfund in Because refugees are primarily accommodated Danish. This translates as ‘Agreement concerning the financ- ing of efforts regarding the prevention and countering of in social housing, a sudden increase in immigra- parallel societies’. In June 2019, Denmark elected a new social tion puts pressure on that sector. There is a low democratic government. The new minister for housing, Kaare vacancy rate in social housing in the major Dan- Dybvad, wishes to drop the use of the term ‘ghetto’. 4 Almene familieboliger, in Danish. nordregio report 2020:2 15 ish cities. It is therefore difficult to secure proper regulated through the Housing Control Act §5.2. accommodation for refugees at short notice. This In recent years this practice has become increas- problem is aggravated by the fact that, under ingly controversial. One reason for this is the emer- Danish law, a municipality cannot direct a refugee gence of the American hedge fund Blackstone on to an area which is defined as ‘a ghetto’. Like other the Danish housing market. In 2019, the previous European countries, Denmark received many refu- government and opposition established a com- gees and asylum seekers from 2014 to 2016, be- mittee to analyse how §5.2 was being used. A new cause of the civil war in Syria. This led to a particu- government was formed after negotiations with lar political agreement between the government some of the other political parties in parliament. and Local Government Denmark (KL). It had been Based on these negotiations, it was agreed that feared that the social housing sector would be foreign equity funds should be prevented from overwhelmed by the number of refugees coming buying up Danish private rented dwellings. It is in. So, the agreement, from March 2016, secured commonly understood that this this measure was increased government subsidies for social housing aimed at Blackstone. for up to 10,000 new housing units designated for According to § 5.2, a landlord cannot raise the refugees. It was a condition of the subsidy that at rent before the tenant has moved out. It is possi- least half of these dwellings should be under 55 m2 ble to raise the rent by a smaller amount when the in size. But the number of asylum seekers quickly apartment has been renovated to a lesser degree fell again. (using the Rent Control Act, § 5.1), but in that in- It is important to understand that Denmark stance the landlord will be obliged to find an alter- still has a significant stock of good quality afford- native cheap apartment for the tenant when the able housing, especially when you consider the rent increase exceeds a certain threshold. sheer numbers involved by international compari- Properties built after 1991 have a market son. However, this supply is no longer adequate rent, although the precise term for this is ‘agreed because of an increasing population combined rent’. One effect of agreed rents is that new-build with the effects of urbanisation. properties in the private rented sector tend to be- come rather expensive, and certainly beyond the Problems related to different forms reach of households on the periphery of the hous- of tenure ing market. This problem has been heightened by The private rented sector regulations regarding the average size of apart- The private rented sector is highly regulated and ments in new residential buildings in Copenhagen. operates no fewer than four different systems of These rules are set by the municipality and not by rent control. This causes a good deal of confusion the state. Copenhagen has determined that the and a number of legal conflicts. Properties built average size of the building should be at least 95 before 1992 are regulated by the Housing Control m2. This regulation has effectively prevented the Act5 if the municipality has chosen to be a ‘regu- construction of new smaller and more affordable lated municipality’, which most of them are. apartments in Copenhagen. The neighbouring mu- If an apartment built before 1992 in the private nicipality, Frederiksberg, has set even stricter rules rented sector is modernised, with costs exceeding which require that the average size should be at a certain threshold, the rent can be raised to what least 100 m2. The older, regulated apartments have is referred to as ‘the value of the rented’. This is not a rent level which is 50% below the market rent. a market rent, but rather a rent level determined In the media there has been talk of an afford- by the local Housing and Rent Control Board. The ability crisis in major European cities. In Denmark, rent increase arising from this modernisation can the major cities experiencing a substantial growth amount to as much as 100% in Copenhagen. Even in population have been Copenhagen and Aarhus so, this increased rent will be somewhat below (see table 1). In Copenhagen, the relative share of the true market rent. This modernisation process owner-occupied housing is only 20% (28% if con- is known as a ‘§5.2 modernization’ because it is dominiums rented out temporarily are counted). The affordability issue is connected with those owner-occupied housing units which have seen 5 Boligreguleringsloven, in Danish. This is short for Lov om a nominal price increase amounting to 51% from midlertidig regulering af boligforholdene, which translates as ‘Law on the temporary regulation of housing conditions’. 2013 to 2018. Private rental housing built after nordregio report 2020:2 16 1991, and to some extent older but modernised 904 per m2, and for private rented built after the apartments, also command high rents and are year 2000 it is DKK 1,401. These figures are aver- getting expensive for both groups on the periph- ages, and there is a good deal of variation. How- ery of the market, as well as for ordinary citizens ever, when this kind of housing is offered it is quite with low- and medium incomes. But social housing common to see rents around DKK 1,800–2,200 and most private rented housing still have low to per m2 for new-build in good to prime locations. moderate rents. In the major cities, and especially Copenhagen, According to data from the Danish Trans- there is a lack of smaller affordable flats in the port, Construction and Housing Authority (Trafik-, central part of the city. This is a problem for stu- Bygge- og Boligstyrelsen, 2019), the average rent dents and for single-person households with low or in social housing built before 1950 in Copenhagen moderate income when they are entering the hous- is DKK 850 per m2 p.a. in 2019. For social housing ing market. It is less of a difficulty for most older built after the year 2000 it is DKK 1,112 per m2. For people since they have often found private rented private rented housing built before 1950 it is DKK apartments with regulated rents earlier on, or an

Table 1: Population at January 1st in major Danish cities

Municipality 2010 2012 2014 2016 2018 2019 Growth 2010-19 in %

Copenhagen 528,208 549,05 569,557 591,481 613,288 623,404 18

Odense 166,305 168,798 172,512 175,245 178,21 179,601 8

Aarhus 242,914 252,213 259,754 264,716 273,077 277,086 14.1

Aalborg 102,312 104,885 109,092 112,194 114,194 115,908 13.3

Source: Statistics Denmark, www.statistikbanken.dk, table BY2

120,000

110,000

100,000

90,000

80,000

70,000 Number of families Number of 60,000

50,000

40,000

19911992 1993 19941995 1996 2011 1986 19871988 19891990 19971998199920002001200220032004200520062007200820092010 2012 2013 2014 2015 2016201720182019

Figure 2. Difference between the number of families with 1 person and the number of households with 1 person in Copenhagen municipality 1986–2019. The figure shows a positive trend. This means that the number of fami- lies has been larger than the number of households during the specified period. The increase over time indicates that more and more singles are living in shared dwellings, due to the pressure on the housing market and the lack of smaller dwellings. Source: Statistics Denmark, tables FAM44N and FAM55N.

nordregio report 2020:2 17 apartment in social housing. Some of these apart- come more and more valuable, on account of spec- ments can be very attractive today, and the waiting ulation using §5.2 in the Rent Control Act and to list for them is 25 years or more. Elderly owner-occu- the arrival in the market of foreign equity funds. piers in the largest cities have had substantially high- The overall effect has been a sharp rise in prices er equity in the past couple of years (Hansen, 2018). for cooperatives, although they are still below the Some older people living in cheap, regulated market price (Hansen, 2017). Individuals are not al- private rented apartments in the major cities fear lowed to take out mortgages to buy cooperative that they may be squeezed out due to modernisa- properties and have to rely on bank loans, which tion and rising rents. However, legislation in rela- have traditionally been more expensive. The interest tion to these issues is extremely strict, with a high rate is usually somewhere between 3% and 7–8%. level of protection for tenants, unlike many other western countries. Over the next 20 or 30 years, Condominiums it is likely that many of these apartments will be Copenhagen still has a few cheap condominiums, modernised when the tenants move out, resulting with prices as low as DKK 500–600,000 for 35 m2. in an increase in rents. This is likely to lead to an These are also the cheapest apartments in Aarhus affordability problem in the future as well as to and Aalborg. Only a handful of apartments can be further gentrification. bought at such low prices. In Copenhagen the me- Because of increasing affordability issues on dian price for listed apartments for sale in August the periphery of the housing market, a growing 2019 was around DKK 3.8 million. The market for number of single-person households can no longer owner-occupied housing is in reality closed to eco- afford their own home. One of the consequences nomically vulnerable groups. of this is an increase in flat-sharing.6 When this Since 2012 the market for condominiums has happens the number of single-person families may seen sharp price rises in all major Danish cities. grow compared to the number of single-person Even so, buying a condominium has become eas- households, as shown in Figure 2. This is an indica- ier in most cities, apart from Copenhagen. This tor of the strain that can be put on the housing is because financing costs have been falling. For market, and it is a tendency well known from other instance, even in Aarhus, the second-largest city larger cities outside Denmark, including London. in Denmark, condominiums have risen in cost, but they have become relatively more affordable due Cooperative housing to falling interest rates and slightly increased wag- The largest type of tenure in the municipality of es. Many small apartments in Copenhagen and Copenhagen is cooperative housing, as mentioned Aarhus are bought by parents of students. This above. This was traditionally seen as a cheap al- practice is known as forældrekøb (which translates ternative for low-income families who could not as ‘parent purchases’) and it offers the parents afford to buy a condominium. That is no longer tax advantages. They can rent the apartment to the case since prices for cooperative dwellings their child at a market rent, and the child can apply have gone up, even though they are regulated. for housing benefit. The child may then rent out a There are no official price statistics for coopera- room in the apartment without paying tax. tive housing in Denmark, but many cooperative In Denmark buying a condominium is financed dwellings, especially in the greater Copenhagen by a mortgage up to 80% of its value. It can be area, have seen price increases at the same level financed with a nominal 0.5% fixed interest rate as for private rented housing. The reason for this for 30 years. For a 30-year loan with flexible inter- is that the value of a cooperative dwelling can be est there has been negative interest rate for some assessed in three different ways. One of these is to time. It is also possible to get interest-only loans of set the price at the same level that a private inves- up to 60% of the value of the dwelling. The down- tor would pay for the building if it was for private payment for this in Denmark is 5%. The remaining rented housing. This is regulated in Denmark’s leg- 15% of the price can be financed with a bank loan. islation for cooperative housing. However, the interest on a bank loan is higher, put- In recent years private rental housing has be- ting people without savings at a disadvantage. Even though financing is potentially extremely cheap, not all households are eligible for a loan 6 In Danish, delt udlejning. in practice. As with other EU countries, Denmark nordregio report 2020:2 18 has just introduced the ‘macroprudential regula- Copenhagen used to have a quota limiting the tion’. This limits how much a household can obtain number of dwellings that could be built specifically as a loan in proportion to its income. The regula- for students each year, but this restriction has tion also limits access to certain types of loans, now been lifted. such as interest-only loans. This regulation has hit In the 20 years between 2000 and 2019, some the more economically vulnerable groups in the 12,400 commitments have been made to con- market. On the other hand, it was introduced to struct social housing, particularly for young peo- prevent an unsustainable bubble in house prices. ple.7 Only 1,965 of these commitments were made Were it not for the macroprudential regulation, in the municipality of Copenhagen, with the much prices could probably rise even further, and vulner- smaller municipality of Aalborg being building the able groups would be squeezed out altogether. largest number in recent years. Private investors have been more active in re- Strategies for solving housing lation to student housing, but the monthly rent in problems in the major cities this part of the market remains quite high. In or- In recent years the housing affordability issue has der to fight rising costs in the construction sector attracted a lot of political attention. Different so- the idea was mooted of using shipping containers lutions have been proposed, and some have actu- as temporary housing and placing them on rented ally made their way into legislation. Pension funds land in the harbour. Even these dwellings are ex- have been financing the construction of apart- pensive, with a monthly rent around DKK 4,000 ments in Copenhagen in recent years. Typically, for 20 m2. This project is called the CPH Village these funds have a target for how many tenants in and it started out with 200 dwellings. They re- each project should be fund members. Due to the ceived 2,000 applicants when the project was an- rising cost of building in Copenhagen, the pension nounced. To make this plan feasible it was neces- funds have signalled that they plan to scale back sary to change the Danish Planning Act, in which § investment in new construction and look instead 19 now gives the municipality the right to agree to for secondary locations outside the largest cities. exemptions from the local plan for up to ten years The reason for this is that new construction is get- for student housing. Normally, such an exemp- ting too expensive for their members. tion can only be for up to three years. This means

Table 2: Commitments for youth housing in social housing

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Copenhagen 0 0 0 0 300 22 0 0 0 0

Aarhus 156 39 153 176 23 257 251 0 0 306

Aalborg 53 119 195 0 0 4 0 0 0 0

Odense 0 95 56 71 40 22 0 0 0 57

Total 209 253 404 247 363 305 251 0 0 363

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Copenhagen 0 0 0 0 361 0 563 523 196 0

Aarhus 585 14 42 351 149 0 389 172 701 112

Aalborg 2,707 0 342 755 294 283 132 269 0 64

Odense 134 0 25 124 137 297 10 84 195 0

Total 3,426 14 409 1,23 941 580 1,094 1,048 1,092 176

Source: Boligstat.dk, Trafik-, Bygge- og Boligstyrelsen, May 2019.

7 in Danish, Almene ungdomsboliger. nordregio report 2020:2 19 that temporary housing in the form of containers able property in the middle of Copenhagen. About can be established for a period of up to ten years, 400,000 m2 of land bordering Vesterbro, a part which makes the investment profitable. of the city undergoing gentrification, is zoned for There are a number of other examples of plac- development, with 5,000 new homes, plus offices es where a more efficient planning process and and shops on former industrial land. less onerous regulations have been experimented Overall, these strategies can be summarised as: with. For example, municipalities can make it more attractive to build if they cut back on the required 1. Trying to boost the supply-side by attracting number of parking spaces for each dwelling. In the private investors and developing new sites for resi- planning framework that dates from 2015 there dential building via land reclamation and on former is a standard requiring at least one parking space protected areas. for each 200 m2 of residential construction, but no 2. More regulation in order to ease pressure on the more than one parking space for each 100 m2 of demand side: residential construction. - by restricting Airbnb Waterfront housing developments have been - by limiting the number of condominiums bought built in all of the major Danish cities. In Copen- by parents and rented out to their children. This hagen this has not only entailed the urban regen- practice gives the parents tax benefits. Some eration of brownfield sites, but also through land political parties think this is an unfair advantage reclamation. The sea around Copenhagen is very and skews the market. shallow, only a couple of metres deep. This means 3. Trying to make construction cheaper through that land reclamation is not only possible; it but less regulation, through industrialisation of the relatively easy. It has also been a strategy for the building process, or through limiting construction municipality to sell building rights on reclaimed per m2 in social housing. land in order to finance investment in new infra- 4. Securing affordability by public regulation. This in- structure. However, this has so far primarily been volves using the planning act and demanding that a used to lure residents with high incomes towards certain proportion of residential property in new de- the attractive – and expensive – new dwellings velopments should be designated as social housing. close to the sea. The latest project in Copenhagen is Lynetteholm in the port area. This was approved These are different, and to some degree also op- by parliament in October 2018, and when it is fin- posing, strategies. Some call for more regulation ished it will house 35,000 people. While the major- and some call for less. Such differences reflect the ity of owner-occupied apartments in Lynetteholm varied political viewpoints in the housing debate. will probably be very expensive, the municipality The conflict in thinking about the affordability ‘cri- can demand that up to 25% of all new dwellings in sis’ (as some term it) can also be observed in other the area must be social housing. The timeframe is aspects of the housing market in Copenhagen. The very long, however. The project will not be finished municipality gives priority to affordable housing, until 2070 – so even though it will be on a massive but at the same time it has been demanding that scale, it will not solve current problems. Another the average size of apartments in new residential example of innovation in Copenhagen is the west- construction projects should be at least 95 m2. ern portion of the island of Amager. Amager is an From 2015, this regulation was eased somewhat. integrated part of Copenhagen today. The west- So now only 75% of the total floor area in resi- ern part of the island was reclaimed in the 1930s dential new-build has to meet this requirement. and has been kept in a natural and unused state Recently the Lord Mayor of Copenhagen has sig- ever since. In recent years it has been used for the nalled that this requirement might be eased even development of the Ørestad project, which today further. Rules such as this are not uncommon in houses 15,500 people. This has been an ongoing Denmark. For instance, the neighbouring munici- development, and in 2019 the Danish parliament pality Frederiksberg requires that the average size removed the protected status of even more land should be 100 m2. The historical background to this in western Amager in order to develop a further is that Copenhagen used to have a substantial 2,500 homes. One final example in Copenhagen is oversupply of smaller apartments. land owned by DSB, the Danish national rail com- In the next section we will look in detail at the pany. DSB is a major landowner with consider- practical interpretation of these different strategies. nordregio report 2020:2 20 Trying to boost supply through the allowing for a correction in the data for differences Planning Act in purchasing power. Traditionally consultants and In February 2015, the Danish parliament passed analysts have pointed to over-regulation, admin- an adjustment to the Planning Act. This gave the istrative burdens (‘red tape’) a fragmented value municipality a right – but not an obligation – to chain in construction, and lack of competition. demand that up to 25% of new residential de- In 1972 the Danish parliament introduced a velopment be used for social housing. This bears cap on how big and how expensive housing units some resemblance to the English Town and Coun- in social housing could be.8 This cap is on the total try Planning Act, which enabled the council and a cost of land and building for one m2. The regula- private investor/contractor to enter an agreement tion has been changed many times since and exists regarding restrictions on the use of land. This has in a different form today. Of course, this cap does been used to provide affordable housing in Eng- not necessarily secure a more efficient construc- land. When the use of land is restricted it will most tion process, but it does put a limit on quality, and likely reduce its value. In some cases, Danish legis- it can be difficult to build under the cap in years lation can lead to compensation for the landown- with booming private construction which can drive er, but not as a general rule. up both wages and the price of materials. The cap The new rule is only applied to new urban de- on social housing for families is DKK 23,630 per m2 velopment, such as reclaimed areas in the port of in Greater Copenhagen. For dwellings for young Copenhagen. This limits its application, because if people it is set at DKK 27,800 per m2. For social an area already has a local plan the new rule can- housing land it is, on average, 19% of total costs. not be used. Local plans are the backbone of the There have been many discussions about how Danish spatial planning system. Any major de- to build more efficiently – as distinct from lower velopment project will require a local plan. A local quality building – by optimising the whole con- plan concretises objectives in a municipal plan. It is struction process. In order to stimulate this ap- possible to replace a local plan with a new one, or proach, a new Public Procurement Act came into to amend the existing one. force in 2016. This made optimisation possible Copenhagen has shown a good deal of inter- through what is called ‘flexible supply/flexible calls est in utilising this new legislation, but new social to tender’. The idea is to facilitate negotiation and housing has been slow in coming nonetheless. dialogue between construction companies and There have been different explanations for this their clients in order to streamline the building pro- problem. One train of thought is that the high ac- cess, rather than just focussing on price competi- tivity in the market makes it very difficult to build tion in the here-and-now. However, it is difficult to social housing right now, due to the maximum change traditions and behaviour in this sector. price allowed for social housing. Another explana- tion is that the private sector has been focusing Parents buying apartments for their offspring on building condominiums and more expensive It has been proposed by the Radikale Venstre (the private rented housing in development areas, and Danish Social-Liberal Party), which supports the that social housing has therefore often been post- current minority government, that tax benefits to poned until a later phase in the development. The parents buying a condominium and renting it out Lord Mayor of Copenhagen acknowledged these to their child should be removed. This was suggested problems in a television documentary on Danish by the party in 2018, and again in the summer of Radio entitled ‘The city of the rich’ (‘De riges by’), 2019. It has been estimated that these tax bene- broadcast in November 2019. In it, Frank Jensen fits amount to between DKK 300–400 million p.a. said that it might indeed be necessary to revise The idea is to remove tax benefits that stimulate the legislation. the prices of smaller apartments, and instead to secure revenue that can be used to finance afford- Making construction cheaper able student housing. For decades, rising construction costs have been a challenge when it comes to providing affordable housing in Denmark. It has been estimated that construction costs are now 30% higher in Den- mark than other western EU member states, even 8 Often referred to as kakkelovnscirkulæret in Danish. nordregio report 2020:2 21 Concluding remarks to be in vain. At the same time, older and relatively The housing situation for economically vulnerable cheap apartments are being modernised and their groups in major Danish cities is slowly deteriorat- rents are increasing significantly. It is therefore ing. As the population has grown in the cities, the not surprising that politicians in both the City of development of the housing stock has been slow to Copenhagen and the national government have respond to increasing demand. In the owner-occu- taken a critical stance regarding existing regula- pied housing sector, and in that part of the private tion of the housing market and of the construction rented market that has a free market in rent, it is industry. becoming more difficult for a newcomer to enter the market due to the increase in prices and rents. References The regulated portion of the market has always Hansen, J.Z. and Iversen, A.Ø. 2017. been difficult to enter at short notice, at least for Ejerlejlighedslovens forbud mod omdannelse af individuals without established networks. Difficul- andels- og udlejningsboliger til ejerlejligheder. ties have therefore been mounting for people who Copenhagen, DREAM. move to the larger cities from other municipalities, Hansen, J.Z., Iversen, A.Ø and Stephensen, and for young people born in the major cities who P. 2018. Ejerboliger i det 21. århundrede. want to move away out of the parental home and Copenhagen, DREAM. start their own home for the first time. The situa- Hansen, J.Z., Hansen, M.F., Iversen, A.Ø. and tion for people living in adequate accommodation Stephensen, P. 2019. Udsatte boligområder i in the major cities has not deteriorated. Tenants Danmark. Copenhagen, DREAM. are protected by rigorous legislation, and owners Kristensen, J.B. 2012. Konsekvenser of cooperatives and owner-occupiers now have af huslejeregulering på det private substantially higher net equity. For them the situ- udlejningsmarked. Copenhagen, DREAM. ation has turned out to be beneficial. This is known Statistics Denmark, Boliger efter område, as an insider-outsider problem in economic theory. beboertype, anvendelse, udlejningsforhold, In the long run, housing problems will become ejerforhold og opførelsesår (2010–2019), more visible as the population changes through Accessed: October 2019. https://www. what is called gentrification. Economically vulner- statistikbanken.dk/statbank5a/default. able groups, such as single people and people with asp?w=1463. a low educational level and/or low and income, will The National Building Fund, Huslejestatistik have to settle outside the major cities, on the pe- 2019, Accessed: October 2019. https:// riphery. This process is already happening. lbf.dk/analyser/statistikker-og-analyser/ Danish politicians at both a municipal and huslejestatistik/. national level have acknowledged the problem Trafik-, Bygge- og Boligstyrelsen, Huslejestatistik and have sought to deal with it through strate- 2019, Accessed: October 2019. https:// gies aimed at boosting construction. However, boligstat.dk/SASStoredProcess/ the number of new housing starts has not been guest?&_PROGRAM=/Boligstat/ enough to ease current pressure on the housing OutputFrontEnd&menu=4. market, especially not in Copenhagen. Efforts to Whitehead et al., 2012. The Private Rented increase the number of social housing building pro- Sector in the New Century. Copenhagen, jects in Copenhagen have turned out more or less Boligøkonomisk Videncenter.

nordregio report 2020:2 22 Housing construction in the polarized Finnish market

Antti Kurvinen Tampere University

nordregio report 2020:2 23 The Finnish Government has recognised the impor- Urbanisation, a low birth rate and tance of a holistic, long-term approach to Finnish ageing demographics steer demand housing policy. It is planning to run a housing policy This section examines the prospects for the Finn- development programme that would expand across ish housing market of the future and the main un- the mandate period of the current government. The derlying drivers of the anticipated developments. central challenges involved in this project include, Urbanisation is strongly affecting Finnish munici- but are not restricted to, the following points: palities while, at the same time, the birth rate has been declining at national level. The recent popu- (i) Urbanisation is strongly effecting the Finnish lation projection from Statistics Finland (2019) housing market and, as a result, land and house suggests that the country’s population will start prices are increasing in areas which are growing. to fall again in 2031 if the fertility rate stays at its Lack of affordable housing in growth centres de- current level (1.35 children per woman). Figure 1 creases opportunities not only for low-income illustrates the projected population development households, but also for middle-income ones, to at sub-regional level between the years 2019 and relocate in such areas. This decreases the supply 2040, suggesting that estimated population de- of labour and subdues economic growth. At the velopments, combined with the strong trend to- same time, many Finnish municipalities are facing wards urbanisation, will exacerbate differences the opposite problem of a decreasing population, between municipalities. Based on this projected resulting in a housing mismatch between growing development, sub-regions may be roughly divided and declining areas. into three groups: (i) rapidly growing urban areas (ii) An ageing population is increasing the demand (the Helsinki sub-region), (ii) growing urban areas for accessible housing. Even if all new housing is (the Tampere, Turku, Oulu and Jyväskylä sub- made accessible, it will still not be enough to meet regions), and (iii) zero-growth or decreasing urban future needs. The existing housing stock also needs areas. However, it is also projected that, in 2040, to be remodelled. the only Finnish region still growing will be Uusi- (iii) Polarisation has increased in residential neigh- maa (including the Helsinki sub-region), where the bourhoods in recent years. In general, the current population increase will be due to migration. situation in Finnish suburbs compares favourably Another trend affecting the Finnish housing with many other countries, but it is important to market is the demographics of ageing, as post- address the trend proactively, before the situation war baby boomers have reached the retirement becomes worse. age. According to Statistics Finland (2019), there are 1.2 million people aged 65 and over in 2019, Understanding the underlying mechanism of in- meaning that 22% of the Finnish population falls creased demand and insufficient supply in grow- into this group. Moreover, by 2035, the number of ing regions, the Finnish government (2019a), in elderly people is estimated to rise to over 1.5 mil- their recently published Government programme, lion, equivalent to 27% of the total population. In is calling for more diverse market-driven housing other words, the proportion of young and working construction. Land use, housing and transport age people is decreasing, while the proportion of (MAL) agreements are being used as an instru- elderly people is increasing. ment to ensure the sufficient supply of develop- The changes in population and demographics able land, and diversity in house building. At the described above will eventually constitute the key same time, state interest subsidies are being used determinants of regional demand for new housing to increase the supply of affordable housing in construction. Based on preliminary results from high-demand areas. Investment subsidies have Kurvinen et al. (2019), the annual requirement also been introduced to address the housing needs for new house building in the fastest growing of special groups. sub-region of Helsinki will be some 1,100,000m2 This article provides an overview of the Finn- of floor area for the period 2019–2040, while the ish housing market and its future prospects, with total annual requirement in other growing sub- a particular focus on construction. It also includes regions (Tampere, Turku, Oulu and Jyväskylä) a critical review of the affordable housing strate- will be around 580,000 m2 of floor area. During gies being implemented in an attempt to provide that same period, the annual requirement for sufficient housing for all. new housing construction in all the zero-growth nordregio report 2020:2 24 and declining municipalities is estimated at some posal to the Finnish Parliament, the Finnish Gov- 190,000 m2 of floor area in total. The volume of ernment (2019b) has allocated a maximum of €30 new housing construction will, therefore, vary no- million to start-up subsidies for state-subsidised tably between the regions. housing construction in MAL regions. Production is also promoted by allocating a maximum of €15 Growth centres under pressure million to subsidise the development of municipal The rapidly growing Capital Region is facing the infrastructure in MAL regions. Between the years highest increase in housing demand. Demand in 2016 and 2019, the following city regions had a other growing regions is more moderate and varies MAL agreement with the state: Helsinki, Tampere, between them. Generally, urban growth is linked Turku and Oulu. Based on follow-up monitoring in to economies of agglomeration, which are associ- the MAL regions, the impact of MAL agreements ated with positive increases in production (e.g. Melo is perceived to be positive and, at present, the Min- et al., 2009). Such positive gains are also beneficial istry of the Environment is investigating whether to urban residents where, for example, a concen- the MAL agreement procedure could be extended trated job market in urban locations provides bet- to cover the city regions of Jyväskylä, Lahti and ter opportunities for employment. Together with Kuopio (Ministry of the Environment, 2019). the other benefits of agglomeration, such as better access to specialised services and public-sector fa- Risk of vacant housing stock increases in cilities, these developments are attracting more and declining areas more people to the growing urban areas. However, The flipside of urbanisation, specifically when the the impact of agglomeration is not only positive, rate of population growth is falling, is that areas because in addition to notable benefits, signifi- outside the impact range of major urban conurba- cant diseconomies of agglomeration (i.e. disper- tions are suffering from zero growth or decreasing sion forces) are also observed in these areas (e.g. population. The problems in such declining areas Thisse, 2019). A good example of the diseconomies are the opposite of the growing areas, i.e. low de- of agglomeration is that in growing cities land mand for housing can potentially cause higher va- and house prices are rising due to higher demand cancy rates and a fall in housing prices. Particular- and inelastic housing production. In addition, high ly problematic are owner-occupied blocks of flats, prices for housing inevitably reduces the opportu- where much-needed renovations are postponed nity for low- and middle-income households to live and the market value of the building decreases due in central locations, which reduces the supply of to low demand and is not high enough to cover the labour and subdues economic growth. Homeless- security on renovation loans. However, demolish- ness also tends to be a particular problem in areas ing such buildings is not a desirable option either where house prices are high. as they serve as homes for many households. On To address increasing housing prices in growth the other hand, well-maintained blocks of flats centres, different affordable housing strategies do not face similar issues and life in them remains have been deployed, e.g. loan interest and invest- bearable as long as they are kept in good condition ment subsidies for different forms of state-sub- and the backlog of repairs does not grow higher sidised housing, which are described in later sec- than the market value. For rental buildings, the de- tions of this article. Another important instrument cision to demolish is easier to make when demand in Finnish housing policy is agreements on land falls permanently and the recurring costs mean no use, housing and transport (MAL). These agree- profit is made. If the owner of a state-subsidised ments between the state and major city regions rental building is in considerable financial difficul- aim not only to promote collaboration between ties, it is even possible to apply for a demolition the municipalities in their respective city regions, subsidy, which stands at a maximum of 70% of but also to enhance collaboration between the demolition costs (ARA, 2019c). state and municipalities in order to coordinate However, renting out apartments in regions the development of infrastructure, land use, hous- with net negative migration can also be financially ing and transport. Importantly, the agreements profitable. Due to low investment costs, and rent specify the objectives for land use and housing that is increased annually in line with the increase production and set key goals for development of in maintenance costs, rental revenue can remain the transport network. In their recent budget pro- at a decent level, even though the value of the nordregio report 2020:2 25 apartments is falling (The Finnish Landlord Asso- more suitable, and centrally located place to live. ciation, 2019). A negative trend in housing prices, Riihimäki et al. (2019) have suggested that devel- of course, still has a negative impact on total rev- oping the state-subsidised (ARA) housing stock enue, which also accounts for changes in valuation. provides the means to address this issue. As far The demand for new housing construction is very as new housing production is concerned, the start- limited in declining areas, but new housing is still ing point for current regulations is a “design for all” needed to some extent to meet changing prefer- that guarantees a sufficient level of accessibility ences. For example, there may be demand for new (Kilpelä, 2019). types of housing in city centres, even if the housing However, new housing production alone is not stock in more distant locations cannot be sold at a enough to meet the increasing need for accessible price that makes new production profitable. housing. Strategies to renovate the existing hous- ing stock, so that it is more accessible, are also An ageing population needs accessible housing needed. Vihola et al. (2016) have estimated the Age demographics affect both growing and de- costs of renovation for accessibility in the multi- clining areas. The absolute number of elderly peo- family housing stock that was built in the 1960s, ple will be highest where the population is highest, 1970s and 1980s (over 50% of residential blocks even though the actual proportion will be high- of flats). They suggest that renovation for acces- est in declining areas – as younger generations sibility should be combined with other renovations are more prone to relocate in search of better job that are needed in order to achieve significant cost opportunities, for example. An increasing propor- savings. Critical points for improving accessibility tion of older people also increases the need for in the existing housing stock include modifications accessible apartments. According to Jalava et al. to bathrooms and the installation of elevators. For (2017), a still increasing number of senior citizens the cost of installing an elevator and thereby im- are seeking to move to city or municipal centres proving access, it is possible to get elevator and/ for improved access to services. At the same time, or accessibility subsidies of up to 45% of the ap- researchers have recognised that senior citizens proved investment cost. Private individuals can are a very heterogeneous group in terms of their also apply for subsidies which are provided spe- lifestyles and income levels. These differences in- cifically for the renovation of homes for elderly or evitably influence their choice of housing. For ex- disabled people. These subsidies usually cover up ample, older people living in sparsely populated to 50% of approved renovation costs, but in some areas may have difficulty in selling their current cases the proportion of subsidy can be extended homes at a price that allows them to find a new, up to 70% (ARA, 2019c).

300,000 14,3 % 200,000

100,000 Other 9,4 % parts of 6,5 % 6,5 % 4,3 % –0,1 % Finland 0 Finland Helsinki Tampere Turku sub- Oulu sub- Jyväskylä sub-region sub-region region region sub-region –100,000 in toal

– 200,000

– 300,000 –11,4 % –400,000

Figure 1. Population projection, 2019–2040: population change at sub-regional level. Data source: StatFin Database. nordregio report 2020:2 26 Owner-occupied housing and the Why is owner-occupied housing so popular, dualist rental market and is this a problem? In the previous section, we discussed the main A significant factor explaining the popularity of drivers that define the prospects for the Finnish owner-occupied housing is that taxation has tra- housing market of the future. In this section, we ditionally favoured owner-occupied housing rela- will learn more about what kinds of options are tive to rental. The first step to understanding the provided to address housing needs. What follows difference between owner-occupied and rental next is an overview of the development of the housing is to recognise that amortisations of Finnish housing stock, the different forms of ten- mortgages do not incur costs but savings. So only ures, and the different types of state-subsidised mortgage interest can be considered an incurred housing construction. cost. Mortgage interest, however, has traditionally The majority of Finnish households live in been deductible. More precisely, in 2011 mortgage owner-occupied housing (see Figure 2). In 2017, interest was still fully deductible. But since 2012 the proportion for the whole country was 64% of the level of tax relief has gradually been reduced, households, while in the major cities (Capital Re- so that only 25% is deductible in 2019. However, gion, Tampere and Turku), it was around 50% – if a housing unit is purchased for rental purposes, suggesting that rental housing is more common interest is still fully deductible. Probably as a re- in high-demand areas. Interestingly, statistics also sult of high-income households’ higher propensity reveal a recent change in the housing trend, sug- to buy their own homes, it is often alleged that gesting that rental has started to increase as a mortgage interest relief benefits higher-income proportion of the housing market. In addition to households more than lower-income households. owner-occupied and rental housing, some 4% of Another factor here is that tax deductions affect Finnish households live in right-of-occupancy ac- the affordability of different financing methods commodation (an intermediate tenure that sits (equity capital versus borrowed capital), meaning between rental and owner-occupied housing) or in that abolishing tax deductions altogether would other types of housing. favour households who do not need to borrow The Finnish rental housing market is dualist capital to buy their home. Even though mortgage in nature, meaning that there is a non-controlled tax relief often draws attention in public debate, rental market for privately funded housing, and a it is still not the main reason that rental housing is separate rent-regulated market for state-subsi- more expensive than owner-occupied housing. dised (ARA) housing stock. The state-subsidised The major tax benefit for owner-occupied housing stock is largest in the big cities, and 30% housing is that there is no tax imposed on the so- of the ARA housing stock is in the Capital Region. called ‘imputed rent’, which describes the benefit State-subsidised housing stock was at its high- to the household compared to living in a rental est point in 2006, but then decreased in the pe- property at a market rent. While the ‘imputed riod 2006–2013, as the number of homes released rent’ remains tax-free, the lessor still pays capital from rent and conveyance restrictions was higher income tax on the rent revenue. The capital gain than the volume of new social housing production. is also tax-free when selling an owner-occupied This trend, together with the increased supply of housing unit, provided that the owner has lived privately funded rental housing, is a central reason there at least two years; but capital gains are al- for the increased proportion of households living ways subject to tax when selling on a rental unit. in privately funded rental homes – while the pro- Housing transactions are also subject to portion of households living in state-subsidised transfer tax. This has been strongly criticised due rental housing has fallen (see Figure 2). In 2017, the to its lock-in effects. Because of transfer tax, rent- total state-subsidised housing stock was around al housing can actually prove a more affordable 418,000 properties, meaning that it amounted option for households who move more frequently. to 13% of the entire housing stock and 36% of the However, first-time homebuyers who aged 18–39 rental housing stock. Some 64% of the subsidised are given a transfer tax exemption (Verohallinto, housing stock consisted of regular rental homes, 2019). An unwanted effect of this kind of exemp- 25% were homes for groups with special needs, tion is that it may encourage younger people to and the remaining 11% were right-of-occupancy buy unnecessarily large housing units and to be- dwellings (ARA 2019a). nordregio report 2020:2 27 come more indebted at an early age since the ex- from Finland does not find evidence for such posi- emption only applies to a first home. tive externalities that are capitalised into housing Some commonly recognised problems linked to prices to a notable extent (Kortelainen and Saa- favouring owner-occupied housing include (i) that rimaa, 2015; Kurvinen et al., 2015). For a more de- it is an income transfer to higher-income house- tailed discussion on the taxation of housing, see holds, because households with higher incomes are Määttänen (2009). more likely to own their home, and the value of that home is also likely to be higher; (ii) that it Different kinds of state-subsidised housing is unfavourable in terms of a household’s financial for different situations risk management, because the majority of their This chapter is based on the statistics presented wealth will be concentrated in a non-liquid asset, in ARA (2019a). Figure 3 shows state-subsidised and therefore dependent upon house prices; and housing production relative to privately funded (iii) that it decreases a household’s willingness to housing production from 2000 to 2018, while Fig- relocate for work. ure 4 shows the distribution of different kinds of At the same time, one of the most commonly state-subsidised housing construction in the same used justifications for favouring owner-occupied period. This century, low interest rates and good housing is that it induces positive externalities availability of finance have made home buying relative to rental housing. By an ‘externality’ we relatively easier. Consequently, the proportion of mean a cost or a benefit affecting a third party state-subsidised housing construction has been who did not choose to incur it. For example, one smaller than in the previous decades. At the same general perception is that homeowners main- time, the focus of state-subsidised housing pro- tain their properties better than people who are duction has moved from regular rental housing renting. As such behaviour should help maintain to provision for groups with special needs – stu- property values for other residents in the neigh- dents senior citizens and people with disabilities. bourhood as well, it can be argued that a higher Recently, long-term homelessness has also been proportion of homeownership in an area imposes addressed through state-subsidised housing. It is such positive externalities on the whole neighbour- estimated that, in 2018, around one-fifth (8,000) hood. However, it is important to take into consid- of the total new housing produced (44,000 units) eration the fact that recent empirical research was state-subsidised, while the estimated num-

80 %

70 %

60 %

50 %

40 %

30 %

20 %

10 %

0 % 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ARA-subsidized rental housing Privately funded rental housing Right-of-occupancy housing Owner-occupied housing Rental housing total Other or unknown tenure

Figure 2. Distribution of Housing Tenures in Finland from 2005 to 2017. Data source: StatFIN Database.

nordregio report 2020:2 28 ber of privately funded units was approx. 36,000. banks covered 19% of state-subsidised loans, Based on production levels up to October 2019, it is while other lenders (such as insurance companies) estimated that the total of state-subsidised hous- provided the remaining 1%. ing production in 2019 will be around 7,500 units. In 2018, the average construction cost for Interestingly, it also seems likely that the propor- regular subsidised rental housing in the Capital tion of regular rental units is increasing again, Region was around €3,500 per m2 (living area). while the proportion of special needs housing is Outside the Capital Region the construction cost decreasing. was around €2,800 per m2. Total acquisition costs Figure 3 reveals a notable cyclical trend in the including the cost of the land and connections to proportion of state-subsidised housing production, utilities were €4,200 per m2 and €3,000 per m2 which has varied between 10% and over 60% of respectively. These numbers demonstrate that total house construction. The proportion of state- the cost of subsidised housing construction in subsidised housing construction has been highest high-demand areas is, on average, notably higher during downward trends in the economy and, cor- than in lower demand areas. Due to the need for respondingly, lowest during periods of economic special premises and stricter accessibility require- prosperity. In this way, state-subsidised housing ments, construction costs for housing for senior production can be used as an instrument to bal- citizens and people with disabilities are also higher. ance the fluctuation between economic cycles. For At the same time, construction costs for student example, due to the sub-prime crisis, the volume of housing are slightly lower. To keep the increase in privately funded housing construction started col- construction costs under control, the policy is to lapsing in 2008. This downturn was addressed by put social housing projects out to private tender. a temporary state-subsidised ‘middle-model that However, the number of bids tends to be related sought to maintain a decent level of construction to the economic cycle so that more are submit- and increase the volume of regular rental housing ted when there is no boom in housing construction production. The ‘middle-model’ covered regular and, correspondingly, building at affordable prices rental housing funded by loans with five- to ten- becomes harder when the market is peaking. year-long interest subsidies. This type of housing To address the higher construction costs of was not subject to tenant selection or rent regula- special needs housing, specific investment subsi- tion either. Interestingly, Figure 4 shows that these dies are provided. The intention behind such sub- counter-cyclical actions resulted in a total of ap- sidies is to secure a sufficient quantity of special prox. 26,000 state-subsidised housing projects in needs housing at reasonable rental prices. In this the years 2009 and 2010. This supports the view context, special-needs groups include homeless that state-subsidised housing is a counter-cyclical people, refugees, students, people with mental instrument. health or substance abuse problems, disabled In terms of finance, in the twenty-first cen- people, people suffering from memory illness, and tury the state has switched from directly lending elderly people in poor physical condition. The pro- money (known as arava loans) to interest subsidy portion of subsidy is decided on the basis of the loans. The latter are granted by a financial institu- scale of special arrangements needed, while the tion, while the state still guarantees the loan and maximum percentage of subsidy varies between pays interest subsidy for the proportion of inter- 10% and 50% of the approved investment cost est that exceeds an interest threshold legislated (ARA 2019c). by the government. Also, state-guaranteed loans without any interest subsidy are provided in areas State-subsidised housing is subject to tenant where there is a high demand for rental housing. selection and rent regulation These loans are subject to a restriction that the State-subsidised social housing is subject to re- building must be used for rental housing for a min- strictions on its purpose of use, conveyance, ten- imum of 20 years, up to the entire period of the ant selection and rent setting. The aim of these state guarantee (if it is longer than 20 years). At restrictions is to keep state-subsidised housing in present, Municipality Finance (MunFin), which spe- rental use, to secure its allocation for those whose cialises in financing the Finnish public sector, is the housing situation is the most urgent, and to main- largest lender for state-subsidised housing, cover- tain the cost of housing at an affordable level. The ing more than 80% of such loans in 2018. In 2018, restriction periods vary between 10 and 45 years. nordregio report 2020:2 29 50 000 100 % 45 000 90 % 40 000 80 % 35000 70 % 30 000 60 % 25 000 50 % 20 000 40 % 15 000 30 % 10 000 20 % 5 000 10% 0 0 %

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Privately funded State-subsidized housing Percentual proportion of production production state-subsidized production

Figure 3. State-subsidised (ARA) and privately-funded housing production from 2000 to 2018 (ARA 2019a).

14 000

12 000

10 000

8 000

6 000

4 000

2 000

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Estimated Regular state-subsidized rental housing Special needs housing Right-of-occupancy housing Housing with short-time interest Owner-occupied housing subsidyloans Housing with government guaranteed loans "Middle model" housing (without interest subsidy)

Figure 4. Distribution of different kinds of state-subsidised housing production between 2000–2018 (ARA 2019a).

nordregio report 2020:2 30 However, these restrictions may be extended for a and applicants are not arranged in order based on longer period of time on the basis of the granting their income. In this case, neither the applicant’s of additional funding. housing need nor the amount of capital they have The Government confirms tenant selection cri- is considered. Instead, a social mix policy is applied, teria annually. The main principle for tenant selec- aimed at a structure for diversifying tenancies and tion is that the dwellings involved should be rented for ensuring socially balanced neighbourhoods. to those whose need is most urgent (ARA 2019b). Certain exceptions are also allowed to the tenant At present, urgency is evaluated based on the selection rules. applicant’s housing need, capital, and level of in- The tenant selection criteria for right-of- come. Priority is given to homeless and low-income occupancy housing also differ from the above. households with limited means. However, at the The main criteria are that the applicant is at least same time, an expedient social mix at the building 18-years-old and has a need for right-of-occupancy level and a socially balanced neighbourhood are housing. It is considered that such a need does among the targets. Even if income is considered not exist if the applicant (i) already has an owner- as part of the selection criteria, there are no strict occupied dwelling which is relatively similar to the income limits. In addition to tenant selection, the right-of-occupancy unit that is being applied for, law also regulates the setting of rents in state- (ii) is wealthy enough to finance at least 50% of subsidised housing. This rent-setting is based on the market price for the apartment that has been absorption principles, meaning that it should cover applied for, or to renovate the applicant’s own costs but, corresponding to non-profit principles, apartment so that it would correspond with the should not produce noteworthy yields. Municipali- quality of the apartment that has been applied ties are obliged to supervise tenant selection and for. These restrictions do not apply if the tenant rent-setting regulations so that they are followed is moving from one right-of-occupancy apartment properly. to another, or is at least 55-years-old (ARA 2019b). In addition to long-term loan subsidies, anoth- er financing opportunity is provided in the form of Different subsidies for housing short-term loan subsidies (ARA 2019b). The law In the previous section we learned, among other relating to short-term loan subsidies came into things, about the different forms of state-sub- effect at the beginning of August 2016. This fi- sidised housing in the Finnish market. However, nance model strives to improve opportunities for Finnish housing subsidies are not restricted to households who are living in, or seeking to relocate the supply side. Demand-side subsidies are also a to, growth areas and helps them find affordable central part of the system. In order to see the big housing. Meanwhile, the underlying goal is to im- picture of the Finnish housing system, we will now prove mobility of labour and enhance the com- take a further look at the Finnish housing subsidy petitiveness of Finnish economy. As the purpose system as a whole. of short-term subsidised housing differs from long-term subsidised social housing, tenant selec- Subsidies for housing production tion criteria are also different. Short-term loan- Most of the subsidies for housing production have subsidised housing is directed at low- and middle- already been discussed in this article. These in- income households. As a result, upper limits for clude (i) interest subsidy loans, (ii) investment income are applied to this type of housing produc- subsidies for special needs housing production, tion (Table 1). However, they are just upper limits, and (iii) start-up subsidies for rental housing pro-

Table 1. An example of income limits in short-term, loan-subsidised housing (ARA 2019b)

1 adult 2 adults 1 adult and 2 adults and 2 adults and 2 adults and a child a child 2 children 3 children €3,540 €6,020 €4,190 €6,670 €7,270 €7,870

nordregio report 2020:2 31 duction. However, there is another form of produc- on a low income are eligible for general housing al- tion subsidy that has not yet been mentioned yet, lowance. Since the beginning of August 2017, the namely for ‘Hitas’ – a housing price and quality- general housing allowance has also covered most control system for state-subsidised owner-occu- students in need of support for housing costs, in pied housing used in the City of Helsinki. place of the earlier student housing supplement. According to the City of Helsinki (2019), this Special housing supplements for students, which system is aimed at ensuring that house prices are previously covered most of them, are still available based on real production costs, and therefore the in some special cases, but the main rule is that stu- maximum prices of both new and old Hitas dwell- dents who are in need of support for housing costs ings are regulated. However, the proportion of Hi- should apply for a general housing allowance. Af- tas units within the Helsinki housing stock is rela- ter the reform, students’ housing allowance has tively small (4% in 2017). Consequently, the system not been linked to their study progress, or to their can only provide homes for a very limited number eligibility for financial aid. Rather, eligibility for of people. Due to some obvious shortcomings, the housing allowance is treated as a separate form Hitas system has been heavily criticised. But as of subsidy and evaluated on the same basis as for there are also real winners, political support so far anyone else. In addition to the general housing al- has favoured maintaining the system. lowance, Kela also awards a housing allowance According to Määttänen (2010), the major for pensioners and housing assistance for military issues concerning owner-occupied Hitas dwell- conscripts. ings are as follows: (i) instead of directing Hitas Another form of subsidy that can be used to dwellings to low-income households, they remain cover the remainder of someone’s housing costs, inefficiently targeted because the opportunity to if the housing allowance together with that per- buy them is decided by random drawing of lots. son’s (or household’s) other income is not enough (ii) As a result of this inefficient, random target- to cover their essential daily expenses, is basic so- ing, people end up in non-optimal dwellings, while cial assistance. there are fewer available on the housing free mar- ket. This means that market prices increase be- Subsidies for owner-occupied housing cause available dwellings are distributed to those As discussed previously in this article, the Finnish with the highest willingness-to-pay. And (iii) the taxation system is biased towards owner-occu- Hitas system is expensive for the City of Helsinki pied housing, where the major tax benefit is that because land is rented at less than market prices, there is no tax imposed on the ‘imputed rent’; i.e. which in this case corresponds to a randomly dis- the benefit compared with another household liv- tributed income transfer. A more detailed discus- ing in a corresponding rental unit at a market rent. sion of the pros and cons of the three other forms Other benefits for homebuyers include (i) tax re- of production subsidy follows in the next section. lief on mortgage interest (at present 25% of the interest is deductible). (ii) ASP savings accounts Tenant-based subsidies for 15 to 39-year-old first home buyers (annual 1% In addition to production subsidies, another im- tax-free deposit interest and additional interest of portant instrument to address housing costs is 4%), granting a loan with state interest subsidy for tenant-based subsidies. Proponents of tenant- ten years and a complimentary government guar- based subsidies usually emphasise that in tenant- antee (at most 20% of the amount borrowed) af- based programmes it is easier to direct subsidies ter saving 10% of the purchase price (subject to to those that really are in need of support. And, regional maximum loan amounts); (iii) exemption at the same time, the level of subsidy is easier to from transfer tax for first home buyers (2% of the adjust when life situations change. On the other transaction price for housing company shares, and hand, opponents argue that tenant-based subsi- 4% for properties); and (iv) tax-free capital gains dies increase rents and therefore contribute to a if the owner has lived in the dwelling for at least higher level of public spending. two years (otherwise they are subject to capital Tenant-based housing allowances for hous- income tax of 30–34%). ing costs are granted by Kela (the Social Insurance Given the above, it is evident that Finnish hous- Institution of Finland). Permanent residents who ing policy favours owner-occupied housing and, at are covered by Finnish social security and who are the same time, encourages households towards an nordregio report 2020:2 32 unbalanced allocation of their assets. The expedi- the housing allowance system itself contributes ency of such a policy is, however, open to debate to higher rents. As lack of affordable housing in as empirical research has not found clear evidence growth centres is often seen as the underlying of positive externalities arising from a greater problem, many have suggested that increasing proportion of homeownership. On the other hand, the proportion of state-subsidised housing stock the existence of negative aspects, such as lock-in would resolve the problem. However, the reality is effects and negative impact on the development not that simple. of the rental housing market, are evident. Another important perspective here is that the equality (i) First, it is good to pay attention to the fact principle involved in taxation and subsidies is not that some 40% of housing allowances are paid to fulfilled if residents are treated differently based households who already live in state-subsidised on the nature of their tenure. housing. As a result, it is not credible to claim that state-subsidised housing would eliminate the need What is the cost of different forms for tenant-based subsidies. of housing subsidy? Having discussed the variety of different forms of (ii) Second, the cost of tenant-based subsidy is housing subsidy in Finland, it is also relevant to pay more transparent than it is in state-subsidised attention to how widely they are used, and what housing production. Consequently, state-subsi- the cost is for taxpayers. The number of people dised housing production seems to be a less ex- who benefit from direct tenant-based housing pensive form of support than it actually is. More subsidies increased in the period 2010–2018. In specifically, it is often forgotten that lower rents general, the trend has been towards tenant-based brought about by rent controls must also be con- subsidies, while place-based production subsidies sidered a form of subsidy, even though it is less ob- have decreased both proportionally and in abso- vious that loss of income causes the exact same lute terms (Figure 5). In the period 2010–2018, the effect as direct expenditure on housing allow- proportion of tenant-based subsidies increased ance. It is necessary to understand that people to approx. 90% of all housing subsidies, while the who enjoy lower (rent-controlled) rents receive a proportion of place-based production subsidies fully comparable income transfer to those who, decreased to 6%. In total, housing subsidies have instead, pay market rents and then receive a hous- nominally increased by 17%, but only 5% meas- ing allowance equivalent to the price difference ured in real terms (that is, adjusted to take into between controlled and market rents. This means account the effects of inflation). To put housing that the income transfer is highest where the dif- subsidy expenditures into perspective, it is helpful ference between market rent and controlled rents to know that they corresponded to around 1.9 % is the greatest. of total general government expenditure in 2018. To specify the actual cost of state-subsidised Even if the still increasing costs of tenant-based housing would require a detailed study, because subsidies have worried some researchers and state-subsidised housing may be located in differ- decision-makers, the most recent statistics (Kela ent areas from privately funded rental dwellings. 2019) suggest that the number of people receiving Consequently, using average rent as a calcula- these subsidies has decreased, which is most likely tion parameter evens out regional differences and due to the improved situation in the labour mar- slants the outcome. Keeping this bias in mind, it is ket. Interestingly, the total amount paid in housing possible to make a very crude estimate of the in- subsidies reached its record level in 2018. So fu- come transfer to tenants in the regular state-sub- ture statistics will be of great importance because sidised rental dwellings in 2018 (excluding special if the employment situation keeps improving, the needs housing and right-of-occupancy dwellings). numbers should indicate that the growth in sub- In this way: sidy expenditure is slowing down. Otherwise, there might be something seriously wrong with the sub- - According to ARA, there are some 268,000 reg- sidy system. ular state-subsidised rental dwellings in Finland. In particular, the proponents of state-sub- - According to StatFin Database, the average sidised housing production often invoke the ris- rent price difference in comparison with privately ing cost of tenant-based subsidies, arguing that funded rental housing was €2.5 per m2 while, ac- nordregio report 2020:2 33 cording to ARA, the average size of a state-subsi- and rising rents. In the current situation, such find- dised dwelling was 57.3 m2. ings make sense, since (at least in the City of Hel- - As a result, the total state-subsidised housing sinki) rents are already higher than the maximum stock is estimated to be 15.4 million m2 (267,000 housing allowance. Instead, they suggest that dwellings x 57.3 m2 per dwelling). housing allowance expenditure has increased as a - That corresponds to an annual income transfer result of changes in the social situation. Therefore, of €38.4 million (15.4 million m2 x 2.5 € per m2) for the most effective tool for reducing the increase in tenants in regular state-subsidised rental dwell- housing allowance expenditure should be improv- ings. This is a notable financial commitment not im- ing the employment situation. mediately visible in any of the standard statistics. In general, the number of expedient ways of subduing the rise in housing prices are limited, Even though the calculation example above is very and the primary measure should be increasing rough, it nevertheless helps us to understand the the supply of new housing in attractive locations magnitude of the income transfer that is hidden in (e.g. Antikainen et al., 2017; Been et al., 2019). An- state-subsidised housing. In addition, Eerola and other useful strategy to diminish pressure on ex- Saarimaa (2018) have employed a more sophis- isting high-demand locations may be to improve ticated research design and using that they have the accessibility of other locations by increasing looked at how much public housing tenants ben- transportation infrastructure investment. How- efit from rent savings in the City of Helsinki. Their ever, infrastructure investment may be considered findings suggest that the income transfer corre- expedient only if it is financed in a reasonable way sponds to the amount of the housing allowance. (Loikkanen and Laakso, 2019). State-subsidised housing could improve the (iii) Third, as it is now clear that both state-sub- situation if increasing subsidised housing produc- sidised housing production and housing allowance tion also increased the total housing supply, mean- are income transfers that lower the price of hous- ing that developers would not build as much new ing, either by providing lower controlled rents or by housing without subsidies. However, this is not the providing financial support earmarked for hous- case in attractive locations, because all develop- ing, it is also worth paying attention to how they able land is in any case used effectively. That is, may affect rents. As both forms of income trans- state-subsidised housing in all probability crowds fer basically make housing less expensive, they are out privately funded housing development in at- likely to increase housing demand in the market. tractive locations. Theoretically, there should not This means that, in both cases, the housing prices be a crowding-out effect in locations where the should increase when the housing supply is inelas- developable land is plentiful; that is, where zoning tic, which often tends to be the case since develop- is not a limiting factor for housing supply. able land in attractive locations is scarce. Alho et al. (2018) have estimated the crowd- However, a recent Finnish study using an ad- ing-out effect of state-subsidised housing produc- vanced research design does not provide sup- tion in Finland. Their finding is that this effect is on port for the claim that housing allowance should average 39% in major cities. That means that one be transferred to rents (Eerola and Lyytikäinen, state-subsidised dwelling, on average, increases 2019), even though there are also conflicting stud- the total housing stock by 0.6 dwellings. As an- ies from previous years (Viren, 2013; Kangasharju, ticipated, they find notable differences between 2010). Still, all these three previous studies looked cities. Unfortunately, the data employed did not at a period before the subsidy reform in 2015, and allow for differentiating between different subsi- also before most students became subject to gen- dised housing forms. But the crowding-out effect eral housing allowance in place of the previous of more targeted subsidised housing (for example, student housing supplement, which applied up to special needs housing) may be lower if it is built August 2017. As opposed to the previous academic in locations where regular privately funded hous- studies with more advanced econometric research ing production would otherwise not have occurred. designs, Honkanen (2017) bases his observations Consequently, state-subsidised housing should be on simple visual analysis of statistics through to targeted carefully to groups that have difficulty the beginning of 2017, finding no association be- renting privately funded dwellings. tween increased housing allowance expenditure nordregio report 2020:2 34 % 100 90 80 70 60 50 40 30 20 10 0 2011 1997 1996 1995 1999 2017 2012 2013 1998 2014 2015 2016 2018 2010 2001 2007 2002 2003 2005 2009 2004 2006 2008 2000

Tenant-based subsidies Tax deduction of interests Housing production subsidy (ARA) RAY/STEA funding

Figure 5. Proportion of different housing subsidy forms, 1995–2018. Data source: Kela.

Pros and cons of state-subsidised arguments that proponents use to promote state- housing construction subsidised housing and, at first glance, they may In the previous section we discussed different sound intuitive. However, not all the arguments are forms of housing subsidies in Finland, discovering necessarily that black and white. It is important to that the impact of different subsidies is far from take a closer look at their claims to accuracy from self-evident. In this section, we will deepen our un- a number of different viewpoints. In brief, the ten derstanding of the impact of production subsidies arguments are: relative to the objectives of Finnish housing policy, in order to better understand the pros and cons of 1) Provides low-income households with an oppor- state-subsidised housing production. tunity to live in high-quality affordable housing in According to the Ministry of the Environment, growth centres. Finnish housing policy “enhances the opportuni- First, it is indisputable that rent-controlled, state- ties of all people to find housing suited to their subsidised housing, particularly in the most central situation in life, along with promoting sustain- locations, provides affordable rents for those who able development, the functionality of society are lucky to be selected as tenants. However, par- and the labour market, and possibilities for social ticularly in attractive locations, this opportunity engagement among residents”. Housing policy is may only be provided to a very limited number of a highly complicated entity, and how it should be people as the majority of state-subsidised housing implemented is not black and white. As Figure 5 is located in more peripheral locations. It is there- showed, the focus of Finnish housing subsidies has fore relevant to ask if this kind of a subsidy really been moving away from place-based production does provide equal opportunities for all in the end subsidies towards tenant-based subsidies. Even if and if it is acceptable that taxpayers fund attrac- the emphasis on state-subsidised housing stock tive low-cost housing for some, while at the same has decreased, it has been an integral part of Finn- time, households with similar backgrounds are ish housing policy since 1949. The system still has treated differently. its unshakeable advocates, but it also has its op- Second, income level is part of the tenant se- ponents. Both continually participate in housing lection criteria, but at present, there is no maxi- policy debate. Niemi and Möttönen (2019) provide mum income limit for selected tenants (excluding a list of ten alleged benefits of state-subsidised dwellings with short-term interest subsidy loans). housing. The items on their list are some common Stricter income limits were originally applied in the nordregio report 2020:2 35 state-subsidised housing system. But then, at the opportunities for all people to find housing to suit beginning of April 2008, these income limits were their situation in life”, since people in similar situ- abolished to make tenant selection more flexible. ations are treated differently. What if it actually The next attempt to bring back maximum income enhances the opportunities of some people at the limits was at the beginning of 2017 when income expense of others? By comparison, tenant-based monitoring of tenants was planned. However, in- subsidies provide a more flexible – and maybe also come limits were in use only slightly more than a a more equal – form of subsidy, since they are di- year before they (alongside plans for income moni- rectly associated with a person’s life situation, toring) were abolished again at the beginning of rather than with a location. March 2018. The main reason for the decision to abolish them was the recognised risk of an incen- 2) Allows for diverse residential neighbourhoods tive trap: people might not accept job opportuni- and reduces segregation. ties because they might have to move out of their According to the Housing Finance and Develop- home to do so. However, a statistical study con- ment Centre of Finland (ARA), state-subsidised ducted after the first abolition did not find that rental dwellings must be allocated to those whose this change had resulted in any significant impact housing needs are the most urgent. However, at (Hirvonen, 2010). In general, current tenant selec- the same time, tenant selection aims at an appro- tion criteria can be considered to be slightly in con- priate social mix both at a building and at a neigh- flict with the objective to provide homes for those bourhood level. As indicated above, these objectives whose housing situation is the most urgent. But, are somewhat conflicting. This conflict also applies at the same time, tenant selection is subject to the to the way state-subsidised social housing address- policy of encouraging a good social mix in an at- es neighbourhood diversity and segregation. tempt to prevent segregation. As a result of this First, the current practice is only to build a policy, however, some dwellings are likely not to be limited proportion of state-subsidised housing allocated to the lowest income groups. in a given neighbourhood. However, in the past, Vuori and Rauniomaa (2018) suggest that such neighbourhoods were also built where state- most people living in state-subsidised housing in subsidised rental dwellings were the dominant the City of Helsinki seem to belong to targeted housing form. Such agglomerations tend to be lo- groups. Based on their findings, the gross income cated in more peripheral suburban locations and for households living in state-subsidised housing are therefore not usually attractive to well-to-do in the City of Helsinki is some 40% lower than for households. Consequently, greater neighbourhood households living in the City of Helsinki on average, diversity and a lower level of segregation is hard and some 6% of households living in state-subsi- to achieve by tenant selection in such locations, dised housing were earning more than the income because households who could contribute to these limits used between 1.1.2017 and 28.2.2018. The objectives do not seek to relocate to these areas. annual turnover for state-subsidised dwellings in Second, in terms of new housing production, the City of Helsinki was found to be around 10%, neighbourhood diversity is addressed by allocating while in privately funded rental properties it was only a limited proportion of developable land to around 40%. The notably lower turnover may sug- state-subsidised housing. However, if newbuild is gest that people living in state-subsidised hous- in relatively attractive locations, the social mix re- ing are less likely to move from these affordable quirement of tenant selection actually contributes homes, even if their life situation changes. In par- to a higher level of segregation on the neighbour- ticular, this is likely to apply to dwellings in attrac- hood level, even if it contributes to lower levels of tive locations (with the highest subsidy and the segregation on a building level because fewer low- best location), while the incentive to move from est income households are allowed into the neigh- units in less attractive neighbourhoods is much bourhood if other income groups are also selected higher (with lower subsidy and a less attractive for state-subsidised housing. location). In summary, the impact of state-subsidised Given this situation, it is relevant to ask if pro- housing on neighbourhood diversity and segrega- ducing state-subsidised housing is the most ef- tion depends upon the composition of the neigh- fective way to allocate taxpayers’ money and to bourhood and depending on the level at which implement a housing policy that truly “enhances these phenomena are studied. The factors dis- nordregio report 2020:2 36 cussed above nevertheless suggest that the cur- 5) Is a central instrument to reduce homelessness. rent approach may not be optimal in terms of Finland has gained international recognition for its achieving the full range of objectives. attempts to decrease and prevent homelessness. Finnish governments have addressed long-term 3) Improves housing conditions and decreases the homelessness through three consecutive pro- need for institutional care for elderly people who grammes, including PAAVO I (2008–2011), PAAVO are in physically poor condition, for disabled people, II (2012–2015) and AUNE (2016–2019). According and for other groups with special housing needs. to Helskyaho et al. (2019), in the past few years Directing state subsidies to the production of spe- the cities involved in the AUNE programme have cial needs housing that the market would other- built or acquired nearly 1,800 new accommoda- wise not produce is a well-grounded approach, tion units for the homeless. Over 5,000 homes particularly if the dwellings are built in locations from the existing housing stock have also been al- where the crowding-out effect is as low as pos- located for homelessness-related purposes. The sible. In particular, considering the ageing popula- project has also developed a new insurance prod- tion of Finland, housing for the elderly deserves ex- uct to make it easier for people seeking accommo- tra attention. However, as discussed earlier in this dation who have lost their credit rating to find an article, new production is not enough to meet the apartment, for example. increasing demand for accessible housing, so it is In 2018, there were approximately 5,500 home- necessary to pay attention to the existing housing less people in Finland, of whom more than half stock as well, and to emphasise the importance of (about 3,000) were in the Capital Region. The people preparing themselves for future housing number of homeless people has decreased by challenges brought about by ageing. State-subsi- 30% overall, and long-term homelessness by 60%, dised housing production has also been an impor- since the beginning of the decade. According to Y- tant tool in tackling homelessness. Säätiö (2019) the Housing First operating model has contributed effectively to decreasing long- 4) Guarantees good housing conditions for students. term homelessness. This model means that the State-subsidised housing guarantees good hous- top priority in helping homeless people is to find ing conditions for those students who manage them a home, and the reasons that have led to to obtain a state-subsidised dwelling, of course. homelessness are secondary and addressed only However, there is usually not enough student when they already securely have a roof over their housing to cover the housing needs of all students. head. Instead of considering the dwelling itself as We have the same problem here as with regular an award or prize, the home is seen, therefore, as state-subsidised housing: students with similar the foundation for putting life back together. For backgrounds are treated differently. By compari- the effective implementation of this model, it is im- son, tenant-based subsidies would again provide portant that more affordable housing is, through a more equal form of subsidy. Most students will government programmes, directed towards vul- also be desired as tenants in the private market nerable homeless groups. In this way, state-subsi- since they have a relatively long-term need for dised housing may be considered a central tool for housing, they are mostly well-behaved, and they reducing long-term homelessness. are entitled to subsidies which should guarantee their ability to pay their rent over time. 6) Increases competition between construction On the other hand, a certain quantity of spe- companies. cifically student housing is undoubtedly needed, It is good that the majority of state-subsidised because it is important that all the students can housing projects are put out to tender. However, find decent housing while they are studying. By the it is hard to see how state-subsidised housing same token, delays in the period taken to complete could increase competition between companies their studies as a result of a bad housing situation in a market situation where there is an incentive would be detrimental for society as a whole. How- to build, but state-subsidised housing production ever, when there is a lack of developable land, it does not increase the total supply of housing, be- may not be a good idea to build student housing in cause developable land is scarce. It is therefore locations where the crowding-out effect is high, as increasing supply of developable land that will in- this will increase prices on the rental free market. crease competition. In order to achieve this, “land nordregio report 2020:2 37 use, housing and transport agreements” (MAL) 10) Under current conditions, it is an inexpensive may prove useful. instrument for contributing to affordable housing. This is one of the most detrimental misunder- 7) Enhances housing innovation and sustainability. standings in relation to state-subsidised housing. It is true that production subsidies allow the de- As noted in the previous section (and as confirmed veloping and testing of new initiatives, even when by high-quality research), place-based production these do not yet meet the market conditions. They subsidies are not actually a less expensive form of may nevertheless contribute to the development subsidy than tenant-based support programmes. of new, sustainable concepts, and to the more rap- On the contrary, targeting production subsidies is id introduction of good new practices. For exam- likely to be less effective than implementing ten- ple, the first ‘passive houses’, zero-energy buildings, ant-based subsidies. and wooden multi-story housing projects were state-subsidised projects. On the other hand, The discussion above shows that the impact of there is also risk that the provision of subsidies state-subsidised housing is not always either intui- may inhibit or distort the competition between tive or black and white. Production subsidies are companies, if competitive advantage is achieved obviously needed to address cyclical fluctuations, through the subsidies and if there are restrictions sudden changes in the housing market, and spe- imposed on the companies eligible to apply for a cial needs housing. However, production of state- subsidy. subsidised housing may not be the best possible instrument in an attempt to keep down housing 8) Has a counter-cyclical effect in a downturn. prices in general. As a result of the crowding-out State-subsidised housing production can be con- effect, state-subsidised housing does not increase sidered an important instrument in balancing cy- total housing production to full capacity, meaning clical fluctuations in the volume of housing pro- that a portion of privately funded housing produc- duction by allowing incentivisation of new housing tion will not be constructed, as a result of the scar- construction when there are no prerequisites for city of developable land. Housing supply on the market-based production. In a downturn, there- free market will therefore decrease, resulting in fore, state-subsidised housing contributes to high- greater competition between buyers. As a result, er employment and reinvigorates the economy. those who are selected to be tenants in state-sub- sidised housing will enjoy lower rents, while those 9) Encourages rapid responses to sudden changes who acquire their housing from the free market will in housing demand. pay even higher prices. Given the factors outlined State subsidies for housing production are useful above, and to invest taxpayers’ money in the most instruments to guarantee a decent volume of new expedient way, state-subsidised housing produc- housing production when sudden changes in hous- tion should mainly be seen as a counter-cyclical ing demand occur in areas where market-based instrument and should primarily be directed to- prerequisites for housing production are not met. wards those who cannot otherwise find a home on Such a change in housing demand could happen, the private market. for example, where a company suddenly decides to make an industrial investment in a sparsely Polarisation in the Finnish housing populated area, but markets do not react fast market enough to provide housing for the employees re- In previous sections of this article we discussed quired. However, in the long-term, the market (i) the main drivers and prospects for the Finnish should provide a sufficient amount of new housing housing market, (ii) the variety of housing forms if the housing prices are higher than construction in the market, (iii) different housing subsidies, and costs. Production subsidies may also be useful if (iv) the pros and cons of state-subsidised housing situations occur where production conditions sud- construction. In other words, we are little-by-little denly deteriorate – for example, due to investors starting to build up a fairly comprehensive over- suddenly deciding to withdraw from the market, view of the situation for the Finnish housing mar- even though there is still demand for new housing ket as a whole. However, one important aspect is production. still missing from our review – namely, the histori-

nordregio report 2020:2 38 cal development of housing prices, which we will example of a region with negative net migration, now address in the following section. have diverged downwards from the average trend. As described in the first section of this arti- The average rate at which resold flat prices cle, population trends are likely to exacerbate the have risen in Finland has been on the same level polarisation of the Finnish housing market, as as the consumer price index has risen. However, demand still increasingly concentrates in growth the resold flat price index in Finland, excluding the centres, while less attractive locations suffer from Capital Region, has risen more slowly than con- net negative migration. However, this polarisa- sumer price index. The prices of resold flats in the tion is not limited to differences between urban Capital Region have clearly risen faster on average regions; it also occurs within cities. What follows than consumer prices. The resold flat price index is a brief analysis of the locational differences in for the Capital Region rose at approximately the housing price development. same rate as the index of wage and salary earn- ings until 2016, but has fallen at a noticeably fast- Prices of owner-occupied housing er rate since then. are differentiated The available indices also show that average Figure 6 presents regional price indices for resold construction costs have risen at approximately and new dwellings in blocks of flats, the consumer the same pace as consumer prices. As expected, price index, the construction cost index for blocks the prices of new flats have increased faster than of flats and the index of wage and salary earnings the prices of resold dwellings, but the trend in the in the period 2011–2018. It shows that the housing Capital Region has not diverged from the country price differentiation trend between regions has as a whole excluding Capital Region, as was the existed since the early 2010s. The trend for resold case with resold units. As municipal level price sta- dwellings in the Capital Region clearly diverged tistics are not reported for new dwellings, the flat upwards from the prices in other parts of Finland price index for new dwellings in Kouvola is missing during this period. At the same time, prices of re- from these figures. Based on Figure 6 (next page), sold dwellings in the City of Kouvola, which is an the trend in flat price indices does not seem to be

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Resold – Entire Finland Resold – Capital Region Resold – Finland excl. Capital Region Resold – Kouvola Consumer Price Index Construction Cost Index (blocks of flats) Index of Wage and Salary Earnings New – Entire Finland New – Capital Region New – Finland excl. Capital Region

Figure 6. Price index of resold and new dwellings in residential blocks of flats for the period 2011–2018 (2011=100). Data source: StatFin Database.

nordregio report 2020:2 39 connected to the trend for construction costs, so 2%. Based on the available statistics, rents in the it is hard to find evidence for claims that higher City of Kouvola have increased at the same pace construction costs are the underlying reason for as housing maintenance costs, even if Figure 6 in- higher housing prices. dicates a decrease in sale prices. Also, in Finland However, discussing housing price trends at excluding the Capital Region, rent increases have city level alone does not tell the whole story, be- been close to the trend for maintenance costs. cause there are also notable differences within However, in the Capital Region, rents have risen the cities which are not revealed by these figures. notably faster than in other parts of the country. For example, while average flat prices in central In all of the regions for which figures are avail- Helsinki in 2018 were approx. €7,000 per m2, flats able, the increase in rents has been faster than were sold at €2,700 per m2 in less attractive parts the increase in wages and salaries, although they of the city. Such price differences reveal notable have, however, risen faster than consumer prices price segregation between city districts. Recognis- and construction costs. Again, there are notable ing the existence of such micro-level price differ- differences in average rents between city dis- ences is important to any attempt to create suc- tricts, in particular in the City of Helsinki, where cessful strategies for affordable housing. rents are notably higher in the city centre. Inter- estingly, in the period 2011–2018, housing demand Regional variations in the trend has also increased remarkably in the least attrac- for market rents tive locations within the capital, given that the Figure 7 shows rents for privately funded flats in rent increases have been relatively higher in such the period 2011–2018. While average consumer locations. In general, rent variation between city prices and construction costs have increased an- districts seems to be more moderate than the var- nually at slightly more than 1%, the annual increase iation in sale prices. in housing maintenance costs has been around

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Figure 7. Price index of rents in privately funded blocks of flats for the period of 2011–2018 (2011=100). Data source: StatFin Database.

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Figure 8. Price index of rents in ARA-subsidised blocks of flats for the period 2011–2018 (2011=100). Data source: StatFin Database.

No similar regional rent differences Conclusions: What kind of building in state-subsidised housing does the Finnish housing market Figure 8 shows rental prices for state-subsidised need? housing for the period 2011–2018. The impact of The Finnish housing market and the challenges it rent controls is obvious, as there is relatively little faces at the moment are discussed in this article regional variation between these trends. Instead, with a special focus on new housing construction. the annual increase in rents is closely connected to It has been recognised that the population is in- the increase in housing maintenance costs, due to creasingly concentrated in the big cities, particu- the cost absorption principle that applies to state- larly in the Capital Region, while the number of subsidised housing. In recent years, average rent people in many of the municipalities is decreas- has increased slightly faster than maintenance ing. The main driver behind such developments is costs. In general, the rent level for state-subsidised agglomeration benefits caused by urbanisation, housing is notably lower than the rent level for pri- which significance is emphasised in the modern vately funded rental housing. The difference is service economy. Another underlying factor is the greatest in the Capital Region (around 30% lower), falling birth rate. Combined with the ageing of while on average it is more moderate in other parts the population, this significantly effects the com- of Finland (around 8% lower). position of the Finnish population as a whole. As As expected, the difference seems to be great- a result, positive net population changes in the er where market rents are higher, meaning that growing urban regions will mostly be based on mi- the state-subsidised housing induces the biggest gration. At the same time, an ageing population savings for tenants in the most attractive loca- creates challenges for housing, because the need tions in Helsinki, while the difference with market for accessible housing stock for older people is in- prices in less attractive locations is notably small- creasing. er. Even if there are rent differences within cities, On the flipside, the population is shifting from the neighbourhood-related rent variation for the declining municipalities to growth centres. This re- state-subsidised housing is much more limited sults in the polarisation of the housing market. As a than for market rents. result, different locations face different challeng- nordregio report 2020:2 41 es. First, increased housing demand and inelastic hind them. Impact may not always be perceived housing supply in growing areas produces higher quickly or intuitively, but further thinking will usu- housing prices. This in turn creates an obstacle for ally help us to understand the mechanisms that lie low- and middle-income households needing to re- behind empirical evidence. locate for work. It therefore acts as a break on the Based on research, increasing housing produc- growth of employment and of the entire Finnish tion is a well-grounded strategy to slow down rises economy. Second, falling demand in other parts of in housing prices, while boosting state-subsidised Finland creates quite different challenges. In par- housing production in a normal economic situa- ticular, poorly maintained housing is at high risk of tion may not be as well justified. At least, it should losing its market value, making it difficult to bor- be clear that in growth areas, where developable row money for future renovation. However, falling land is scarce, state-subsidised housing produc- demand also makes selling well-maintained hous- tion does not increase the supply of housing to the ing difficult, as there may not be enough buyers at full quantity required. This is due to the crowding- reasonable prices. Construction in municipalities out effect, meaning that attempts to increase the where the population is going down is very limited, volume of regular state-subsidised housing will and it is concentrated in cities and other regional instead increase house prices on the free market, centres with good transport links. rather than contributing to the lowering of price Importantly, the challenges described above levels. Rather, state-subsidised housing may be are also recognised by the Finnish Government, seen as a useful instrument during cyclical down- which has paid attention to housing issues in its turns and in addressing the needs of groups that recent programme (Finnish Government, 2019a). have special housing needs. However, it is impor- The Government says: “We will support sustain- tant that state-subsidised housing is effectively able urban development and increase the volume directed towards the most vulnerable groups who of housing construction in urban areas to respond cannot find suitable homes on the free market. to the growing demand for housing, bring house In a stable economic situation, instead of prices down to a more reasonable level, and facili- housing production subsidies, it might be more tate the mobility of the labour force.” There seems meaningful to invest in subsidies for developing to be quite a strong consensus that increasing the municipal infrastructure. Along with improved volume of housing production together with pro- accessibility, such investments can help to create viding the right variety of housing is a central tool new attractive locations, resulting in lower pres- for mitigating rising housing prices and address- sure on existing high-demand areas. In particular, ing the shortage of housing in growth centres (e.g., agreements on land use, housing, and transport Antikainen et al., 2017; Been et al., 2019). However, (MAL) between the state and growing municipali- there is more dispute about the role and effects ties have proved to be a useful tool to achieve a of state-subsidised housing production, which the general view of regional development needs and government has also put on its agenda. It says: to coordinate a strategy directed towards these “We will increase the volume of state-subsidised, goals. Importantly, these agreements can specify affordable housing to supplement market-driven objectives for land use and housing production, as and private housing supply, and to balance fluc- well as setting key goals for the development of tuations in the market.” the transport network. Through the MAL agree- State-subsidised housing production has long ments municipalities can, for example, be engaged traditions in Finnish housing policy. But it is impor- in zoning a sufficient quantity of developable land. tant that the housing subsidy system is holistically It is therefore important that the Finnish Govern- developed in order to meet the needs of a chang- ment has recognised the value of continuing and ing society in an effective way. The growing body extending the use of MAL agreements in an at- of empirical evidence from studies with advanced tempt to increase the elasticity of housing supply. research designs should provide a good starting In terms of increasing neighbourhood diver- point for developing the system and understand- sity and preventing segregation, proactive meas- ing its impacts. Therefore, such arguments as can ures are important to prevent potential problems. be justified by empirical evidence should be ac- However, current attempts with state-subsidised corded greater weight in decision-making than housing may not be optimal to achieve the desired strong opinions without any reliable evidence be- goals. More precisely, research provides evidence nordregio report 2020:2 42 that people living in state-subsidised housing may References actually live more segregated lives than those who Alho, E., Härmälä, V., Oikarinen, E., Kekäläinen, are subsidised by tenant-based programmes and A., Noro, K. Tähtinen, T., Vuori, L. 2018. Vuokra- who have found a place to live on the free market. asuntosijoitusalan kannattavuus, kilpailutilanne In terms of new housing production, the situation ja kehittämistarpeet. Prime Minister’s Office, may be less segregated at a neighbourhood level, publications of the Government´s analysis, because only a limited amount of state-subsidised assessment and research activities 9/2018, rental housing is allocated in any one neighbour- p. 160. https://julkaisut.valtioneuvosto.fi/ hood, which was not the case in the past. However, handle/10024/160708. in attractive neighbourhoods, a social mix policy in Antikainen, J., Laakso, S., Lönnqvist, H., local housing may actually increase segregation, Pyykkönen, S., and Soininvaara, I. 2017. because a smaller number of dwellings may be al- Asuntopolitiikan kehittämiskohteita. located to lower-income households. On the other Eduskunnan tarkastusvaliokunnan julkaisu hand, in less attractive locations, the social mix 1/2017, https://www.eduskunta.fi/FI/ policy may be equally ineffective if only the lowest tietoaeduskunnasta/julkaisut/Documents/ income households seek to live in such areas. In the trvj_1+2017.pdf. first place, it is crucial to pay attention to the level ARA, 2019a. ARAn tilastot ja selvitykset, https:// on which it is meaningful to address segregation. www.ara.fi/fi-FI/Tietopankki/Tilastot_ja_ The second important step is to find measures to selvitykset. do so in an effective manner. ARA, 2019b. Vuokra- ja asumisoikeusasuntoja In terms of the Finnish economy and labour valtion tuella, https://www.ara.fi/fi-FI/ market, it is crucial to make it easier for people ARAasuntokanta. to relocate to areas where jobs are available. Due ARA, 2019c. Rahoitusta asunto-olojen to long waiting times in centres of growth, state- parantamiseen, https://www.ara.fi/fi-FI/ subsidised housing does not provide much help for Lainat_ja_avustukset. those who are seeking to relocate to the Capital Been , V., Ellen, I. G., O’Regan, K., 2019. Supply Region for work. Basically, the only effective way Scepticism: Housing Supply and Affordability, to allow more households to relocate in growing Housing Policy Debate 29 (1), pp. 25–40. urban areas is to increase the volume of new hous- https://doi.org/10.1080/10511482.2018.14768 ing production. It is important to understand that 99. income transfers cannot help to achieve this goal City of Helsinki, 2019. Hitas-asunnot, Referenced unless they contribute to increasing the volume of on: 21st October 2019. http://www.hel.fi/hitas. housing production, which is not the case when the Eerola, E., Lyytikäinen, T. 2019. Housing scarcity of developable land is the main factor re- allowance and rents: Evidence from a stepwise stricting housing supply. subsidy scheme. The Scandinavian Journal of Economics. https://doi.org/10.1111/sjoe.12396. Acknowledgements Eerola, E., Saarimaa, T. 2018. Delivering The analyses that form the basis for this article affordable housing and neighbourhood quality: were supported by the Finnish Foundation for A comparison of place- and tenant-based Technology Promotion. programmes. Journal of Housing Economics 42, pp. 44–54. https://doi.org/10.1016/j. jhe.2017.12.001. Finnish Government. 2019a. Programme of Prime Minister Sanna Marin’s Government, 10th December 2019: Inclusive and competent Finland – a socially, economically and ecologically sustainable society. Publications of the Finnish Government, 2019:33. http://urn.fi/ URN:ISBN:978-952-287-811-3.

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Turhan kallis http://urn.fi/URN:ISBN:978-952-11-4710-4. koti – Kohtuuhintaisuus asuntopolitiikan Kangasharju, A. 2010. Housing Allowance and tavoitteeksi. FCG Finnish Consulting Group. the Rent of Low-Income Households. The ISBN 978-951-775-256-5. http://shop. Scandinavian Journal of Economics 112 (3), kuntaliitto.fi/download.php?filename=uploads/ pp. 595–617. https://doi.org/10.1111/j.1467- fcgturhan_kallis_koti.pdf. 9442.2010.01615.x. Riihimäki, M., Laitinen, T., Koskinen, T., Aro, Kela, 2019. FPA-statistik, Bostadsbidrag. K. 2019. Kuntien ARA-vuokra-asuntojen Accessed on: 22nd October 2019. https://www. korjaaminen ikääntyneiden asumiseen kela.fi/web/sv/arsstatistik_bostadsbidrag. sopivaksi. Publications of the Ministry Kilpelä, N. 2019. Tillgängliga byggnader of Environment 2019:5, p. 76. https:// och deras omgivningar. Bygginfo Ab. julkaisut.valtioneuvosto.fi/bitstream/ https://www.ymparisto.fi/download/ handle/10024/161445/YM_5_2019_Kuntien%20 noname/%7B8F0AF4E4-DB24-49AF-B006- ARA-vuokra-asuntojen%20korjaaminen_netti. 1F7F9C0FF40B%7D/145251. pdf?sequence=4&isAllowed=y. Kortelainen, M., Saarimaa, T. 2015. Do Urban Verohallinto 2019. Deduction for home loan Neighbourhoods Benefit from Homeowners? interest. Accessed on: 11th October 2019. Evidence from House prices. The Scandinavian https://www.vero.fi/en/individuals/tax-cards- Journal of Economics, 117(1), pp. 28–56. https:// and-tax-returns/income-and-deductions/ doi.org/10.1111/sjoe.12090. tax_credit_on_interest_payments/. Kurvinen, A., Heljo, J, Saari, A., Nippala, E. 2019. Viren, M. 2013. Is the housing allowance shifted Modelling Development of Building Stock – A to rental prices? Empirical Economics 44 (3), Long-Term Perspective. The American Real pp. 1497–1518. https://doi.org/10.1007/s00181- Estate Society 35th Annual Meeting, 9th – 13th 012-0589-x. April 2019. Paradise Valley, AZ, USA. Statistics Finland, 2019. The decline in the birth Kurvinen, A., Vihola, J., Sorri, J. 2015. Alentaako rate is reflected in the population development vuokra-asuntojen yleisyys omistusasuntojen of areas. Accessed on: 6th October 2019. hintoja?. Yhteiskuntapolitiikka 80, 6, pp. http://www.stat.fi/til/vaenn/2019/ 575–586. http://urn.fi/URN:NBN:fi- vaenn_2019_2019-09-30_tie_001_en.html. fe2015121023484. nordregio report 2020:2 44 The Finnish Landlord Association, 2019. Vuori, P., Rauniomaa, E. 2018. Helsingin kaupungin Tuottotutkimus 2019 [“Revenue research vuokra-asunnoissa asuvien tulotaso. Kvartti 2019”]. Accessed on: 10th October 2019. – Kaupunkitiedon verkkolehti. https://www. https://vuokranantajat.fi/asuntosijoittaminen/ kvartti.fi/fi/artikkelit/helsingin-kaupungin- tutkimukset/tuottotutkimus-2019/. vuokra-asunnoissa-asuvien-tulotaso. Thisse, J.-F. 2019. Economics of Agglomeration. Y-Säätiö. 2019. Housing First in Finland. Accessed Oxford Research Encyclopaedia of Economics on: 25th October 2019. https://ysaatio.fi/en/ and Finance. https://doi.org/10.1093/ housing-first-finland. acrefore/9780190625979.013.152. Vihola, J., Kurvinen, A., Joensuu, T. 2016. Esteettömyyskorjausten toteuttamismahdollisuudet kerrostalokannassa (ESMA). Tampere University of Technology. Department of Civil Engineering. Construction Management and Economics. Report 20. http://urn.fi/URN:ISBN:978-952-15-3874-2.

nordregio report 2020:2 45

Assisted housing in Iceland before and after the crash of 2008

Jón Rúnar Sveinsson The Reykjavík Academy

nordregio report 2020:2 47 Introduction associations for elderly people. Students housing In comparison with other Nordic countries, hous- also falls into this category and has seen a strong ing policy in Iceland is clearly an outlier. The main- upswing since the beginning of the new millen- stream of Icelandic housing policy has concen- nium. trated on building up its home ownership sector. Historically, the most important type of hous- An important factor for the strength of home ing solutions apart from the mainstream owner- ownership has been a tradition of families provid- ship sector has consisted of a hybrid tenure form ing much of the physical work needed to build their known as Workers' Dwellings1. The first Workers' own home (Sveinsson, 2000). Dwellings Law was passed by the Icelandic Par- Home ownership started to increase back in liament in 1929, on the initiative of the Icelandic the days of the British/American occupation of Confederation of Labour (ASÍ), and the Social Dem- Iceland during World War II and continued to do ocratic Party. The dwellings were sold as owner- so for six decades until the international financial occupier flats to union members on a means- crisis of 2008. Since then, this rate has fallen sig- tested basis. These flats could not be sold on the nificantly, with a corresponding rise in people living private housing market. Instead they were handed in rented accommodation. Until very recently, the back over to the Workers' Building Association to rental market has been dominated by small-scale be sold on at a controlled price to the next appli- private landlords. However, beginning around cant in the queue. This can be described as a form 1920, a small social or assisted rental sector also of social home ownership or assisted and afford- grew up, aimed at particular groups identified as able homeownership. being in need of help. The recent developments in Unlike now, rental housing was the dominant this sector of the Icelandic housing market are an form of tenure in the capital, Reykjavík, and other important focus for this chapter. larger towns, during the first decades of urbani- We will start with a short overview of the as- sation. The highest proportion, over 60%, was in sisted housing sector. We will then describe the Reykjavík. This began to change during the occu- general development of the state-run Icelandic pation (1940–1945), leading in time to the increas- housing finance system, and how house building, ing marginalisation of the private rented sector. especially in the assisted sector, has evolved over The rental market was fragmented because most time. The implications of the financial meltdown landlords owned only a few flats. Many owned of 2008 will be covered. We will look at how the just a single flat, often in the cellar or the at- collapse of the entire banking system became tic of a larger house, where the landlord's family a game-changer for the housing market and for also lived. The largest groups in this rental market housing policy. This will lead on to a discussion of were, on the one hand, low-income groups, and on new developments and initiatives on the hous- the other, young people setting up a home for the ing scene during the post-crisis decade of 2010 first time. A study in the greater Reykjavík area to 2019 – a decade that, at the time of writing, is in 1979 showed that the proportion of families on about to come to an end. Finally, the main conclu- the rental market was down to 13% by then. In age sions and housing policy implications of the chap- groups over 35 years it was a low as 5% (Jóhanns- ter as a whole are outlined. son and Sveinsson, 1986). In 1990, the proportion of homeowners had risen to 89%, leaving only 11% An overview of assisted housing in in the private and assisted rental markets, fur- Iceland ther accentuating the peripheral position of these Alongside the mainstream housing market, which forms of tenure. (Hagstofa Íslands, 1997). is based on private ownership, a smaller alterna- tive rental sector has been emerging for some time. It has remained marginal in relation to the Icelandic market as a whole, but it is interesting in its own right. This sector consists mainly of prop- erties owned by the municipalities and rented out to low-income groups on a means-tested basis, and also homes owned by voluntary organisations 1 Verkamannabústaðir in Icelandic, derived from the Danish, such as the Icelandic Disability Alliance or various arbejderboliger. nordregio report 2020:2 48 Housing finance in Iceland of the SHI, to an all-time high of 6% of GDP in 1991 The occupation of the country during the Second (Stefánsson, Flygenring and Heiðarsson, 2013). World War was beneficial to the Icelandic econo- Overall, the housing bond lending system turned my, leading to a sharp rise in the average purchas- out to work quite well on the free market side of ing power of the population. This was clearly evi- Icelandic housing. Instead of general interest sub- denced through a strong rise in the rate of home sidies for all housing loans, as had been the case ownership. In Reykjavík, it rose from 38% in 1940 earlier, 1989 saw the introduction of an income- to 53% in 1950 (Jóhannsson and Sveinsson, 1986). related subsidy for the cost of capital incurred by This happened even though securing housing fi- each individual family's housing loan. nance was problematic, both due to a spike in in- In 1995, housing benefit was introduced for flation during the war years and then to another tenants in rented accommodation – at first only spike during the late 1940s and early 1950s. Icelan- partially in the private rental market and in those dic banks had limited lending capacity, which by municipalities that decided to take part voluntar- the mid-1950s led to the establishment of a state- ily; but by 1999 it was extended to tenants in as- run housing finance body, the State Housing Insti- sisted rentals and to all municipalities. Housing tute (Húsnæðismálastofnun ríkisins). benefit has become an important factor for the Over the next few decades, the State Hous- smoother functioning of the rental market over ing Institute (SHI) became the main instrument time and means that subsidies from the state for housing finance in Iceland. During this period, and municipalities do not just go to homeown- its lending mainly went towards financing of new- ers. In 2003, the Reykjavík local authority, heeding build properties. But in 1970, loans were intro- the advice of an expert group, started to pay ad- duced for buying real estate on the market. In that ditional special housing benefits to the worst-off same year, the SHI also took over the financing of families and individuals in peripheral communi- Workers' Dwellings through the Workers' Building ties. Similar special benefits are now paid to low- Fund (WBF), which until then had been run by the income tenants in most of the larger municipali- trade unions. ties in Iceland. In 2015, housing benefit was paid to The main problem for housing finance in Ice- 87.5% of all tenants in rented municipal properties land during most of the twentieth century was in- (Varasjóður húsnæðismála, 2017). flation. Spiking during the two world wars, it ran at In the late 1990s, further changes were intro- around 10% on average from 1945 through to the duced to the state-owned housing institution, re- beginning of the 1970s. After the oil crisis of the sulting in its replacement in 1999 by a more bank- early 1970s, annual inflation in Iceland remained at like lending body, the Housing Financing Fund the exceptional level of 25–50% until 1990, peak- (HFF). During the early years of the new century, ing at more than 80% in 1983. In 1979, full indexa- HFF expanded its lending even further than the tion of all long-term housing loans was introduced. SHI had done. After 1990, inflation fell to a much lower level of 2–4% per year, where it remains, albeit after spik- Assisted housing construction up ing at 10-12% in 2008 and 2009, at the height of to 2000 the financial crisis. Housing construction in Iceland was problematic By the mid-1980s, the financial markets had during the first ten years or so after the war end- become more active and mature, paving the way ed. By the mid-1950s, with the establishment of for a more market-oriented system of housing fi- the SHI, housing construction in the mainstream nance. In 1989, a new type of finance was intro- sector was going rather well. Building for lower-in- duced, based on the same principles as the Dan- come groups consisted mainly of socially oriented, ish mortgage and ‘covered bond’ model2, but with owner-occupied Workers' Dwellings. one important difference. Icelandic Housing Bonds Reykjavík has been by far the largest munici- were issued by the SHI and not by independent pality in Iceland since the beginning of urbanisa- credit institutions, as is the case in Denmark. This tion in the late 19th century.3 During World War II led to a significant increase in the lending activity the Reykjavík local authority, led by conservative

2 Realkreditlån in Danish, cf. the Wikipedia article ‘Mortgage 3 Reykjavík’s proportion of Iceland’s population has been Industry in Denmark‘, accessed 28 October 2019. 35–40% since the 1950s. nordregio report 2020:2 49 political forces, reluctantly sponsored the building side the Reykjavík area. The results were mixed. of only 72 rental flats (Félagsbústaðir, 2017) for The target of 1,000 flats was never reached, and those low-income earners who were hardest hit by due to a reluctance among smaller municipalities, the severe housing situation in the capital caused only a third of the flats built were actually for rent. by a low level of house building activity during the In 1980, a new government coalition, which early war years, coupled with rising migration to included the leftist People’s Alliance, decided to the capital city from Iceland's countryside and increase the number of Workers' Dwellings being smaller towns. Many low-income families were built. Even though only around half of the 1,200 forced to live in unsanitary military barracks left planned flats did get built, this constituted a sig- by the British and American armed forces at the nificant increase in the total number of flats aimed end of their occupation in 1945. at assisted groups. To stimulate building activity in the mid-1950s, In the mid-1980s a change in legislation con- Reykjavík City Council established its own house cerning the WBF's lending activity led to an in- building fund, which made it possible for the mu- crease in the number of properties built for rental nicipality to build rental flats aimed at clearing purposes, both of flats owned by municipalities unsanitary housing, mainly the wartime barracks. and those owned by various voluntary housing House building aimed at special groups in Rey- associations building dwellings for elderly peo- kjavík increased significantly after a national col- ple, disabled people and students. This signified a lective bargaining agreement in 1965. According to significant expansion of the state's lending activ- this agreement, the government, via the SHI, took ity towards the assisted sector. Previously, it only it upon itself to finance the construction of 1,000 covered low-income union members. Newly found- owner-occupied flats. These were made available ed housing cooperatives were also allowed to start to union members in the greater Reykjavík area, their first housing projects with loans from the WBF. on a means-tested basis. The agreement also in- The largest category of assisted housing at cluded provision for the construction of 250 rental this time, other than municipal rentals, was hous- flats to be allocated to the neediest low-income ing for senior citizens. They numbered around groups by the municipal social services. 1,400, according to a 1992 report from the SHI. This building project in the suburb of Breiðholt That number was roughly equally divided between was the first large-scale building project to arise rental dwellings and owner-occupied dwellings. In from a new spirit of corporatism – that is, coop- many cases these had limitations imposed upon eration instead of confrontation between workers them in terms of the right to sell on the private and employers, labour and capital. Also very much housing market (SHI 1992). in the corporatist spirit, in 1969 the Icelandic Par- By the 1990s, the scale of increase in WBF's liament passed legislation establishing a system lending had become difficult to sustain. Municipal- of pension funds for all wage earners. This leg- ities also found it increasingly difficult to cope with islation was also part of the government’s input rising costs related to the maintenance of Work- into the collective bargaining process. Very soon ers' Dwellings within their boundaries. This was pension funds became an important factor for in- most problematic for smaller municipalities in the creasing the lending capacity of state-run housing least populated regions outside the urbanised re- loan funds. gion of Reykjavík. This led to the closing of the SHI, The Breiðholt project has today come to be and with it the WBF, in 1999. In place of the SHI, seen as a success story, looked at with a certain a new Housing Financing Fund was established. degree of nostalgia. But it has also been criticised Workers' Dwellings tenure was also effectively for mundane design and concentrating too many (and rather abruptly) ended when its state-run fi- low-income families in one place. Another criticism nancing regime was terminated. was that the project tended to upset the regional At this critical juncture in Icelandic housing housing and social balance since all of the 1,250 policy, the size of the assisted sector, other than new dwellings were located in a single suburb of dwellings for senior citizens, was around 11,000 Reykjavík. In order to balance state support for flats. Workers' Dwellings numbered about 7,000, housing after the large-scale Breiðholt project, the and rental properties owned by municipalities and government launched a plan to build 1,000 rental by non-profit housing associations amounted to flats for low-income groups in communities out- some 4,000 flats. Of these, 2,300 were munici- nordregio report 2020:2 50 pal properties for rent, 800 were owned by as- ing reached an all-time high at this point, with an sociations building for disabled people, and 700 average of 4,200 new projects between 2005 and were student flats (Byggingarsjóður verkamanna, 2007. At the beginning of 2008 house prices had 1998). risen by 58% in real terms since 2003. This unpar- Restrictions on the selling and pricing of the alleled construction boom was more than the sup- Workers' Dwellings were abolished in 2002. At ply of labour could cope with, leading to a larger that point, this form of tenure form ceased to be influx of foreign workers than ever seen before. an option aimed at low-income or assisted social groups. Instead, the 7,000 Workers' Dwellings The aftermath of the 2008 collapse flats effectively became part of the free and open In the first week of October 2008, the entire Ice- home ownership housing market. In the Reykjavík landic banking sector failed, and very soon the area this provided the opportunity to realise wind- housing boom morphed into a severe crash. The fall profits by selling off these properties on an main economic consequences of these events overheated market during the early years of the can be summarised in the following three salient new millennium. points:

Towards 2008: A housing boom in an n The indexation of all existing housing loans led overheated economy to a quantum leap in the amount of housing debt By the early 1990s, the perennially high inflation held by Icelandic homeowners. As house prices rate in Iceland was brought under control, due soon experienced a downturn, by some 35% in substantially to the most comprehensive collec- real terms, this resulted in an unequivocally heavy tive bargaining agreement ever reached in Febru- loss of equity for homeowners. This pushed one in ary 1990. The early years of the 1990s saw slow every four of them into negative equity. The worst economic growth and rising unemployment, but hit were young families who had bought during the by the end of the decade growth had stabilized at boom years at the start of the new millennium. an annual level of around 4%, along with a steady To put it bluntly, many Icelanders now owed the and low inflation rate of 2.0-2.5% per annum. An banks or the HFF more money than their houses important factor in the changed economic cli- were worth. mate and the steady economic growth rate was n Unemployment soared from just 1% of the Iceland’s entry into the European Economic Area4 workforce in 2007 to around 10% in 2009. Families (EEA) in 1994. already hit by the steeply rising housing debt, who Around the turn of the millennium, Iceland were now also suffering job losses, were unlikely entered a phase of large-scale privatisation of to be able to keep their house or their flat. Those state-run enterprises, culminating in bringing the who kept their jobs were also at risk of losing their two large state-owned banks into private owner- property, since the purchasing power of their wages ship in 2003. A year later, the banks entered into had also fallen. tough competition with the HFF. The banks’ entry n For the housing market, this meant a sea into the housing mortgage market was based on change in the overall fabric of the system. The a growing influx of foreign capital into the Icelan- number of families losing their home could soon dic economy. New types of housing loans from the be counted in the thousands, meaning that the banks (that is, higher loans with lower interest rate of home ownership started to decline signifi- rates than those from the HFF) sharply increased cantly. This meant that assisted tenure forms be- the purchasing power of home buyers. This trig- came more important, and major questions would gered an unprecedented rise in house prices, es- henceforth be asked about the basic tenets of pecially in the greater Reykjavík area. House build- earlier housing policies.

4 The EEA came into being on 1 January 1994. It was based on an agreement of three out of four member states of the European Free Trade Association (EFTA) – Iceland, Norway and the microstate Liechtenstein – with the EU. Switzerland voted not to take part. The EEA agreement made it possible for the three countries to be a part of the European single market without joining the EU. nordregio report 2020:2 51 House building in Iceland 2000–2018 in Reykjavík were more than 900 each year from – an overview 2015 to 2017. They are predicted to rise to over Overall house building in Iceland 2000–2018 is 1,200 every year from 2018 to 2021 (Eggertsson, shown in the diagram below. 2018). Studies conducted by driving around build- This diagram shows the height of the building ing sites and counting how many houses and flats boom, which lasted until 2008, then the plummet- are being built indicate that around 3,000 dwell- ing of building activity in 2009, which lasted until ings will be completed each year between 2019 2015, and finally the slow rise between 2016 and and 2022 across the whole of Iceland. Some 2,300 2018. If new startups are considered, the fall was of these will be built in Reykjavík and suburbs each even more spectacular – from more than 4,000 year (Samtök iðnaðarins, 2019). a year 2005-2007 to only 150-300 2009 to 2011. The new economic boom after 2015 is not yet il- House building in the assisted sector lustrated in these figures, but the start-up figures since 2000 of 2,800 in 2017 and 2,500 in 2018 indicate that a There was a significant increase in house building in new building boom is under way. the assisted sector from 2000 through the 2008 The figures shown in this diagram also indicate financial crash, as shown in Table 1. that the construction of dwellings has to a great The assisted housing sector more than doubled extent taken place in the suburban municipalities its size during the period between 2000 and 2019, around Reykjavík, rather than within the munici- and construction activity in that sector amounted pal boundaries of the capital. For the whole period to around one-third of total house building in Ice- from 2000 to 2018, suburban communities ac- land during this period. That is, around 7,000 flats, counted for 44% of all new-builds in Iceland.5 which happens to be the same number as the House building within Reykjavík’s municipal 7,000 Workers' Dwellings lost from the assisted boundaries is now set to increase significantly sector after 1999. over the next three to five years. Annual start-ups The municipal rental sector has more than

4 000

3 500

3 000

2 500

2 000

1 500

1 000

500

-

2011 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 2013 2014 2015 2016 2017 2018

Reykjavík Reykjavík suburbs Other regions

Figure 1. Completed dwellings in Iceland, 2000–2018. Source: Hagstofa Íslands.

5 This confirms the fact that the population increase from 2000 to 2019 in the six municipalities surrounding Reykjavík has been far greater than in Reykjavík itself, or 36%, com- pared to 14% in the capital. As of 1 January 2019, Reykjavík had a population of 129,000 and 99,500 lived in the suburbs. nordregio report 2020:2 52 Table 1. Housing in the Assisted Sector, 2000–2019

Number of dwellings

2000 2007 2019 Increase 2000–2019 Municipal rentals 2,289 4,546 5,273 2,984

Housing for senior citizens 1,900 2,250 2,850 950

Disability Alliance 541 648 811 270

Other associations of disabled people 138 175 300 162

Total housing for disabled people 679 823 1,111 432

Student housing, Reykjavík 562 1.211 1,460 898

Other student housing 144 451 550 406 Total student housing 706 1,662 2,010 1,304 Housing cooperatives 374 1,196 1,712 1,338

Total assisted housing 5,948 10,477 12,956 7,008 Total housing stock in Iceland 118,85 131,213 140,607 21,755

Percentage of assisted housing 5.0% 8.0% 9.2% 32.2%

Sources: Hagstofa Íslands; Sveinsson, 2009; Varasjóður húsnæðismála, 2018. Direct information from the housing associations, or from their home pages and the author’s estimates.

doubled its size since 2000, to well over 5,000 To the 1,100 dwellings for disabled people built flats, with 950 of these being dwellings for elderly by housing associations we can add around 500 tenants and 500 for disabled people rental dwellings owned by municipalities (also in- Housing for senior citizens has probably been cluded in the figure of 5,273 in Table 1). growing by about 50 new flats per annum since Up until the 1980s, the only university in the 1992. Until around 1990, most of the housing de- country was the state-run University of Iceland, marcated as ‘senior housing’, or housing for senior and student accommodation on campus com- citizens, was built as owner-occupied flats, usu- prised just 100 to 200 rooms for students from ally on condition that these could only be sold to outside the capital. In 1984, new housing legisla- people over a certain age, sometimes as low as tion paved the way for the SHI to issue loans for 50 years. As of now, housing being built for older building student housing. In 1987, Iceland's second people is mainly rentals. The main builders are four university was founded, in Akureyri, in the north of housing associations active in the Reykjavík area. the country. Today there are seven Icelandic uni- To the nearly 3,000 senior dwellings built by versities in. As shown in Table 1, student housing housing associations, we can add around 950 sen- has proliferated alongside the strong growth of ior rental dwellings owned by the Icelandic munici- universities and the whole higher education sector. palities, as mentioned above (included in the figure The beginnings of the housing cooperative6 of 5,273 in Table 1). sector can be traced to the setting up of the Bú- The main actor in housing construction for seti cooperative, in the Reykjavík area, in 1983. disabled people has been the Icelandic Disability Alliance, which is an umbrella organization of 43 associations of people with disabilities. Its housing 6 It should be noted that Building Cooperatives (that is, cooperative associations which built dwellings only for home activities are looked after by a housing association ownership) were very active in Iceland from the 1930s until the called Brynja. A few associations of disabled peo- 1990s. Such associations might have been close to a hundred in number altogether. They probably built at least as many ple that are not members of the Disability Alliance flats all told as were built under the auspices of the Workers' own about 300 flats. Dwellings legislation. nordregio report 2020:2 53 It obtained the right to loans from the SHA in feiting his house to a bank used a hydraulic excava- 1984, at the same time as the other housing asso- tor to destroy it. ciations already mentioned. Two more co-ops are The Homes' Association, a civic movement now active in Iceland, the Búmenn housing cooper- with the post-economic collapse housing problems ative, which has built about 500 dwellings for the highest on its agenda, had already been founded elderly, and Búfesti, a regional housing cooperative in January 2009. The association's main objective, in the Akureyri area of North Iceland. according to its homepage, “is to provide the pub- At a meeting in Reykjavík City Hall in Novem- lic with a way collectively to protect the common ber 2018, Dagur B. Eggertsson, the Mayor of Rey- interests of Icelandic households [...]. In the short kjavík, made a presentation about the expected term, the main objective is to address urgently the accumulation of new housing in the capital over impact made by the financial crisis on households, the next few years (Eggertsson, 2018). Of 4,800 and to prevent households from becoming victims dwellings already under construction in the city, of unfair and possibly illegal confiscation of prop- about 1,700 are flats being built by housing associ- erty, as well as unsustainable debt and social dis- ations, and around 1,450 flats which will be owned integration.” Easing the effects of indexation on by housing associations have gone through the ap- the repayment of housing loans is also among the proval stage with the municipal planning author- organisation´s key objectives. ity. Over 3,000 flats owned by housing associa- The Homes' Association has become a rela- tions are therefore set to be added to Reykjavík’s tively strong organisation. It has been involved in housing stock in the next three to five years. several court cases, many of them about the legal- ity of the indexation of housing loans. There is a Activism and new politics widespread opposition to such indexation, as wit- In spite of all the detrimental effects on Iceland- nessed by the centrist Progress Party's election ers of the 2008 financial collapse, many new and victory in 2013, with its promise to ease the effects often innovative developments also emerged in of the indexation by 20%. the years following the sharp social and economic From the post-2008 ethos of protests and downturn. civic activism a new Tenants' Association was also One very clear effect came to light straight founded in 2013, mainly by people who had been away, a few weeks after the crash. This was the active in the Homes' Association. grassroots activism that began to make itself felt through an increasing number of demonstrations Corporatism revisited? in front of the parliament building, demanding the By the time a centre-right government came to resignation of the government and snap elections power in the spring of 2013, post-crash economic as soon as possible. and social difficulties had eased considerably. In These events brought down the governing January 2013 Iceland had been cleared in the EFTA grand coalition of the Social Democrats and the court of all charges in the Icesave dispute7 with the conservative Independence Party, which had come UK and the Netherlands. The time had come to to power only a year earlier. In the elections held think again about the future of Icelandic housing. in April 2009, the Social Democratic Alliance and The Minister of Housing in the new govern- the socialist/environmentalist Left Green Party, ment was Eygló Harðardóttir from the Progress the main parties on the left, won a majority in par- Party. The new minister often spoke warmly of liament for the first time ever, soon forming what the 1960s Breiðholt project, having grown up in became known as the first ‘pure bred’ left-wing that very area herself. An advisory working group government in the history of Iceland. was established, with wide representation across The widespread political activism that start- almost all housing market actors, including repre- ed in the years after the crash came to be cen- sentatives of some of the new activist groups. tred very much on housing concerns. In several instances groups of activists gathered around houses where owners were due to be evicted, in a 7 The dispute centred on whether or not Iceland should pay concerted effort to stop that happening. The most a reimbursement to the UK and the Netherlands claimed by British and Dutch creditors in the collapsed Icelandic bank, extreme example was when a man who faced for- Landsbanki.

nordregio report 2020:2 54 The legislative work took time, but in June manage, at the last minute, to reach a comprehen- 2016 new legislation for the assisted sector saw sive new collective bargaining agreement. Housing the light of day. The Public Housing Act can be said was a key issue in the agreement, as confirmed in in some ways to reactivate the former state sup- an accompanying declaration issued by the gov- port system which functioned through the Work- ernment. This was clearly in the spirit of the far- ers' Building Fund in the late twentieth century. reaching corporatist labour market settlement in There are similar regulations on means-testing for the latter half of the previous century. The govern- the allocation of the flats, and the local authori- ment promised to provide support to the 1,800 ties play an important role in this. The biggest dif- start-up flats on the assisted side of the housing ference is that, this time, public funding only allo- market, and also to improve the legal position of cated to rental properties, instead of the Workers' tenants. Another important concession was the Dwellings (hybrid tenure) of earlier times. Up-front limiting of indexed loans to loans with a maximum grants from both the state and the municipalities maturity of 25 years. This had been a strong de- also replace the earlier interest rate subsidies from mand from the new union leadership. the state. By autumn 2016, 14 applicants had ap- House building under the 2016 legislation on plied for support to build 600 assisted flats under assisted housing is already well underway. The big- this new scheme. gest player so far is the non-profit housing com- After a few years the tide of political activism pany, Bjarg, founded as a joint undertaking by the began to have an impact on the Icelandic labour ASÍ and BSRB, the union of office and blue-collar movement, which from its foundation in 1916 had workers employed by national and local govern- been led by the traditional parties of the left – first ment. Bjarg has delivered between 100 and 200 the Social Democrats, by 1942 the more left-wing flats to low-income tenants. Around 500 flats are parties, and since 1999 by people most often af- being constructed and 500 more are at the design filiated to the new Social Democratic Alliance. But and planning stage. By 2022, Bjarg expects to have above all, it seems, the ASÍ was being run by tech- built 1,400 flats. As of autumn 2019, around 2,000 nocrats by the start of the new millennium, albeit flats have been, or are being, built – with support ones with roots in the old left-wing parties. under the new Public Housing Act. People with their political roots in the post- crash activism were quite critical of the ASÍ leader- Changes to the rental market ship, especially for its support of the indexation of Altogether 7,790 houses or flats were lost to credi- housing loans. The ASÍ in turn argued that indexa- tors, the HFF or the banks during the years 2009 tion was necessary in order to keep the pension to 2014 (Hringbraut, 2015). This amounted to funds as strong as possible, thus better securing some 6.8% of all residential dwellings in Iceland in the value of the members' retirement payments 2009. This left creditors with a problem. What to through the full indexation of the funds’ assets. do with a stock of thousands of flats, now owned In 2018, the opposition within the labour move- by credit institutions? In many cases the owners ment succeeded in having its candidate elected stayed in their former properties as tenants, at as the chair of the Efling union, which covers the least for a time. With hindsight, though, the thou- largest groups of workers in the capital area. An sands of lost properties are now owned by a hand- important factor in this victory was the mobilisa- ful of new real estate companies which sprung up tion of foreign workers against the outgoing lead- during the post-crash period. The largest one, Hei- ership. The Store and Office Workers' Union (VR) mavellir, now owns a rental stock of some 2,000 had also elected a new leadership by this time. VR flats. The second biggest one, Alma, owns 1,200 is the largest trade union in Iceland and Efling is the flats. These companies have been heavily criticised second largest. By autumn 2018, the new opposi- for utilising the demand for rental housing in the tion forces had a majority in the ASÍ leadership. capital area to raise rents as much as possible. The In March 2019, it looked as if widespread property companies maintain, on the other hand, strikes were imminent, with the new and more that they can offer their tenants the flats they radical union leadership making tough demands want with long-term rental contracts, something and needing to prove its strength at the negotia- that has been hard for tenants in Iceland to ob- tion table. Somewhat surprisingly, the anticipated tain until now. They also say that their more regu- wave of strikes was averted, as the two sides did lar and business-like running of the housing stock nordregio report 2020:2 55 Table 2. The Icelandic rental market, 2004-2013, as a percentage of all households

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Tenants, 9.4 8.3 9.2 7.6 8.9 10.2 13.8 13.2 15.2 14.2 market rents Tenants, 8.7 8.1 7.7 7.8 8.3 8.9 9.0 11.7 10.2 10.7 reduced rents All tenants 18.1 16.4 16.9 15.4 17.2 19.1 22.8 24.9 25.4 24.9

Source: Hagstofa Íslands, 2014.

benefits tenants in the longer term, compared to 400,000 a year in the early years of the century, the unpredictable, irregular and uncertain condi- to 2.5 million by 2018. By around 2015 the growing tions which have prevailed to date on the other- number of flats rented out to foreign tourists was wise fragmented Icelandic rental market. beginning to put a real strain on the overall rental The proportion of Icelanders living in rental ac- market, especially in the central areas of Reykjavík. commodation has risen considerably in the post- This happened at the same time as the number of crash years. foreign workers was increasing more than ever. Table 2 shows the proportion of tenants pay- The combined result was greater pressure on the ing market rents and tenants who pay their rents rental market in the capital area, most severely at a reduced rate. Seen together, the proportion felt in Reykjavík city centre. for both types of tenants fell from 18.1% in 2004 These thousands of foreign workers could not to 15.4% in 2007. These was the time when the compete for dwellings on the regular housing mar- boom of the pre-crash years was at its peak. But ket. Instead, they came to be housed in illegal ac- already, by 2008, a rise in the proportion of ten- commodation all over the Reykjavík area. This ille- ants appeared to be under way, and in just five gal housing is to be found in non-residential areas, years the proportion of tenants rose by as much in buildings for commercial activity, or in factory as 10%. The growth was measurably greater on buildings. Driving through the Reykjavík area's the open rental market than among tenants with outskirts at night, lights can be seen shining from reduced rents. The proportion of tenants on the hundreds of upper-story windows of non-residen- open market doubled from 2007 to 2012. The in- tial buildings, indicating that someone has been crease of tenants has been mainly in the lower- living there unofficially and illegally. The Reykjavík income group, and among age groups under 35 Fire Department's chief estimated in 2017 that as years. many as 3,500 people were living in illegal hous- Since 2000, net immigration of foreign citi- ing in the Reykjavík area (Matthíasson, 2017). This zens to Iceland has been 48,000. This amounts to happens to be a similar figure to the number of a 17.2% population increase, but at the same time people who, in the mid-1950s, lived in unsanitary Iceland has lost about 12,000 Icelanders through barracks stemming from the years of military oc- emigration, including 5,500 in the first three years cupation during the Second World War. after the 2008 crash. The total population increase in Iceland from 2000 to 2019 was 27.9 %. For the Concluding remarks other Nordic countries taken together, the popula- The increase and sustained development of home tion increase 2000-2019 was 12,7 per cent, highest ownership has been the unifying tenet of Icelandic in Norway and Sweden, 19,0 and 15,4 per cent re- housing policy for many years. Even for low-income spectively (Nordic Statistics database, 2019). groups and people with a weak and peripheral so- The inward migration of foreign workers has cial position in Iceland, restricted and conditional mainly come from former Eastern bloc countries, home ownership was – until 1999 – actively pro- with around 40% of the total from Poland. They moted as the main, practical alternative for these often work in the construction industry and, after groups. The 2008 banking collapse and the fol- 2008, in the fast-expanding tourism industry. The lowing near breakdown of the Icelandic economy number of tourists arriving in Iceland rose from changed this in a fundamental way. The Icelandic nordregio report 2020:2 56 home ownership ethos will probably never be the Hringbraut. 2015. 8 þúsund íbúðir á uppboði frá same again after these experiences. hruni. Accessed on 29 October 2019. In Iceland, as in many other countries, the en- Jóhannsson, I.V. and Sveinsson, J. R. 1986. Íslenska try of young people into the housing market is and húsnæðiskerfið – Rannsókn á stöðu og þróun has been something of a perennial problem. There húsnæðismála. Félagsvísindastofnun Háskóla have been periods, though often not for very long, Íslands. when the housing market across the country has Matthíasson, J. V. 2017. Óleyfisíbúðir – staðan nú had a few years of relative stability. The 1990s was og leiðir til aukins öryggis. Presentation at a probably the strongest such case in point. On the conference held by the Reykjavík Academy and other hand, the second half of the 2010s (a dec- the City of Reykjavík on illegal housing in non- ade about to come to an end as this is written) has residential areas, 17 November 2017. proved to be very difficult for both first-time buy- Nordic Statistics database. 2019. Nordic ers and tenants. So difficult, in fact, that in many population statistics. Accessed on 9 October ways it echoes the dire situation faced by people 2019. looking for their first homes back in the inflation- Samtök iðnaðarins. 2019. Íbúðum í byggingum ridden days of the 1980s. House building stopped fækkar lítillega. Accessed on 30 October for an unnecessarily long time after the 2008 2019. https://www.si.is/media/_eplica- crash, only achieving healthy levels again as late as uppsetning/Greining-SI_Ibudatalning- 2018. This led to a spike in house prices that paral- haust-2019_11-09-2019.pdf leled the pre-crash years, just before 2008. Stefánsson, S. H., Flygenring, K. Þ. and The rental market has, if anything, been going Heiðarsson, J. Þ. (eds.) 2013. Skýrsla through even tougher times than the home own- rannsóknarnefndar Alþingis um íbúðalánasjóð ership sector – where both tourism fuelled Airbnb o. fl. Accessed on 28 October 2019. https://rna. rentals and the increased demand from immigrant is/ibudalanasjodur/skyrsla-nefndarinnar/ workers have almost pushed the sector over the State Housing Institute. 1992. Lán til íbúða edge, at least in and around the capital. fyrir aldraða – svar við fyrirspurn Kristins H. The present government housing measures Gunnarssonar, alþingismanns. package, introduced in the spring of 2019 as part Sveinsson, J. R. 2000. Society, Urbanity and of a collective bargaining agreement, is an at- Housing in Iceland. Gävle: Meyer. tempt to address the most serious questions that Sveinsson, J. R. 2009. Lokun félagslega actors in the Icelandic housing market need to be húsnæðiskerfisins – hvað kom í staðinn? able to face. These measures, as far as they go, Accessed on 27 October 2019. http://wayback. will certainly help improve the housing situation in vefsafn.is/wayback/20151009162503/http:// many ways. But attempts at outlining more com- www.husvef.is/index.php?option=com_content prehensive principles for a future housing policy &view=category&id=52&Itemid=240 are conspicuous by their absence. Varasjóður húsnæðismála. 2018. Könnun á leiguíbúðum sveitarfélaga 2017. Accessed on References 27 October 2019. https://www.stjornarradid. Byggingarsjóður verkamanna. 1998. Ársskýrsla, is/lisalib/getfile.aspx?itemid=4d0307e6-e69b- 1998. 11e8-942f-005056bc530c Eggertsson, D. B. 2018. Presentation at Reykjavík Wikipedia article: Mortgage Industry in Denmark, City Hall of expected housing construction Accessed on 28 October 2019. in Reykjavík, 16 November 2018. Accessed on 29 October 2019 https://reykjavik.is/ sites/default/files/kynning_borgarstjora_ husnaedisfundur_16nov2018.pdf Félagsbústaðir. 2017. Afmælisrit, 1997–2017. Hagstofa Íslands. 1997. Hagskinna – Sögulegar hagtölur um Ísland. Reykjavík. Hagstofa Íslands. 2014. Social Indicators: Tenants renting at market rate. Statistical Series 2014:4. Reykjavík. nordregio report 2020:2 57

Newbuilds and households in the market periphery – Norwegian housing and planning policy at a glance

Berit Irene Nordahl Urban and regional research institute OsloMet – Oslo Metropolitan University

nordregio report 2020:2 59 Introduction they can offer. Like condominiums, cooperatives House building in Oslo is approximately 4,000 new are sold on market terms, with no price regula- units a year at the moment, population growth tion. Municipal housing accounts for only 2% of all around 10–12,000 per annum. This is equivalent homes. The private rental market is dominated by to one new housing unit for every 2.7 new inhabit- non-professional individual homeowners renting ants. In 2016, the average square metre price for out part of their house, or, as is increasingly the a house in Oslo was double what it was ten years case, renting out a second home. With the mar- earlier. Even if the situation in Oslo is an extreme ket in the driving seat, how can Norwegian housing example, the tendency is the same in all fast-grow- policy cope with an ever-higher threshold for be- ing areas. Whenever the rate of housebuilding lags coming a homeowner? How can it deal with house- behind population growth, and house prices rise holds’ depth growing alarmingly high, increasing at an all-time rate, academics, house-hunters and inequality in the housing market and cities where politicians are all bound to scrutinise the efficiency low-income households concentrate in the lower of the market in providing enough (and suitable) priced areas? housing for all. This is the case in Norway today. This article examines the problems, practices The first issue to be examined is the housing and trends in the current Norwegian housing policy supply mechanisms. At the core of a neoliberal debate. It starts by giving a short overview of that approach (where nearly 100 % of all new houses part of the housing policy which is tailored spe- are supplied by commercial builders, built on pri- cifically to accommodate low-income households. vate land and sold on the free market) lies urban Part two discusses the increasing geographical planning and development. However, the function- segregation in Oslo and other larger cities. Part ing of the housing market itself also needs to be three looks at how the planning and supply of new questioned. In fact, two sets of questions have to homes struggles to keep pace with the tendency be asked: First, whether failures or malfunctions in towards geographical segregation and growing in- the market lead to a systematic under-supply of equality in our cities. Part four presents some new housing, and secondly whether the market “sorts ideas arising from movements challenging current goods to persons too efficiently”: rising house prices housing policy, and preliminary political responses are accompanied by increasing inequality especial- to these movements for change. It discusses the ly in the bigger cities. Norway has seen increasing possibility of a shift in Norwegian planning and social inequality, especially within the cities. Aca- housing policy overall. demics agree that housing has moved from being a policy field that balances out income inequalities Norwegian housing policy for house- to one that has itself become a generator of in- holds in the market periphery equality in society (Halvorsen and Lund­quist, 2017; Norway abandoned its post-war universal hous- Galster and Wessel, 2019). ing policy in the 1980s. Bit by bit, subsidies were Norway is a nation of homeowners. This is a phased out, price regulation was repealed (An- legacy of both post-Second World War policy naniassen, 2002; Sørvoll, 2007) and the municipal and events at the turn of the 1980s. In the 1980s, role in providing land for new housing was restrict- a conservative wind blew across the country and ed (Nordahl, 2012). Sørvoll terms this shift in policy the previous post-war housing policy (with supply during the 1980s “the social housing turn”1. That subsidies and price controls) was dismantled and is, a turn away from general subsidies towards a phased out. Today, 80% of all households buy and means-tested, selective policy. In the 1980s the sell their homes on the market. This figure includes state cut down on general supply subsidies, dis- the Norwegian version of housing cooperatives. mantled price controls and decided to support Housing cooperatives in Norway are organised as households who had failed to find adequate hous- individual, small-scale co-ops financed by a combi- ing on their own through means-tested financial nation of each residents’ individual mortgage and support. This was a turn from a supply-oriented joint loans for all co-owners in that particular co- policy to a consumer-oriented policy. Housing operative. When a household decides to sell their policy as a whole is therefore divided into policies unit, it is put on the market for auction. The buyer for “a well-functioning housing market” on the one must take over any remaining joint loan and must therefore include this sum in calculating what 1 Den boligsosiale vendingen in Norwegian. nordregio report 2020:2 60 hand, and on the other policies aimed at house- for innvandrer- og flyktningeboliger (SIFBO, Soci- holds who for a variety of reasons are unable to ety for Immigrant and Refugee Accommodation), buy a home on the free market. This consumer- reflecting its new and wider scope of operations. enhancing policy comprised several schemes for The housing stock, which FLYBO had built up and supporting those unable to pay their rent, and managed over the years, was also transferred other schemes for helping low-income house- to SIFBO. In 1988, the government proposed to holds to find adequate housing. It therefore had close down SIFBO and reorganise accommoda- a clear focus on poverty (Sørvoll 2011). Nowadays tion for refugees (NSD, 2019). Responsibility for this poverty oriented policy consists of a bundle refugee accommodation was then transferred to of instruments targeting different households – the Norwegian State Housing Bank (Husbanken). or rather, households with different problems in Later, this task was once again transferred, this finding an adequate housing solution on their own time to the municipalities. As a result, responsibil- under purely market conditions. Three core instru- ity for accommodating refugees lies at municipal ments should be noted in particular: the housing level nowadays. Municipalities receive state sup- allowance system, municipal housing, and assisted port to assist refugees to find an adequate home. purchase schemes. The support scheme covers the first five years of The housing allowance scheme means, in short, settlement. Its objective is to help refugee house- the provision of cash transfers to households who holds find homes on the private market – rental cannot afford adequate housing at market rates or owner occupied – or alternatively to get a mu- on their own income – be that pensions, benefits nicipal house. Beyond five years, there is no special or salaries. These allowances are means-tested, support for refugees other than the general allow- and the design of those tests can change over the ances and financial support available to any low- years. Who is eligible will vary according to income income household. Migrant workers do not have and household size. The calculation is based on earmarked support mechanisms to rely upon. The templates for living costs for different household history of refugee housing thus reflects a complex sizes. The maximum subsidy also varies accord- but stringent shift in policy: away from the build- ing to geography. In this way, allowance levels ad- ing of houses in particular categories, and towards just to specific house prices in the actual area in to the use of market mechanisms in combination which the recipient lives. The history of housing with means-tested allowances in order to enhance allocation is closely linked to the history of gener- a household’s purchasing power. al housing policy in Norway. Whereas allowances Some ‘category housing’ was of poor quality used to be linked to a particular category of hous- and was demolished, other parts were reorgan- ing scheme – for instance, those tailored towards ised into housing cooperatives or condominiums, disabled households, refugees or the elderly – an and sold off to residents. The State Housing Bank allowance is now allocated independently of the manages allowances. The Ministry of Local Au- housing type. Housing allowances also used to be thorities and Modernisation (KMD) has also begun linked to different kinds of incomes, but after a work on comparing eligible versus actual recipients. reform in 2009, the source of income has become The latest estimate of the number of people eligible insignificant (Nordvik et al., 2011). Households in varies between 6.1 % and 6.9 % of all households, private rented accommodation are entitled to an according to these calculations (Killengreen Revold allowance, for instance, provided the household’s and Lande With, 2019). income is below the threshold and the rent level is Municipal housing means, in short, homes the acceptable. What is known as ‘category housing’ municipalities either own or otherwise have at has, correspondingly, been gradually phased out. their disposal which are then offered to house- One example can be seen in the history of gov- holds who are unable to find a home on the market ernmental responsibility for the housing of immi- without assistance. Access to municipal housing is grants and refugees. In 1976, the Society for Im- means-tested. Houses are rented out to eligible migrant Accommodation (SIBO) was established. households on temporary contracts (three years, This agency changed its name in 1988, when FLY- with the possibility of an extension). In comparison BO (Accommodation for Refugees) and the Loan with other Scandinavian countries, the municipal Fund for Refugees (Lånekassen for flyktninger) housing sector in Norway is small. It accounts for merged with SIBO. The new name was Selskapet just 2 % of all housing across the country. The mu- nordregio report 2020:2 61 nicipal disposition to the houses they rent out to grants and loans from Husbanken (the Norwegian eligible households has expanded over the years, State Housing Bank) to construct new municipal municipal housing now include houses that the housing, or to acquire new houses on the existing municipality rents from private property owners market. Most municipalities want some flexibil- on long-term let, and which it then sublets to eli- ity in their housing stock in order to adjust better gible households. Municipalities often combine the to coping with new tenants, new needs and new role of an owner, or sub-letter, with that of offering preferences. Selling municipal houses and acquir- services and care to tenants, based on their needs. ing new ones is therefore an ongoing process, as The basic idea is that municipal rentals should be Figure 1 illustrates. seen as a temporary housing solution for a house- To summarise, the turn towards the mar- hold. Municipalities are encouraged by the state to ket in housing policy in Norway in the 1980s also set a three-year limit of residency, since it is felt streamlined the country’s home ownership model that after three years the household should either for households on the ‘market fringe’. The state be able to find a home on the private rented mar- reduced its involvement with supply-side subsi- ket, or to buy a home of their own. The state also dies and increased its commitment to demand- encourages municipalities to set rents equal to a side subsidies. In this policy shift, means-tested market rent (SSB, 2019). Any gap between house- allowances are a core instrument. In later years hold income and the rent should be covered by an the policy was then expanded to help low-income allowance. This includes state allowances, as dis- households to become homeowners, as discussed cussed above. But where the household concerned in the next section. is not eligible for such a state allowance, or where the allowance is too low to enable the household Homeownership for low-income households to meet its ends, some municipalities have also in- In 2003 assisted loans for home purchase were in- troduced their own system of allowances. If that is troduced (Husbanken, 2018:118) and this expanded not the case, the household will then need to apply the home ownership ideal to low-income house- for social benefits. Municipalities have access to holds as well. These loans were termed ‘start-up

2 000 1 800 1 600 1 400 1 200 1 000 800 600 400 200 0 2015 2016 2017 2018

Houses bought or built last year (numbers) – Norway without Oslo Houses bought or built last year (numbers) – Oslo Houses sold last year (number) – Norway without Oslo Houses sold last year (number) – Oslo Houses sold to tenant last year (number) – Norway without Oslo Houses sold to tenant last year (number) – Oslo

Figure 1: Changes in municipal-owned housing for Oslo, and for the rest of Norway without Oslo. Source: Statistics Norway.

nordregio report 2020:2 62 loans’, and they were tailored specifically to house- postpone the final payment for it to a later stage. holds with no equity or low equity, to enable them In Oslo, the largest builder in Norway, OBOS, is pi- to obtain a mortgage. The loans are administered oneering this model. The first private company to by municipalities, commissioned by Husbanken. offer shared ownership was, however, Trondheim The bank transfers credits to municipalities, ena- og omegn boligbyggelag (TOBB), a cooperative bling them to reach out to low-income households housing company in the city of Trondheim. These living within their jurisdiction. Eligible households models are being tested by Norway’s Financial Su- will have a low but stable income. This is a way pervisory Authority (FSA) and amended to fit in specifically to encourage home ownership among with general credit rules. Earlier versions of com- low-income households. That includes, for exam- mercial builders’ models for shared ownership ple, people on disability insurance. The specifica- were prohibited because they violated the estab- tion of what constitutes an eligible household has lished equity rules. The FSA now accepts the ex- changed over the years. In 2011, Aarland, for in- isting, amended models. The commercial builder stance, estimated that a large proportion of low- promotes the model as a way of young households income households who had failed to obtain credit (and re-establishing households) getting a home from ordinary banks would be able to pay a mort- at 10 % below a unit’s full market price. If the own- gage if they were able to receive an assisted mort- er wants to sell before the final 10 % is purchased, gage (Aarland, 2011). At that time the number the commercial builder is then obliged to buy the of recipients of start-up loans was already high, unit back at 90 % of the market price. reaching a peak of 12,514 new loans in 2012 (Hus- Commercial operators also play a role in the banken, 2018). In 2014, an large-scale change was provision of council housing through different made. As young households with low but stable models of private-public partnership. Husbanken income were no longer eligible, loans would now has recently introduced a model whereby private be reserved only for the lowest income groups. As builders are able to combine building units for mar- part of this reform, municipalities could prolong ket rent with building units for council housing. The the down-payment period for up to 50 years. The builder and the municipality agree on the number policy change implied a narrowing of the scope of units which will be reserved for the households and number of recipients, with the number drop- for whom the municipality is responsible. The mu- ping to 7,316 in 2016, and then to just below 7,000 nicipality then rents these units to households in the following two years (Husbanken, 2018:122). need, and the rest to regular tenants. The com- At the beginning of the 2000, shared owner- mercial builder gets a favourable loan (from Hus- ship was introduced to help low-income house- banken) for building these houses. For the builder, holds become homeowners. The concept was bor- this is a way to reduce the degree of risk related to rowed from the UK, and the Norwegian version of market for the new units. They get their favour- this instrument is still being developed. The idea is able loan alongside pre-letting agreements for a that a household will buy part of the house and substantial number of units before construction rent the other part. Over a number of years, the work starts. There are two versions of this model2 household then pays rent for the proportion of the with certain specifications about municipal obli- house that it does not own. This rent is set a lit- gations, the nature of the tenant agreement, etc tle higher than the actual cost, and the household (Husbanken, 2019). thereby gradually increases their equity holding through saving until they can buy out the munic- Growing inequality and ipal-owned portion of the house and become its geographical segregation full owner. The rationale for this scheme, and for Post-war housing policy was tailored to help even start-up loans, is to enable low-income households out economic inequalities in society, a policy that to buy homes without supply-side subsidies. These was supported by all political parties. The down- schemes also have the benefit of providing greater sizing of supply subsidies and deregulation in the permanency for the low-income households. 1980s and early 1990s initially led to a severe ‘boom Over the past ten years, commercial operators and bust’ in the housing market. After the down- have also established a private-private shared- ownership model in which a household buys a 2 The two models are called tilvisningsavtale and tildelings­ (large) portion of their house, but is allowed to avtale in Norwegian. nordregio report 2020:2 63 turn, it took near ten years before prices rose and nificant impact on that of their grandchildren. The construction took off again. Since 2000, house likelihood of second generation offspring owning a prices have risen steadily, year-on- year, interrupt- house is considerably higher if their grandparents ed only when the Information and Communication lived in Oslo, and even more so if they owned a Technology industry (ICT) crash reached Norway house in Oslo. Halvorsen and Lindquist (2017) have in 2004, followed by the international credit crash also found that parental resources are important of 2008. See figure 2. for their offspring’s housing prospects. They note Rising house prices are evident all over the that homeownership rates for young households country, but the price gradient varies significantly with wealthy parents, or for parents who are help- between rural and central areas, as well as within ing out financially, has increased relative to those central areas. The variations within central areas of young households not in receipt of parental as- are of two kinds. First, we see a steep difference sistance. between central areas and suburban locations: Other academics have addressed the distribu- the further you get from the city centre, and the tion of poverty within the greater Oslo area, and closer to the outer urban fringe, the lower the pric- the consequences of low-income households and es. Second, in Oslo, you also see major price dif- immigrants congregating in certain areas. Ep- ferences between different districts. House prices land and Kirkeberg (2017) show, for instance, that in the western parts of Oslo are double those in neighbourhood characteristics and the quality of eastern parts. These trends are stable and raise schools have a significant impact on children’s de- concerns about increasing socio-economic in- velopment and social mobility. They find clear evi- equalities within the housing market. Both aca- dence that living in areas where a high percentage demics (see for instance Ljunggren, 2017), and the of neighbours have a low income or live on benefits wider population make use of newspapers, semi- reduces performance and social mobility, particu- nars and conferences to discuss price trends and larly in Oslo. Brattbakk and Andersen (2017) also price differentials. The discussion takes different discuss the role of neighbourhood characteristics directions, however. Some academics examine the on children. According to the authors the concen- role of inheritance on social mobility and housing tration of poor families with children is particularly career. Wessel and Galster (2019) have found that high in the large and medium-sized cities in south- the housing situation of grandparents has a sig- ern and eastern Norway, and most poor children

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0 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Boligpris hele landet Boligpris Oslo med Bærum Inntekt etter skatt (kr)

Figure 2: Price index for Norway, and Oslo and Bærum, and households’ net income 1992–2016 (1992=100). Source Statistics Norway. Author’s own alignment.

nordregio report 2020:2 64 are found in areas of Oslo that score low on living concentration not only of low-income households conditions, have a good deal of municipal housing, but also of households in need of care. and suffer from high unemployment. The authors This is the unintended effect of means-tested warn that geographical inequalities reproduce so- aid aimed at increasing the purchasing power of cial inequality in society as a whole and call for a low-income households, when applied in cities with new and better urban planning. significant price differentials. In fact, the evidence Academics also address how housing policy shows that current housing policy accelerates seg- can aggravate increasing segregation. Johan- regation processes in the city and that housing nesen et al. (2018) dig deep into housing policy policy fuels housing as driver of inequality. detail to analyse whether recipients of assisted Going back to the observations of Brattbakk loans tend to be concentrated in low-priced city and Andersen (2017) in addressing the role of ur- districts, and whether low-priced districts also ban planning as means to combat increasing in- evidence a disproportionately high proportion of equality, the next section looks at whether urban households receiving allowances. Based on data planners have the power to accommodate low- from Oslo municipality, they have found that the income and vulnerable households in ways that eastern inner-city districts which have a high con- combat segregation. centration of municipal housing also contain the highest proportion of households receiving hous- Planning practices – responses ing allowances. Convergence between low-priced to price rises areas and low-income households is not very sur- Part 1 of this article showed how Norway has prising. More interesting are the findings related adopted a housing policy for marginal households to low-income households who receive assisted which is dominated by means-tested, demand- loans to buy a home. The evidence demonstrates oriented instruments enabling low-income house- a tendency for recipients of such loans to settle in holds to enter the housing market. Part 2 showed areas with lower prices. A household needs to ap- how, in cities with significant internal price varia- ply for an assisted loan in the city district where tions between districts, housing policy contributes they live at time of their application. If the loan is to the increasing concentration of low-income granted, they are free to buy a home anywhere in households in some areas and thus prompts both the city. Out of 449 new loans granted in Oslo in segregation and growing inequalities. The ques- 2016, 297 were used to buy a home in one of the tion highlighted in this section concerns what kind three lowest priced areas (Johannesen et al. 2018). of instruments the Planning and Building Act pro- Barlindhaug et al. (2018: 49–59) support these vides for creating socio-economically mixed hous- findings. When studying motives for moving with- ing areas, and therefore explores whether the in the city, for families with children in Oslo, they municipalities can use planning to counteract the found that a large proportion of households who geographical segregation and inequality caused moved to the lower-priced eastern areas had re- by the structure of the housing market. ceived assisted loans. In addition, households who The main way the Planning and Building Act already lived in the outer eastern part of Oslo at can reduce house price rises is said to be by increas- the time of application used their loans to pur- ing the number of new homes built. The discussion chase a home in the same part of the city that on supply elasticity and measures to increase that they lived in when they applied for the loan. The elasticity as a means of reducing price rises has been persistence of this pattern is further illuminated high on the political agenda in Norway. In 2011, the in recent work of Barlindhaug et al. (2020). They OECD pointed out that Norway had low price elas- present evidence that low-income households liv- ticity (Caldera Sanchez and Johansson, 2011), and ing in rented homes in the pricier parts of the city an investigation was initiated to look at barriers in who want to become homeowners and who apply the Norwegian system (Barlindhaug and Nordahl 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 for assisted loans to buy one, use this loan to buy 2011). In the OECD report, as in Norway, reform a home in a lower-priced district. This behaviour is of the planning system is seen as an important in- logical from these households’ viewpoint, because strument for removing conditions that limit hous- in this way they get ‘more housing’ for the amount ing construction in times of population growth of money available. Interviewing officers in these and price increases. In line with this, efficiency districts indicates that this practice leads to the considerations have been put on the agenda. It

nordregio report 2020:2 65 Source: Ministry of Finance, 2019 appears that there is a clear connection between etc. In total, this gives a municipality the oppor- population growth, the rate of new construction tunity to determine the physical characteristics and price growth. Rising prices are therefore ex- of new houses and neighbourhoods. The basic as- pected to trigger new construction until the mar- sumption is that this also has consequences for ket reaches a new equilibrium. In cities, however, the composition of households. At a certain level, the logic involved is more complex. Cities tend to this assumption is not wrong. In Oslo, for example, have a price curve, that shows prices decreasing in provisions concerning the maximum proportion of relation to distance from CBD (Barlindhaug, 2012). permitted small units are used for new housing Building new houses in the outskirts of larger cites in neighbourhoods where there are already many will not reduce the price level, and neither will fill- small units, many single-headed households and ing in and redeveloping of inner-city sites in order where the municipality would like to see more so- to accommodate more houses. There is therefore cially mixed population – for instance more fami- no reason to assume that better and faster plan- lies with children. ning alone reduces problems of segregation, or ad- However, the instruments provided by the dresses lack of affordability for households on a Planning and the Building Act are only indirect. For low income (but still too high an income to benefit instance, the Act does not allow municipalities to from the means-tested instruments). specify financial models and forms of tenure. Nor In principle planning and development control can they decide whether a project should have a should be key instruments to address segregation certain proportion of rental housing, much less and lack of affordability. A survey of municipali- what the selling price should be. If a municipality ties asked whether they found that the instru- wants its housing to be organised as a housing co- ments available to them through the Planning and operative rather than a condominium, they cannot Building Act were suitable for a socially sustain- set this as a zoning criterion. The municipality may, able growth policy (Nordahl, 2018). The answers of course, recommend and encourage developers from both planners and mayors suggest that the to tailor new construction to the population they law does not currently provide the optimal frame- would like to see in that area, but the formal au- work. These results are supported by findings thority remains limited. The limitations on author- from other studies, and from the general experi- ity can present a challenge to the implementation ence of the interface between housing policy and of housing policy objectives, especially when those land planning in Norway. In his review of munici- objectives propose integrating homes aimed at pal plans, Haga (2013) found that proposals for a low-income households into housing projects for more socially balanced profile in new construction the general market. The municipality's room for were prominent in many municipal plans. However, manoeuvre to achieve objectives of mixed neigh- he also found that relatively few measures were bourhoods through planning is thereby limited to being deployed to ensure that municipalities can use of pre-emption. actually achieve these goals. Barlindhaug et al. This pre-emptive right is embedded in zoning (2014) confirm this interpretation. specifications. The logic is that the municipality The Planning and Building Act has very limit- sets out in its overall plans that they would like to ed instruments to target the construction of new see in terms of a social mix in new developments, housing for low-income households. The law pro- and that it will use development agreements to vides a municipality with the right to decide some purchase a number of housing units. That is, the characteristics of new-build properties. They may municipality acquires a certain number of housing include specifications relating to the composition units in the project, in accordance with the rules of of housing types in a given building project (the mix the Law of Condominiums3 and the Law of Hous- of detached houses and multi-family houses) as ing Cooperatives4. The Planning and Building Act well as the distribution of houses with a different number of rooms (the number of units with one, two and more bedrooms). These specifications are 3 The Law of Condominiums limits the number of units that one entity (or individual) may own in a condominium to 10%. included in the zoning plan, and therefore in the 4 The Law of Housing Cooperatives limits the number of development permit. The municipality can also de- units that one entity (or individual) may own in the coopera- termine exploitation rate, height and volume, and tive to 10%. However, for particular purposes, municipalities (or regional authorities) may own an additional 30% of the can make provisions regarding façade, roof angle, units. nordregio report 2020:2 66 states that if the municipality wants to make use Another category of actions consists of proper of pre-emption, the developer must be compen- policy-change initiatives in the larger cities. This sated at market prices. There will always be some summer (2019), the municipality of Oslo adopted bargaining regarding what the market price is, so a new housing programme that includes a more municipalities that want to use this right will need active role for the municipality itself. The new pol- to notify early through the municipal masterplan, icy proposal is to integrate municipal housing into specifying what areas it sees as relevant to this. new construction projects, and to commence test The market price may also vary considerably within building with residents taking part in completing a single project (Barlindhaug and Nordahl, 2018). their homes and in their ongoing maintenance. To sum up, housing supply for households on This new policy initiative also includes trying out the margins of the market in Norway is not very a new model of housing tailored to low-income closely linked to planning and to newbuilds. The households who earn too much to qualify for the law grants local authorities no right to specify in- existing forms of assistance, but too little to be clusionary zoning, as in the UK and other countries able to buy a home on the private market. That is, (Whitehead, 2007; Morris, 2016). Also, the munici- the municipality of Oslo wants to identify a Third pality is not entitled to demand particular forms Sector supplier – something which is new to Nor- of tenure or financial models in the way that this way, but familiar to most other European coun- is allowed for in the Danish Planning and Build- tries (Oslo Kommune, 2019). ing Law. For many cities this has led to frustra- Other large cities in Norway are also address- tion. They would like to see a more ‘social profile’ ing the issue of housing supply. Bergen has started in newbuilds, and to include the objectives of less work on a universal policy and is considering using segregation and greater inclusion in their plans municipal land ownership as a means to reach ob- (Haga, 2013; Oslo Kommune, 2019; Bergen Kom- jectives in relation to newbuilds which cannot be mune, 2019). However, they have few means at attained via the existing planning authority. As their disposal to achieve this. This has led to sev- Bergen, like most Norwegian cites, owns little land, eral new initiatives that might yet prompt policy this implies getting involved in buying and trading change. urban land. Last but not least, the Association of Munici- Emerging movements palities (KS) has initiated a network for munici- This section provides a short presentation of new palities that want to increase their influence on initiatives that challenge the existing policy frame- market supply – both in terms of numbers, quality work for housing provision for marginal house- and social profile. The objective of this network is holds. These initiatives vary as to whether they are to come up with new practices that achieve this. close to prompting an actual policy change or are just identifying what needs to be addressed. Conclusion One category of actions concerns new move- The backdrop for this article is the provision of ments addressing system failure, such as the new houses for low-income households; that is, ‘housing rebels’ in Oslo. This group consists of mu- households who are marginal in the housing mar- nicipal housing tenants who have been protesting ket in the Nordic countries. In this regard, Nor- against housing conditions and the lack of tenure way stands out from its neighbouring countries security. Their action is addressed at low-quality in several ways. First, when it comes to catering housing, lack of social care for households in need, for those most in need. As indicated above, these and it is also a protest against the principle that households are primarily offered tenancy in homes municipal housing should be, by definition, temporary. owned (or managed) by the municipality. The rent Oslo has also seen other initiatives, for in- is set on market terms, and low-income house- stance the formation of a new housing coopera- holds are eligible for allowances so that they can tive to build new homes for households who want pay the rent required and still maintain a decent to live in affordable housing and in more collective (but low) standard of living. The market rent prin- estates – ones where residents take more direct ciple is applied in order to disincentivise house- and personal responsibility in the construction, up- holds from remaining in the municipal rented sec- keep and maintenance of their properties (Tøyen tor for too long. All tenants are partly encouraged Boligbyggelag). and partly forced to find a home on market terms nordregio report 2020:2 67 after three years. Second, in Norway low-income boligpolitikk. Akademika forlag, Oslo og households are also encouraged to become home- Trondheim. owners. A part of the national policy there are Barlindhaug, R. and Nordahl, B. 2011. assisted loans, which are tailored to the budget Boligbyggingens prisrespons. For mange hensyn situation of low-income households. Allowances, eller for lite tilrettelegging? NIBR rapport loans and access to municipal housing are sub- 31:2011, NIBR Oslo. ject to strong means-testing, and a large propor- Barlindhaug, R., Holm, A., Nordahl, B. 2014. tion of households do not qualify for any of them Kommunens tilrettelegging for boligbygging. – but are still unable to purchase a home at full NIBR rapport 2014:13. NIBR, Oslo. market levels, especially not in Oslo or one of the Barlindhaug, R. and Nordahl, B.I. 2018. other larger cities. These households are on their Developers’ price setting behaviour in urban own. They need to postpone any home purchase, residential redevelopment projects. Journal of they commute long distances, or they congregate European Real Estate, vol 11, issue 1 (pp. 71-86). in lower-priced areas. Third, since there is no price- Birkeland, K. A. 2017. Tilvisningsavtale: regulated housing sector in Norway, and in the Utleiers mulighetsrom. Masteroppgave i cities neither large landowners nor the local au- Eiendomsutvikling, NMBU. thority can influence end-prices in private market Brattbakk, I., B. Andersen. 2017. Oppvekststedets housing, ‘middle-bracket’ people also find them- betydning for barn og unge. Nabolaget som selves on their own. For some, parents help out. ressurs og utfordring. AFI Rapport 2017:02. Every second home purchase made by buyers in Caldera Sánchez, A. and Johansson, Å. 2011. their twenties is facilitated by parental assistance The Price Responsiveness of Housing Supply (Statistics Norway, 2018). At national level this in OECD Countries. OECD Economics fuels concern about rising debt, for young house- Department Working Papers, No. 837, OECD holds as well as for elderly households. The result Publishing. is too many households with an unsustainable LTV Epland and Kirkeberg 2017. SSB – article. (loan-to-income) ratio. At local level this feeds the Accessed on 28 February 2017 https://www. concomitant concern about growing geographi- ssb.no/inntekt-og-forbruk/artikler-og- cal segregation. This is contrary to the more inte- publikasjoner/ett-av-ti-barn-tilhorer-en- grated form of developments that local politicians husholdning-med-vedvarende-lavinntekt. would like to see. These problems are most evident Galster, G. and Wessel. T. 2019. Reproduction in Oslo and the other large cities. These cities are of social inequality through housing: A three- now systematically assessing what they can do to generational study from Norway. Social change this unwanted situation. It remains to be Science Research. Volume 78, February 2019, seen whether municipal initiatives will lead to any pp. 119–136. substantial shift in national policy. Galster, G. and Magnusson Turner, L. 2017. Status discrepancy as a driver of residential mobility: References Evidence from Oslo. Environment and Planning Annaniassen, E. 2002. Vendepunktet for ’den A: Economy and Space, vol. 49, 9: pp. 2155–2175. sosialdemokratiske orden’. 1970-tallet Haga, T. S. 2013. Kommunal sosial og boligpolitikken, i Tidsskrift for utbyggingspolitikk: bustadpolitiske mål og samfunnsforskning, bd. 43, nr. 2: 155-90, 2002. verkemiddel. Masteroppgave, NMBU. Aarland, K. 2011. En modell for vurdering av Halvorsen, E. and Lindquist. K-G. 2017. Getting a eierskapspotensialet blant lavinntektsgrupper Foot on the Housing Ladder: The Role of Parents og vanskeligstilte på boligmarkedet. Utrykt in Giving a Leg-Up. Research Paper 19/2017, vedlegg til NOU 2011:15 Rom for alle. Norges bank. Astrup, K., L.C. Monkerud, M. Ekne Ruud, K. Husbanken. 2018. https://www.husbanken.no › Aarland 2015. Kommunenes praktisering Om-Husbanken › Husbanken-rsrapport-2018. av startlånordningen – effekter av den nye Husbanken. 2019. Veiviseren https://www. forskriften. NIBR rapport 2015:27. veiviseren.no/stotte-i-arbeidsprosess/ Barlindhaug, R. 2012. Urbane boligmarkeder. fremskaffe-og-forvalte-boliger/ I Nordahl, B. I. (red) Boligmarked og

nordregio report 2020:2 68 tilvisingsavtaler-kommunalt-disponerte- NSD 2019. https://nsd.no/polsys/data/ utleieboliger/forskjellen-pa-tilvisningsavtale- forvaltning/enhet/9500/endringshistorie. og-tildelingsavtale. Oslo kommune. 2019. Byrådssak 145/19. Killengreen Revold, M., and Lande With, M. Oslo kommune. 2016. Boligbygg, Årsrapport 2019. Får de som har rett på det bostøtte? 2016. https://issuu.com/boligbygg/docs/ Kjennetegn ved faktiske og potensielle boligbygg-a__rsrapport-interaktiv/34. bostøttemottakere Rapport 2/20189. Statistics Norway. 2019. https://www.ssb.no/ Statistics Norway https://www.ssb.no/bygg- husleiekalkulator. bolig-og-eiendom/artikler-og-publikasjoner/_ Statistics Norway. 2018. https://www.ssb. attachment/376897?_ts=168b89ed6e0. no/bygg-bolig-og-eiendom/artikler- Krakstad, S O. and Oust. A. 2015. Are house prices og-publikasjoner/halvparten-av-unge- in the Norwegian capital too high? International boligkjopere-far-foreldrehjelp. Journal of Housing Markets and Analysis. ISSN: Sørvoll, J. 2007. Arbeiderpartiet og reguleringen 1753–8270, 1 June 2015. av boligomsetningen 1970–1989: fra Ljunggren, J. (ed.) 2017. Oslo – Ulikhetenes by. totalreguleringsambisjoner til markedsstyring. Oslo: Cappelen Damm Akademisk 2017ISBN: Master Thesis. Department of Archaeology, 978-82-02-52161-5O. Conservation and History, University of Oslo. Morrison, N. 2016. Housing Studies Institutional Sørvoll, J. 2011. Norsk boligpolitikk i forandring logics and organizational hybridity: English 1970–2010. Dokumentasjon og debatt. NOVA housing associations’ diversification into the rapport 16/11. Oslo. private rented sector. Housing studies, Issue 8, Tøyen Boligbyggelag. https://www. Volume 31, 2016. toyenboligbyggelag.no/ Nordahl, B. 2012. Kommunens rolle i Wessel, T. and Nordvik, V. 2019. Mixed boligbyggingen. I Nordahl, B. (red) Boligpolitikk neighbourhoods and native out-mobility in the og boligmarked. Akademika, Oslo og Oslo region: The importance of parenthood. Trondheim. Urban studies. 2018, Vol.56(5). Nordahl, B. 2018. Boligbygging og boligpolitikk: Whitehead, C. 2007. Planning Policies and Plan- og bygningslovens trange handlingsrom. Affordable Housing: England as a Successful In Aarseth, N., G. Sandkjøer Hanssen (eds.) Case Study? Housing Studies, Issue 1, Volume En lov for vår tid? Evaluering av Plan og 22, 2007, pp. 25-44. bygningsloven bok 2. Universitetsforlaget. Nordvik, V., Skog Hansen, I L., Koren, C. and Lescher-Nuland, B. 2011. Den norske bostøtten: effekter av en reform. FAFO rapport 2/11. Fafo, Oslo.

nordregio report 2020:2 69

Sweden: How could new- build be made affordable to lower-income groups?

Anna Granath Hansson KTH Royal Institute of Technology

nordregio report 2020:2 71 Introduction ficult for lower-income households to enter the The housing shortage has been heavily debated housing market and limits sales of new-build prop- in Sweden for a number of years, often without erties. distinguishing between market demand for hous- This chapter starts by examining the political ing and housing needs. Many municipalities expe- focus on extending the housing supply, together rience difficulties when it comes to quantifying with the (partly contradictory) desire to stem the housing shortage (National Board of Housing, household debt. Then, it will go on to describe the Building and Planning, 2019a). Neither the major- target groups for housing policy. The core of the ity of municipalities nor the national government, chapter then looks at public-sector initiatives to have conducted thorough analyses of the hous- lower housing costs for new-build properties. Al- ing market to map demand versus need (SOU ternative forms of tenure and financing are also 2018:35). However, there are a number of indica- examined. The chapter concludes with a short tors of shortage: 240 out of 290 municipalities re- analysis of the present situation in the housing port a lack of housing (National Board of Housing, market for low-income households and the possi- Building and Planning, 2019b) and the number of ble impact of public and private sector initiatives. homeless people is increasing, as well as the num- ber of so-called municipal social contracts1 (The Political priorities in housing and the National Board of Health and Welfare 2017). The housing market rental housing queue can also be used as an indica- Expansion of housing supply tor. In 2018, 13,455 dwellings were allocated in the The liberal Swedish Government from 2010-2014 greater Stockholm area, which may be compared introduced a number of reforms to incentivise to the 87,000 people who were actively looking housing construction and initiated investigations for a new apartment and the 635,730 people on into further reforms. Among the reforms intro- the waiting list (Stockholm Housing Agency, 2018). duced during the four years were the introduc- Moreover, the Swedish population increased from tion of mandatory long-term municipal plans for 9.2 to 10.2 million between 2008 and 2018, mainly housing development and a law on guiding prin- through immigration, which also increased the ciples for municipal land allocation to make the need for housing (Statistics Sweden, 2019a). process more transparent. Further, limitations of The focus of discussion and reform has been municipal building regulations that are more re- the development of new housing, rather than strictive than state regulations (typically in areas measures connected to the existing housing stock. such as ease of access and energy efficiency), and Besides increasing the amount of housing avail- a prohibition to request that developers should fi- able overall, construction is expected to result in nance social infrastructure such as kindergartens, filtering that improves the efficiency of use of the schools, etc. were introduced (for an overview of existing housing stock (e.g. Social Democratic Party, implemented reforms and investigations related 2019), although the impact of this for households to further reform, see Granath Hansson 2015). on lower incomes is uncertain (Rasmussen et al., The successor Red/Green government from 2018). In parallel, housing prices have increased 2014-2018 introduced an investment subsidy for continuously and considerably during the past 20 the construction of rental housing. After the elec- years. Concerns regarding household debt have tions in 2018, the Red/Green coalition had to seek induced politicians to introduce credit restrictions. support from the Centre Party and the Liberals to Some argued that these have made it more dif- stay in power. A programme consisting of 73 re- form proposals, including some initiatives related to the housing market, was negotiated and – at 1 Municipal social contracts are given to households deemed the time of writing – is to be implemented. Reforms in need of temporary rental contracts by the social services. include further changes to (and deregulation of) The lease contract with the landlord is held by the municipal- ity, which then subleases the apartment to a household in the development process, the reintroduction and need for a certain period of time. The time frames vary be- reform of investment subsidies, certain changes tween municipalities, but two to five years is quite common. After the expiry of the lease, the household is expected to to principles for setting rents, more severe punish- find a new apartment on the regular housing market. Social ment for individuals who illegally sell or buy first- contracts are not considered to be social housing, as they are hand rental contracts, a limited modification of temporary solutions and the household does not have the usual security of tenure. the taxes applied when houses are sold, and meas- 60 000,0

50 000,0

40 000,0

30 000,0

20 000,0

10 000,0

0,0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Figure 1. Number of completed apartments in Sweden, 2000–2018. Source: Statistics Sweden, 2019c.

ures to curtail the concentration of socio-econom- two coinciding trends have created a new playing ically deprived households in certain areas (Social field within the housing market. A government en- Democratic Party, 2019). Some of these initiatives quiry (SOU 2018:35) suggested the development will be described in more detail below. of analytical tools to gain a more accurate picture Until recently, most reforms and municipal of housing need, as well as demand, and that new- initiatives were aimed at a general increase in the build activity be targeted to meet the needs iden- housing stock through new building projects. A tified. marked increase in construction volumes can be noted since 2011, as seen in Figure 1. However, this House prices and concerns about volume building strategy resulted in a large share household debt of new-build in the higher end of the market, which In Sweden, as in many other countries, the combi- did not match demand in all locations. In some mu- nation of positive economic trends and low inter- nicipalities, developers and property owners have est rates has had a major impact on house prices. had difficulty selling or letting new-build proper- The financial crisis of 2008-2009 had only a short ties. In 2018, 54% of new-build stock was outside time impact on the Swedish housing market, and the three main city regions. The highest level of house prices have continued to rise for a long time. new construction, in relation to the population, The HOX Housing Index2 shows an increase in took place in Uppsala, Kronoberg and Örebro house prices from 100 in 2005 to 237 in September counties (Statistics Sweden, 2019b). 2019 (Figure 2). Although prices have increased for This new market situation, involving a certain both apartments and houses, the level of increase degree of saturation at the higher end of the mar- differs both between the three major cities and ket, has led to increasing interest in the medium between types of tenure. Apartments in Gothen- and lower ends of the market by a growing num- burg have seen the largest increase, followed by ber of developers. Alongside this shift in the mar- apartments in Stockholm and Malmö. ket, the government and many municipalities have When different price brackets are considered, recognised that the focus on construction volume the biggest rises are seen in the lower ones in is not sufficient to solve the housing shortage since many households cannot afford new-build properties. Moreover, the extent to which filtering 2 Nasdaq OMX Valueguard-KTH Housing Index (HOX) is a price index for tenant ownership apartments and single fami- has delivered low-cost apartments is unclear and ly housing in Sweden. For more information, please see: www. subject to debate (Rasmussen et al., 2018). These valueguard.se. 350,00

300,00

250,00

200,00

150,00

100,00

50,00

200501 200601 200701 200801 200901 201001 201101 201201 201301 201401 201501 201601 201701 201801 201901 201909

Sweden Flats Sweden Flats Stockholm Flats Gothenburg Flats Malmö Houses Sweden Houses Stockholm Houses Gothenburg Houses Malmö

Figure 2. HOX house price index, 2005–2019. Source: Valueguard, 2019a.

400

350

300

250

200

150

100

50

200501 200601 200701 200801 200901 201001 201101 201201 201301 201401 201501 201601 201701 201801 201901 201909

Stockholm – Higher price Stockholm – Medium price Stockholm – Lower price Göteborg – Higher price Göteborg – Medium price Göteborg – Lower price Malmö – Higher price Malmö – Medium price Malmö – Lower price

Figure 3. HOX house price index per segment, 2005-2019. Source: Valueguard, 2019b.

Gothenburg and Stockholm, as well as in the me- of total household debt relates to mortgages (Sta- dium ones in Gothenburg (chart 3). Malmö stands tistics Sweden, 2017). On average, new borrow- out for having the lowest price rises in all sections ers took loans amounting to 411% of their annual of the market. income in 2017. In recent years, the Financial Su- Lately, household debt has increased faster pervisory Authority, together with the EU and the than both household income and GDP (Swedish Fi- IMF, have raised concerns about household debt. nancial Supervisory Authority, 2019a). Some 80% This is because debt increases the risk exposure of

nordregio report 2020:2 74 households and banks, as well as being a potential ductions will have a direct impact and reduce the threat to financial stability and macroeconomic market value of housing, a large proportion of the development (Swedish Financial Supervisory Au- electorate is likely to oppose such reforms. Only thority, 2019a). The government has responded a broad political consensus can realistically pave with a series of regulations to curb household bor- the way for changes of this kind, especially given rowing. In 2010, loans secured by mortgages were the present parliamentary situation. Changes to limited to 85% of the market value of the apart- the property sales tax have also been discussed ment, which means that households need to raise as a means to encourage the elderly to move from 15% of the price as equity or unsecured debt. Since large houses to smaller ones, thus freeing up larger 2016, new mortgages which exceed 50% of the units for families. However, as a significant pro- market value of the house or apartment have to portion of this group has benefited from earlier be amortized. Loans to first-time buyers for new- reforms (as noted above), and as they have seen build properties may be granted an exception for the market value of their housing assets increase five years. In 2018, amortization demands were substantially, there seems to be a degree of politi- also related to household income. cal reluctance towards introducing changes that In its latest report, the Financial Supervisory will further improve their position. Authority (2019b) states that these reforms have indeed had the intended impact. Moreover, they Households in focus in debate, point to the resilience of households to external politics and commercial property shocks as a factor making it less likely that banks development will suffer significant credit loss. However, the po- In the general debate, the most talked-about tential negative impact of this on consumption, es- groups in relation to housing shortage and dif- pecially in a market downturn, is still a factor. This ficulties in finding housing on the current market is particularly so in relation to households with a are young people, students and newly-arrived im- high level of debt in proportion to their income, or migrants. In other contexts, particular attention is to the market value of their home. The report also also being paid to the situation of lone parents, di- suggests that a large number of new debtors are vorcees and older people with lower pensions and in this category. few savings. Over-crowding in socio-economically These credit restrictions have been criticised deprived areas is also on the agenda. by those who think that they will shut out first- Different municipalities have adopted differ- time buyers from the housing market, with the re- ent approaches to identifying households with a sult that young households are not able to start weak position on the housing market. Some refer an independent life and/or move to take up educa- generally to households with lower incomes and/ tion and work opportunities, especially as access or a history of defaulting on payments. Others to rental housing is restricted (e.g. Evidens, 2018; point to specific groups of households – such as Svensson, 2019). Similar problems may also affect those receiving benefits, or having mental, social other types of households with lower incomes. The or drug problems, in addition to young people, stu- construction industry has reported major down- dents, newly-arrived immigrants and older people turns in sales. These are being partly linked to the in need of support. Yet others refer to the Nation- new situation in the credit market. Decreasing al Board of Housing, Building and Planning and sales also influence future building, as they are ex- list the elderly, the young, students, the disabled, pected to reduce the number of new construction newly-arrived immigrants, the homeless, victims projects and/or to change the type of building. of domestic abuse, and households with a low ca- Other ways of limiting sharp increases in pacity to pay (SOU, 2018:35). house prices under discussion are: a reintroduction In Sweden, housing is mainly a municipal re- of property tax (abolished in 2008 and replaced sponsibility, and therefore the selection of target by a housing ownership fee of up to SEK 7812 in groups in relation to housing policy is based on lo- 2018), a gradual discontinuation of tax deductions cal housing market prerequisites and the local po- for the interest paid on mortgages, and reform of litical situation. The government asserts its power the property sales tax (a smaller change is includ- mainly through three laws that control municipal ed in the 73-point government programme). Since housing policy: a reintroduction of property tax and lower tax de- nordregio report 2020:2 75 1) The Housing Provision Act (Bostadsförsörjnings­ also been taken to sell apartments to sitting ten- lagen), which stipulates that municipalities have ants in socially deprived areas, aimed at strength- a general responsibility to plan for housing within ening the social fabric. Cooperative housing, self- their jurisdiction. build co-housing groups and other resident-led 2) The Social Services Act (Socialtjänstlagen), initiatives have focussed mainly on established which stipulates that the municipality has special households in the older age-ranges. Some exam- responsibilities in relation to the housing situation ples of alternative housing solutions are given at of the elderly and disabled people and, in certain the end of this report. Despite the flora of initia- situations, of those deemed in acute housing need. tives, it should be noted that new-build property 3) The Settlement Act (Bosättningslagen), which does not have the potential to reach the lowest in- stipulates that municipalities have to house a come sectors, especially those with few prospects certain number of newly-arrived immigrants as- of improving their financial standing over time. signed by the government during their resettle- ment period. Public-sector initiatives to lower housing costs in new-build projects It should be noted, that the only groups who mu- In housing policy, a distinction is made between nicipalities have to provide housing for are older measures that enhance supply and those that people, disabled people, those in acute hous- strengthen demand. Supply-enhancing measures ing need and certain newly-arrived immigrants. typically support the construction of new housing, Hence, municipalities have extensive powers to whereas demand-enhancing measures support develop their local housing policy. household budgets so that their financial capac- A government enquiry (SOU 2018:35) pub- ity on the housing market is improved. Swedish lished in 2018 indicated that analysis of which reform programmes emphasise supply-enhancing households are affected by a housing shortage measures. Demand-enhancing instruments are needs to be improved. New housing policy needs limited to housing allowances. to be based both on a firm understanding of the Housing allowance is granted to households of needs of the population, and appreciation of real- young people up to 29 years of age, and to house- istic market demand, respectively. However, many holds with children. There is also a contribution for municipalities have expressed uncertainty when it retired people on low incomes and lacking signifi- comes to actually quantifying the housing short- cant savings. This will be increased from 2020. The age (National Board of Housing, Building and level of these allowances have been questioned Planning, 2019a). The National Board of Housing, recently, and an increase has been discussed (e.g. Building and Planning has therefore been commis- Grossman, 2018; Berglund et al., 2019). sioned to develop new analysis tools. In the debate, demand-side measures availa- A limited but growing number of commer- ble in other countries have also been looked at (e.g. cial housing developers target households with Veidekke, 2017). The Norwegian model for subsi- medium or somewhat lower incomes, both in the dised housing savings and advantageous govern- rental and private ownership sectors. However, ment loans to first-time buyers has been advanced such developers often face difficulties in finding by the Norwegian housing developer Veidekke. The land, which in turn limits the supply of new low- cooperative housing company Riksbyggen has pre- cost housing. Some commercial housing develop- sented their own proposal. This is described as a ers and housing companies have identified young loan from the state, similar to loans granted to fi- people and students as target groups, often based nance higher education (Riksbyggen, 2019). Other on the assumption that their income will grow over developers and politicians have expressed interest time. Older first-time buyers have also been iden- in the model but no concrete measures have been tified as a group requiring new housing solutions, taken so far. although their restricted future income prospects Current reform initiatives aimed at extending are seen as a limiting factor. Both new types of housing supply are described below, e.g. investment tenure, such as rent-to-buy schemes and co-hous- subsidies, facilitating construction in weaker hous- ing, together with new financial models, are being ing markets, serial housing production, municipal developed in an attempt to increase the demand land allocation, and new initiatives for homeless capacity of identified households. Initiatives have families or those on the verge of homelessness. nordregio report 2020:2 76 Investment subsidies cal structure of the municipality which are due to In 2016, a housing investment subsidy programme circumstances beyond municipal control’ (Ministry was introduced to boost the construction of rental of Finance, 2019). Should that be the case, subsi- and student housing. However, the effect of this dies can be granted at the same level as is applica- programme was deemed too limited. Construction ble for the Stockholm region. mainly took place outside the larger agglomera- The housing units must be used under the con- tions faced with the biggest housing shortages. In ditions for which they were granted the subsidy, 2018, one quarter of all subsidised apartments were for at least 15 years. Both multi- and single-family located in the Stockholm, Gothenburg or Malmö housing are eligible, as well as cooperative rental regions (Ministry of Finance, 2019). To increase im- models, and a bonus is given for extensions to ex- pact, maximum rent levels were raised in 2018. This isting buildings. Energy efficiency is a prerequisite programme was also criticised for not reaching for eligibility and a higher level of subsidy is granted lower-income households, as there was no means- for more energy-efficient buildings. Plans gradu- testing connected to the allocation of apartments. ally to increase demand for energy efficiency have In 2016–2018, 21,400 housing units were been announced. Commencement of construction granted a subsidy, of which 3,200 were student must take place within one year of the decision to apartments (Ministry of Finance, 2019). As a re- allocate a subsidy to the project. However, some sult of elections in 2018, and the ensuing budget exceptions may be granted. process, this programme was suspended. Howev- Eligible projects should contain a mix of differ- er, as part of the overall 73-point government pro- ent apartment sizes. In larger projects containing gramme, a modified investment programme will ten or more apartments 10% of the units must be be introduced from 1 February 2020. Up to SEK 3 one-room apartments. Allocation of the housing billion p.a. will be allocated for the programme. units built must be made through an agreement The current proposal is aimed at ‘increasing with the municipal housing allocation agency or housing construction and making it profitable to in some other way that is open and transparent. build rental housing with lower rents compared to Demands of property owners on tenants’ incomes other new-build in locations where it would other- must be ‘reasonable’. wise not have been profitable, despite the hous- Additionally, when a construction project con- ing need’ (Ministry of Finance, 2019). Previously, a tains more than ten apartments, municipalities subsidy was only granted for rental housing in ar- are to be granted right of disposal to 12.5% of eas where the population was increasing, but now, constructed apartments. These will either be allo- subsidies will be provided for the entire country. cated by the municipality to people under the age Subsidy levels and maximum rents are differen- of 31 or sublet under social contracts to vulnerable tiated, depending on location (Table 1). Further- households for up to five years. Developers might more, since 2017 subsidies can also be granted substitute apartments in the subsidised project where there is a need to build rental or student with units in other parts of their housing stock. housing due to ‘considerable changes in the physi-

Table 1. Subsidy and rent levels in the proposal for a new investment subsidy scheme

Subsidy for the Subsidy for Subsidy for Maximum rent basic unit up to possible additional common areas for (SEK/m2 and year) 35 m2 (SEK/m2) housing area communal activi- 36–70 m2 (SEK/m2) ties* (SEK/m2) The Stockholm region 7,100 3,550 3,550 1,550 Larger and/or expanding 5,800 2,900 2,900 1,450 municipalities** The rest of the country 4,800 2,400 2,400 1,350

Source: Ministry of Finance, 2019 * Such as space for eating, socialising, pursuing hobbies and recreation, etc. **Municipalities close to Stockholm, the Gothenburg and Malmö regions, other municipalities experiencing high and sustained population increase, other larger municipalities and student housing outside the Stockholm region. nordregio report 2020:2 77 Facilitating construction in weaker markets approval or certificate was granted, municipalities Besides the investment subsidies that also apply would then have to agree the requirements includ- to weaker housing markets, as described above, ed for a specified number of years. Such a change two other proposals aim to facilitate construc- is considered important because it allows the tion in weaker markets. Under the government’s development of serial housing concepts that the 73-point programme published in January 2019, developer can be sure will be accepted in all mu- the level of depreciation on housing investments nicipalities. This in turn makes it easier to achieve of municipal housing companies will be subject to economies of scale. public enquiry. The aim here is to prolong depre- A positive investment climate is also consid- ciation periods for projects built in weak housing ered important – one where current suppliers can markets. A previous government enquiry (SOU expand capacity and where new investors are at- 2017:108) proposed different kinds of guarantees tracted. As in many other industries, initial costs and mezzanine debt for project developers to en- to develop a product (in this case a serial housing courage construction in such markets. However, concept) and to establish a production line, are the enquiry has not led to any measures. substantial. Only after a certain volume of pro- duction has been achieved can economies of scale Conditions for investing in and implementing be presumed to make the investment profitable serial housing and lead to a lower price per unit. The predictabil- In recent years, both politicians and public and ity of investment conditions is therefore deemed private developers have paid renewed attention key to investors. Both the prevailing conditions at to serial housing as a tool to reach targets for af- a certain point in time, and the outlook regarding fordability. Three larger public procurements for future stability or reform, will influence the willing- low-price serial housing designs have been im- ness and capacity of investors to take risks. plemented by The Swedish Association of Public The National Board of Housing, Building and Housing Companies, the Swedish Association of Planning presented a proposal for a certificate Local Authorities and Regions and the Stockholm system in June 2017, but it was not implemented municipal housing companies. A number of private before elections in 2018. However, in December developers have been awarded contracts under 2019, a government enquiry (SOU 2019:68) pre- these procurements. The Swedish Association of sented a new proposal for another kind of system, Public Housing Companies has estimated a 25% in its character closer to a type approval. The ap- price reduction in their members’ serial housing proval process is proposed to be managed by a projects, as compared with standard projects newly installed board. It remains to be seen if this (SABO, 2014). new proposal will find political support and will be In 2016, a 22-point programme to improve the implemented. housing market was presented by the government Common technical standards for municipali- (Swedish Government Offices, 2016). Serial hous- ties, together with an approval system covering ing production was highlighted in this programme part of the building permit procedure, can be a as an important concept for the provision of af- first step to ensuring that more housing projects fordable housing. The benefits pointed to included become viable. However, municipalities retain de- more cost-efficient production, a faster building cision-making powers over all factors related to permission process, and the possibility of engag- the placement of buildings in the urban environ- ing other types of workers at times when certain ment. The outcome of potential reform, in terms categories of construction worker were in short of numbers of new housing units, will therefore supply. In response to this analysis, the govern- depend largely on municipal urban development ment initiated an enquiry concerning the possible visions, and priorities in relation to the housing introduction of type approval, or the provision of situation of the population in each municipality a certificate which could replace the examination (Granath Hansson, 2017). of certain technical requirements in the building In June 2019, a government enquiry with the permit process. The aim here was to achieve con- aim of facilitating lower living costs through lower sistency between different jurisdictions in the as- production cost started its work, which shall be sessment of serial housing. Once a particular type presented in December 2020 (Kommittédirektiv

nordregio report 2020:2 78 2019:31). The enquiry targets larger public pro- New initiatives for homeless families and curements for low price serial housing concepts those on the verge of homelessness and how municipalities act in relation to such In recent years, Sweden has seen a substantial in- housing concepts. crease in the number of households facing home- lessness (The National Board of Health and Wel- Municipal land allocation, municipal economy fare, 2017). Here a distinction is made between and apartment allocation ‘social homelessness’ and ‘structural homeless- Development plans and/or municipal land alloca- ness’. Social homelessness is typically caused by tion conditioned by lower rents or prices is a com- social problems such as drug abuse or psycho- mon housing policy tool in most northwestern social difficulties, often accompanied by an eco- European countries (Granath Hansson, 2019). The nomically strained situation. Structural home- main aim of such a policy is to expand the afford- lessness occurs when households without social able housing supply and create a good social mix problems are unable to access the housing market (de Kam et al., 2014). In Sweden, such an approach without direct support from the municipality. This has been slow in developing, though many munici- group represents the major share of the increase in palities have substantial land holdings suitable for homelessness in recent years (The National Board housing. Resistance and hesitation from impor- of Health and Welfare, 2017). In some municipali- tant interest groups (such as the Property Own- ties, households born outside Sweden are over­ ers’ Association and the Tenants’ Union) have in- represented in homelessness statistics. Moreover, fluenced policy development. Concerns have been municipalities have the responsibility of housing a raised regarding municipal land prices, as well as certain number of recent immigrants during their what constitutes a fair allocation of the new hous- resettlement period, according to the fair-share ing units, and the application of this policy within scheme in the Settlement Act (Bosättningslagen) the universal Swedish housing system. However, of 2016. Gothenburg and Örebro are two municipalities Alongside different kinds of care institutions, which have designed models that place require- and acute, short-term housing such as hostels or ments on rent levels when allocating land for shelters, the major tool used to offer housing to house building. The Gothenburg model is the old- vulnerable groups are municipal social contracts, est and most ambitious, but due to project com- when the municipality holds the first-hand rental plications it has not yet resulted in any new units. contract and then sublets to selected households, In Örebro, one project has been negotiated and is and giving vulnerable households priority in the al- now being carried out by a private housing devel- location of municipal housing. Many municipalities oper. Attempts to formulate a policy are also un- face major problems in providing standard qual- derway in Stockholm. However, the allocation of ity housing to households in need. The municipal apartments based on income is not included in any cost and organisational burden of providing acute of these projects as of yet, as this is deemed to be housing solutions has increased substantially. Rep- out of line with the principles of the universal hous- resentatives of the social services have protested ing system. against having to act as ‘a housing allocation agen- Furthermore, land sales are an important cy’ for the structurally homeless (e.g. Dagens Sam- source of income for municipalities, enabling them hälle, 2018). The guiding principles for when housing to finance the construction of social and technical is to be arranged under the Social Services Act differ infrastructure linked to new housing, and possibly from municipality to municipality. A distinct tight- also other areas of responsibility. In many cases ening of allocation has taken place in some munici- there are substantial reductions in land prices palities in the last two years, for example in Malmö arising from land allocation to other forms of ten- and Gothenburg. The government initiative to al- ure than the most profitable ones. Municipalities locate a portion of investment subsidies to weaker therefore have to weigh the advantages of differ- housing markets, and to allow for maximum sub- ent forms of housing against their budgets. Ex- sidies outside Stockholm under certain conditions, plicit low-cost land policies to stimulate afforda- should be seen in this light. The proposal to allocate ble housing construction, as implemented in some up to 12.5% of subsidised new-build housing to mu- other countries, is not on the agenda. nicipalities for subletting to vulnerable households is the latest initiative of this kind. nordregio report 2020:2 79 To meet the housing needs of newly arrived the projects. However, in light of the latest devel- immigrants and other groups with no or low in- opments in society, there are also those who do come from employment, some municipalities not dismiss the explicit idea of social housing. For have initiated different types of projects which example, the National Board of Housing, Build- are new to the Swedish housing market. In some ing and Planning has published a report suggest- municipalities, for example Nyköping, new-build ing social housing to be a potential solution to the housing is owned directly by the municipality, not housing situation of newly arrived immigrants the municipal housing company. This housing is (National Board of Housing, Building and Planning, mainly allocated on a needs basis directly by the 2016). A government enquiry (SOU 2018:35) also social services. To create social mix, a smaller pro- suggested a modification to the Housing Provision portion of housing stock is allocated through the Act that would force municipalities to analyse how municipal housing queue, which is open to all types many households (and of what type) are strug- of households. To keep rents low, serial housing gling to solve their housing needs without public and investment subsidies are combined. Further, support, and then to take measures to meet those Malmö is pursuing an initiative to encourage pri- needs. This part of the enquiry has not been imple- vate developers to build units with lower rents mented yet. to house structurally homeless immigrants. This housing will be allocated by the municipality and Alternative forms of tenure and will include certain components to enhance inte- financing gration. Civil society projects to complement the Increases in house prices and consequent credit provision of housing for certain target groups have restrictions have set in motion a discussion on also been noted – for example projects initiated by alternative forms of housing, tenure and financ- Christian charities. ing. In these exchanges, it is the young and other In an international context, the initiatives de- first-time buyers, and particularly their entrance scribed above would probably be seen as a residual onto the housing market, that are often in focus. form of social housing3. However, the concept of Different sorts of self-help have also attracted at- social housing is highly controversial in Sweden. tention in the debate. A handful of pilot projects The country is known for pursuing a universal are looked at below, to give an idea of the range housing policy where all types of housing have to of initiatives. be open to all types of households, and no hous- ing is reserved for special groups (e.g. Grander, Housing for students and young people 2018). Social housing is by many seen as a stigma- The lack of housing accessible to students and tised and low-quality form of tenure. References other young people has received political atten- have been made to the stigma of social housing tion of late. Some reforms have been implement- provided to families with a large number of chil- ed to facilitate construction of housing for these dren in 1935–48 (e.g. HSB, 2016). This standpoint groups. In general, however, households compris- is defended by the Tenants’ Union and the Swed- ing younger people are expected to enter the hous- ish Association of Public Housing Companies, as ing market on the same terms as other types of well as the left-wing political parties. Municipali- households. The Association of Student Housing ties like Gothenburg and Malmö, which are making Providers notes that student housing is receiving attempts to develop new models, have to balance increased attention from municipalities, that there their goals against the risk of having their projects are also discussions about the reform of building labelled ‘social housing’, as this might undermine regulations, the investment subsidies available for student housing, etc. (Studentbostadsföretagen, 2019). Apart from traditional providers, the mu- 3 Social housing might be defined as “a system […] that […] nicipal housing companies and Akademiska Hus fulfils the following criteria: (1) The target group for social housing is households with limited financial resources. To (the State-owned manager of university build- make sure that the housing provided is occupied by the target ings), plus private providers, are all now taking group, a distribution system with that aim has to be in place. Moreover, housing must be provided long term, rather than part in the provision of student housing. Efforts to temporary. (2) Social housing systems provide below-market identify suitable land for construction are coordi- rents or prices and hence are not self-supporting, but need some form of public or private financial contribution (subsi- nated between the state and municipalities. dy).” (Granath Hansson and Lundgren, 2018). To ease the general lack of apartments acces- nordregio report 2020:2 80 sible to younger households, some housing com- apartments up to 2026 (SKB, 2019). However, the panies have given priority to younger people when tenure has received increasing attention in recent allocating certain types of apartments. Municipal years, and it is proposed that it should be eligible housing companies also build housing units re- for state investment subsidy from 2020 (Minis- served for households comprising younger people. try of Finance 2019). For example, Riksbyggen is As it has proven a challenge to produce perma- planning a cooperative rental housing project in nent housing accessible to younger people within Gothenburg which will contain 250 apartments a shorter time frame in the Stockholm region, for young people. Riksbyggen is also investigating experiments are being carried out with modular a hybrid solution, which would best be described housing, as described below. as a small cooperative rental project inserted into The lobbying organisation known as jagvill- a tenant-ownership association. In one project in habostad.nu (literally translated into English as Gothenburg, six one-room apartments of 30 m2 Iwanthousing.now) was set up by young people are being sold for SEK 95,000 (approximately who wanted to improve housing access for those in €9,500), substantially below the market price, to their age range. Together with Svenska Bostäder, households aged 18–30. In order to compensate a public housing company in Stockholm, the or- the tenant-ownership association for lower sales ganisation developed a concept of mobile modu- prices, the monthly fee to be paid to the associa- lar rental housing units which can be erected on tion among other things to service collective debt the basis of temporary building permissions (last- will be relatively higher for the cheaper apart- ing up to 15 years). In 2016, an initial project con- ments than for the other apartments in the asso- taining 280 apartments was completed in south ciation for which a full market price has been paid. Stockholm. Another 377 apartments are under When a reduced priced apartment is sold, the construction in north-west Stockholm. These one- sales price is regulated in order to avoid specula- room apartments are allocated to people aged tion. The original idea behind cooperative rentals 18-30. Rental periods are limited to a maximum of – that future tenants themselves would set up the four years. Tenure rights are restricted, as these cooperative under strict cost controls – is not very apartments are reserved for young households, prevalent today, but new interest in the model is so tenants do not have the right to exchange or noted. transfer the contract as they could with a stand- Co-housing, where households share different ard rental contract. However, tenants do not lose parts of the building, has also enjoyed a revival in their place on the municipal waiting list for rental this debate. Some commercial housing developers apartments when they accept this kind of con- have created space for co-housing in newly-built tract (Svenska Bostäder 2019), as is normally the projects in recent years, and a few commercial ac- case when signing a new contract. It is envisaged tors have also created designs like this for existing that it will be possible to move modular housing buildings. However, initiatives taken by prospec- units onto other temporary sites twice during their tive occupants still dominate the sector. life cycle. The overall investment calculus and the particular life-cycle costs of these projects have Rent-to-buy been brought into question, because it is difficult The cooperative housing associations HSB and to predict the cost and wear-and-tear effects of Riksbyggen build both tenant-ownership apart- moving the modules and thus ensure a long enough ments and rental apartments. Both companies life-span of the components that motivate invest- have limited rent-to-buy schemes. Riksbyggen ment cost. Only time will tell if these projects can have completed a rent-to-buy project for house- be economically sustainable or not. holds under the age of 35 in a suburban munici- pality in the Stockholm region. This pilot project Cooperative rental and co-housing encompasses 11 rent-to-buy apartments out of The only major actor on the cooperative rental a total of 111 apartments in the project. A second scene in Sweden is SKB (Stockholms Kooperativa project will be launched in another Stockholm sub- Bostadsförening), which was founded in 1916 and urb. It will contain 70 apartments, of which seven owns 8,000 apartments. Currently, the associa- will be available to rent and buy. Rents are set at tion is planning the construction of 1,450 new-build the regular level for new-build properties, but the

nordregio report 2020:2 81 tenant is also granted an option to buy the apart- include self-build co-housing groups have been ment within five years. The price corresponds to made in various locations, including Stockholm and the original price at the time of completion, ad- Gothenburg. However, the expansion potential of justed according to the official Consumer Price this model, and its affordability in the Swedish Index. context, has been brought into question (Scheller HSB Sharing is another model where a young and Thörn, 2018). A further example is an initia- person (aged 18-29 years) on the HSB waiting list tive in the rural municipality Tjörn to support both is given the opportunity to buy 50% of a one- or younger and older households, as well as newly ar- two-room apartment, with an option to buy the rived immigrants, trying to enter the housing mar- remaining 50% within ten years (HSB Dela, 2019). ket or change their housing situation through self- The tenant-owner is a full member of the tenant build projects. There is an organisation supporting ownership association from the beginning, and self-builders with technical and financial advice, has the same responsibilities and duties as full and by providing them with a workshop (Egna- owners. Should the tenant-owner wish to move hemsfabriken, 2019). This project builds on the out of the apartment before he or she has pur- traditions of what is known as the ’private home chased the full 100%, the apartment will be sold movement’, which started in the late 19th century and the price shared 50/50 between the tenant- and encouraged poorer households to build their owner and HSB. This set-up reduces the need for own homes.4 additional financing and reduces risk for the young household involved. Financial models In some cases, for example in Botkyrka munici- In Malmö, the Trianon housing company is devel- pality, a limited number of current tenants of mu- oping a financial model which will assist access to nicipal housing companies are given the chance to home-ownership in new-build properties that are buy their apartments and climb the housing ladder located in areas facing a variety of social and eco- within the neighbourhood. The idea is to keep so- nomic challenges. In the light of recent restrictions cially and economically established households in within the credit market, as referred to above, the neighbourhoods that struggle with its social tex- Swedish Financial Supervisory Authority will not ture. Since 2014, 65 apartments have been sold. permit financial models that rely on property-re- Further sales are planned, but a limit has been set lated titles as security. As an alternative, Trianon of 40% in one building (Botkyrkabyggen, 2019). In is looking to see if social bonds could be issued to this set-up there is no tenant-ownership associa- replace part of the 15% own capital required from tion. Instead, Botkyrkabyggen manages the build- buyers. The initiative has attracted both positive ings, apart from the interiors of the apartments and negative attention. that have been sold. There are some legal and tax issues related to this new form of housing which Summary and future prospects are different from usual tenures. This can have im- For many years, Swedish housing policy has fo- plications for financing and for what happens in cussed on a general expansion of housing supply. the case of disputes. However, in the past three years, faced with an increasing housing shortage that is most notable Resident-driven construction initiatives among households with no (or low) employment Further projects, often building on the tradition income, a shift in the debate towards more focus of resident-driven initiatives in other European on households with less financial clout has been countries, have attracted increasing attention evident. Two factors certain to drive future de- in the last decade. Although models like these do velopments are, first, the influence of the housing not have the potential to create a larger number shortage on municipal budgets and housing com- of apartments under current Swedish institution- panies, and second, integration, especially evident al settings (which has been the focus of Swedish after the 2015 immigration wave. However, poli- housing politics), they are still seen as attractive ticians and public officials are hesitant regarding by some municipalities. This is because households which measures will be effective in addressing the are able to shape their own housing situation, and also because they can help generate diversity in their neighbourhoods. For example, attempts to 4 Egnahemsrörelsen, in Swedish. nordregio report 2020:2 82 new housing policy landscape. The universal hous- The housing situation of established house- ing policy pursued to date, which requires that holds on lower incomes has not attracted much no housing should be reserved for any particular political attention to date. Commercial property group or type of household, makes it more difficult developers in the low-cost sector target such to target policy measures towards low-income households and have expanded their output, but a groups. At present, there is no distinct and well number of municipalities are hesitant to such de- worked out housing policy at national or municipal velopments. To increase production, municipalities level which deals with how to make housing supply and commercial developers in the low-cost sector accessible to lower-income households. The gov- would have to find compromises with their vari- ernment’s 73-point programme contains reforms ous interests on a larger scale than is currently the to the housing market, but no direct measures to case. Further, more interest is channelled towards ease the housing situation of lower-income groups. alternative forms of tenure, such as cooperative Generally, therefore, housing policy appears frac- rentals or self-build co-housing groups, and financ- tured. A number of larger and smaller initiatives ing such as rent-to-buy schemes, which target es- are implemented, but with little or no coordination tablished (or soon to be established) households. between them. Moreover, the political landscape Sweden is in the throes of an interesting shift involves long periods of investigation and negotia- from a preoccupation purely with construction tion in advance of new policy measures. volume towards closer focus on how target groups The government does not explicitly target can be reached by providing appropriate new-build lower-income groups in its housing policy, with the properties. As described in this chapter, attempts exception of housing allowances. However, munici- are being made to increase the proportion of the palities have policies targeting groups that have a population who can afford new-build properties, right to municipal support, which entails a focus on which might, in the longer-term ease the hous- groups with no or very low income from employ- ing shortage. However, the development of policy ment that often also need other types of support takes time, as do housing developments. This sug- than financial. Attention to the housing situation gests that the housing shortage in Sweden will of socially and economically established house- continue into the foreseeable future. holds on lower incomes usually translates into the benefits of a general expansion in housing supply. References Few municipalities have a distinct policy to pri- Berglund, A., Strelert, F. and Hassan, I. oritise new low-cost housing. Filtering is expected 2019. Hejda barnfattigdomen med höjt to cater for households who are unable to afford bostadsbidrag. Debattartikel. Svenska new-built homes, although filtering has not proved Dagbladet 2019-01-04. https://www.svd. effective in achieving that goal. se/hejda-barnfattigdomen-med-hojt- However, political interest in regular hous- bostadsbidrag ing that can also be accessible to lower-income Botkyrkabyggen, 2019. Andelsägande-först groups has increased in the past three years, i Botkyrka. Accessed on 30 October 2019. both at national and municipal level. Investment https://www.botkyrkabyggen.se/artikel/ subsidies and serial housing projects are two ini- andelsagarmetoden-3 tiatives that work in this direction. However, the Dagens Samhälle, 2018. 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ISBN (print): 978-91-87295-83-6 ISBN (pdf): 978-91-87295-85-0 ISSN: 1403-2503 DOI: doi.org/10.6027/R2020:2.1403-2503 nordregio report 2020:2 88