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HELSINKI, ,

How to stimulate housing production? An exchange of experience

This report is part of the collaboration of the of Helisnki, Stockholm and Amsterdam and written by mr Cor de Jong, by the development corporation, of Amsterdam. [email protected] Copyright of this research lay with the Development Corporation Amsterdam. This research can be used in other publications with mentioning the name of its owner: The Development Corporation Amsterdam.

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European cities learn from each other: , Amsterdam and Stockholm exchange experiences in order to stimulate housing production.

Background

Housing production has been a hot topic in a number of European countries for some time. In the Neth- erlands, the concern about achieving the objectives at both national and local levels has led to policy initiatives and to adjustment of the available instruments. Research shows that housing production in various European cities is at the least an area of attention and sometimes also a source of concern. In a joint project, the European cities Helsinki, Amsterdam and Stockholm exchanged knowledge and experience. The aim: can we learn something from each other in the area of promoting housing production? This article examines the interim results of the co- operative efforts. It first offers a brief description of how the exchange came about and what form it took in practice.

The exchange in practice

This exchange project came about more or less by accident. Representatives of the of Stockholm and Amsterdam who were attending an international conference in the autumn of 2003 hap- pened to start talking about what was going on in their city. Housing production came up in the conver- sation and it was quickly established that this topic was high on the political agenda in both cities. An exchange therefore seemed worthwhile, including Helsinki, since that city has a comparable policy fo- cus, which has already produced interesting results. Intensified contact in the spring of 2004 led to the plan to organise reciprocal working visits to discuss the themes and their component aspects. In that context, it is always useful to look at how policy aims lead to instruments and to results. In other words, reviewing projects needed to be a fundamental part of the programmes!

The first working visit took place in Amsterdam in June 2004. It was explained that the of Amsterdam had set up a municipal housing supervisory bureau ( Bureau Woningbou- wRegie ), which was directly attached to the . That bureau works to promote projects and provide central direction for structural and cultural changes. In addition, the Municipal Council tem- porarily made a relatively large amount of money available to overcome financial bottlenecks in produc- tion. After an explanation of the particular tasks facing Amsterdam, the group went on an excursion to the large IJburg new housing development site and to the already completed Oostelijk Havengebied. This made it possible to compare a largely shaped by the municipal authority in the second half of the 1980s with a new area in which the national government primarily determined the conditions in the second half of the 1990s. What is the significance of the fact that government influence has de- creased to such a large extent in the space of ten years? The solutions developed in the three cities to meet the authorities' wish for housing production were also discussed. Can solutions that work in one city also be applied in the other cities? Another working visit took place on the second day, this time to one of the large urban renewal areas in the west of the city: Parkstad. This visit highlighted the housing issue as a whole, i.e. the physical, eco- nomic and social aspects, and showed how the problem is being tackled in specific projects. The day was concluded with a discussion in which a number of private developers (both corporations and oth- ers) also took part.

2 The second meeting took place in September 2004 in Stockholm. The first day was set aside for a large number of presentations. Firstly, the organisation of the 20K project in Stockholm was explained (the aim of the project is to build 20,000 new homes in 5 years using a project-based approach). The expla- nation included the projects that are the primary focus of municipal attention to achieve production tar- gets and how the control mechanisms work. The following presentations then covered such themes as incentives for developers to build and methods used by municipalities when selecting developers. The first day was concluded with a visit to the major redevelopment site at Hammerby Sjöstad. The second day started with a debate about the demand side of the regional housing market and what role regula- tions play in housing production. After a discussion of the planning aspects, the representatives went on a tour of a number of new housing development sites in the southern part of the city. These were smaller urban renewal sites.

The last meeting took place in early March 2005 in wintry conditions in Helsinki. After an initial informal excursion on the Sunday afternoon, the group was officially welcomed to Helsinki on the Monday morn- ing by the , Ms Eva-Riita Siitonen. The official welcome was followed by introductions to the hous- ing policy and housing production requirements in Helsinki and the way in which the land policy and the ground lease system are used in this regard. After an explanation of the way in which the municipality influences the relationship between market value, selling price and construction costs as regards part of the production requirement (HITAS), the first excursion took place, in which the representatives visited a number of major redevelopment sites just outside the inner city. The second day started with a tour of a number of projects slightly further away, after which the somewhat abbreviated afternoon pro- gramme focused on planning aspects and the way in which the different players in the process work to control construction costs.

Helsinki, Amsterdam and Stockholm: backgrounds

At first glance, there are a number of striking similarities between the cities of Helsinki, Amsterdam and Stockholm. All three are medium-size European capital cities. The population varies from 550,000 in Helsinki to the 720,000 inhabitants of Amsterdam. The three port cities have old port districts that are being or have already been restructured. Each of the three countries has a deeply embedded culture of government-imposed urban and rural planning. In addition, and partly as a result of that culture, there is an accumulation of rules and regulations. All three cities have a ground lease system and all three own a significant portion of the land within the municipal boundaries. In Helsinki and Stockholm, approxi- mately 70% of the land is owned by the municipal authority; in Amsterdam, the figure is about 90%. In Stockholm and Amsterdam, all built-up municipal land is and in principle will continue to be leased out. This trend has been shifting somewhat in Helsinki in recent years: at some locations, full ownership of the land is sold. The decision to lease out or sell full ownership is determined by the complexity of the task at the specific location and by financial and economic considerations. However, even in Helsinki, some 75% of the land is leased out.

The requirements In all three cities, the city council has set a quantitative target for housing production. In Amsterdam, the Municipal Executive promised the city council that the construction of 16,000 homes would start in the period 2002-2006. The plans in Stockholm are a bit more ambitious: they want to build 20,000 homes in the same period! The aim in Helsinki is to build 3,500 homes a year in the period 2004-2008. Both in Stockholm and in Amsterdam, specific city officials have been appointed as 'factotum' to ensure that the production goals are achieved.

3 The administrative organisation And now a number of prominent differences. The organisation of the city council's influence on produc- tion differs somewhat: Helsinki has a single- administration and the associated civil servants to run the entire city. In Amsterdam, besides the central city administration, there are also 14 city districts, each with its own district council. These city districts are largely responsible for housing production. The central administration sets a number of policy frameworks, but then only directly influences the major metropolitan projects and the projects in city districts that are run by administrative coalitions. These metropolitan and coalition projects account for approximately 50% of production. The city of Stockholm is divided into 18 districts, which have a great many tasks and powers in terms of social and civil-society facilities, management, public areas, etc., but not in terms of housing production. They are involved in the discussion of the plans for their district, but do not have administrative responsibility for those plans.

Achieving the production targets Production in Helsinki has been fairly high for years now. Since 1997, more than 3,000 homes have been built there per year, with peak years in 2000 and 2001 when well in excess of 4,000 new homes were built. The production targets are also being met under the current administration. Since 2003, slightly more than 3,500 homes have been built on average each year. An upward trend has begun in Amsterdam: after a low point of construction starting on 1,750 homes in 2000, this figure rose to 2,750 in 2002 and more than 4,900, no less, in 2004. The target for 2005 is to start construction work on more than 5,200 homes, in order to reach the desired 16,000 in this pro- gramme agreement period. It is no small task, but it is feasible. In Stockholm, the situation has been less positive for some time now. From 1995 onwards, fewer than 2,000 homes were built each year; production did not increase above 3,000 new homes a year until 2002. But the 5,000 average per year was not achieved in the 2002-2004 period, and the prognoses for 2005 seem to indicate that it will not be possible to achieve the target for the 2002-2006 period as a whole. The share that the housing corporations have in production differs quite widely between the three cities. In Helsinki, 23 municipal corporations, which truly operate as municipal companies, provide one third of the production. Stockholm has three municipal corporations. They are further removed from the munici- pal authority than in Helsinki, and have on average contributed 20% to the production levels in recent years. The aim is to see this share grow. Finally, the municipal corporations in Amsterdam, which func- tion as completely independent companies (but are accountable to the government for the achievement of social targets), are responsible for about 66% of the total production.

To conclude this general description, two characteristics of Helsinki and Stockholm constitute an impor- tant part of the context in which housing production has to be achieved:

4 - In and , taxes are not imposed as centrally as in the . Income tax in Finland is about 35%. The national government imposes 17.5% and municipalities are allowed to impose between 17 and 20%, with the city council determining the exact percentage on a yearly basis. Within this context, municipalities have to find nearly all the money themselves for invest- ments within their borders. This has two important effects: municipalities can ultimately compete to attract good taxpayers, i.e. the higher-income inhabitants, and housing for the lower-income groups is put under pressure. In addition, housing production in Helsinki is under pressure, despite the fact that the targets are being met. The city is facing major investments that it will have to fi- nance on its own, e.g. in infrastructure and soil decontamination. This creates (political) pressure to raise local taxes, which worsens the aforementioned competitive position. - In both Stockholm and Helsinki, 80% or more of the total production is achieved in the form of apartments. It is striking to note the relatively small average surface area and high-quality finishing in comparison to Amsterdam. Homes are built with a fully equipped kitchen, as well as floor cover- ing and finished walls. In Stockholm, the washroom has sometimes already been equipped with all the required appliances, and in Helsinki the has often already been installed.

Supervision of production

During the working visits in the three cities, a number of differences in approach became apparent. These differences are briefly discussed below on the basis of a number of themes. Where possible, it is indicated whether these themes might explain the difference in terms of meeting targets.

Spatial policy. In the three cities, spatial policy results in most of the housing production requirement being met in the existing . Building density in these existing urban areas is much higher in Amsterdam and Stockholm than in Helsinki. A visitor to Helsinki would see it as a very spacious city. In Amsterdam and to a lesser extent in Stockholm, the city administration has chosen to keep the green areas around the city. This accordingly means increasing pressure on space in the existing city area. Environmental prob- lems and social acceptance of plans therefore play a much more important role in those cities than in Helsinki.

The projects. The three cities differ quite widely in respect of the scale of the projects that are collectively intended to provide the required housing production. Helsinki puts its money on the “big wins”: major development sites where a large number of homes are built over a longer period of time. This concerns the redevel- opment of former seaport and industry areas with a capacity of between 2,500 and 10,000 homes, for example. Stockholm, in contrast, focuses on relatively small sites within the urban area. These are sites for 50 to 150 homes, which are conveniently arranged and relatively simple, and which it is hoped will provoke relatively little public resistance. There are major housing development sites as well, but they have a long preparation and implementation timeline. The experience in Stockholm has been that hous- ing production in these types of projects is difficult to plan so far in advance. The policy focus as regards housing production is therefore not on those large, long-term projects. Amsterdam falls somewhere in between with a number of very large housing development sites and a great many smaller gap-filling and restructuring sites throughout the city. It is interesting to note that both Stockholm and Amsterdam have a major surplus in the planning supply (2x as much as needed), but have the most difficulty in meeting the production targets. That may be due to the fact that Helsinki has much more control of production through its direct influence on the mu- nicipal housing corporations, the fact that the city council only has one level, the fact that the housing developments are less compact and in less “difficult” locations (involving lower site costs), or due to the

5 fact that the municipality makes much more detailed plans in which housing development planning is also partly controlled by the city.

The planning process . Stockholm and Amsterdam show more similarities: For example, both cities are working to streamline the planning process . Reducing the number of instances when administrative decisions need to be made is one of the goals here. In Amsterdam in any case, this is due in part to the desire to clarify the division of responsibilities between the central city administration and the city districts. This aspect plays a much smaller part in Helsinki, due perhaps to the relatively strong government control of planning, or the municipal authority only having one layer.

Participation In addition, in both Amsterdam and Stockholm, clarifying the participation of the people in the planning process is a major focus point. There is a drive to organise participation in the plans for an area at a clear point in time. Once that has resulted in a clear political decision, any attempt to raise matters of principle again must be prevented. In both cities, the participation process is regularly employed as a delaying tactic by opponents of a project.

Risk analysis Both Stockholm and Amsterdam use a good risk analysis early in the planning process to identify poten- tial financial bottlenecks, restrictions arising from (environmental) regulations and the expected resis- tance from society. This is intended to prevent surprises at a later stage and, if necessary, to facilitate a rapid decision to postpone or even cancel plans for an area. This is not to say that there is no focus on this topic in Helsinki, but rather that they have not formulated any explicit objectives on the topic.

Local regulations Stockholm and Amsterdam are working to reduce local regulations , which are sometimes tougher than the national statutory regulations. The idea is that the increasingly strict European and national regula- tions already make it difficult enough to get projects off the ground.

Planning In terms of planning , a number of parallels can be drawn between Stockholm and Amsterdam. Both municipalities aim to create plans that offer more flexibility to developers in the details and in the imple- mentation of the projects in order to give those market parties increased and improved options to re- spond to sometimes rapidly changing market conditions. In Amsterdam, for example, this means that the ambitions for the space are often reviewed more critically than before in some locations, and ques- tions are raised about density and the degree to which functions are mixed in pro- grammes. However, there are two obstacles to the desire to create more flexible plans. First, there are the increas- ingly strict regulations, particularly in relation to the environment. In both Stockholm and Amsterdam, court rulings on the basis of the stricter European environmental regulations (particularly in respect of air quality) have halted planning progress on a number of spatial projects, at least for the time being. In addition, city administrators tend to interfere in planning at all levels, down to the details. In Stockholm and Amsterdam, this regularly leads to insecurity among market parties as to political support for plans. This accordingly causes a reduced willingness to run risks in participating in planning, more so because planning for major (re)development sites often encompasses several city administration periods.

Marketability In Helsinki and Stockholm, the price-quality ratio in housing production and therefore the marketability of homes is considered very important. These cities want and/or have more influence on that aspect than Amsterdam. More so than in Amsterdam, people see it as the responsibility of the municipal au-

6 thority. In Helsinki, this is expressed in part by the creation of detailed plans and by control of property exploitation. The so-called HITAS system was developed to facilitate control of property exploitation. In using this system, the municipal authority aims to achieve affordable housing for the middle-income groups. This fills the “gap in the supply market” between social housing on the one hand and the free market on the other where the ratio between supply and demand on the market determines the price that the consumer pays. Approximately 500 homes are built each year under the rules of the HITAS system. Standards are ap- plicable for the market value of homes, for the quality of construction and for the balance between the two. This partly disables the market mechanism of scarcity leading to price increases. When potential buyers from the target group need financial support, it is provided. The subject is therefore being subsi- dised. The developer is required to have a cost-effective property operation in place. When the owner of a HITAS home wants to sell it, there is a type of community-based ownership construction, in which the home remains available to the target group. The selling price is regulated. The Municipality of Helsinki has signed an agreement with a number of major developers regarding the application of this system.

In Stockholm, the municipality has facilitated the aspect of marketability in a different way. Each apart- ment complex has a cooperative association. Each complex is owned jointly by the relevant association and the individual homebuyers. The better the neighbourhood and the higher the market value, the smaller the share that the association holds in the property. The legal framework for this construction limits the sales risk that slow sales pose for developers and means that projects go into production rela- tively quickly in less developed . This is the case compared to Amsterdam, in any event, where presale percentages must often reach 70% before the developer is willing to start con- struction.

Land and land-pricing policy i It is striking that the land and land-pricing policy in both Stockholm and Helsinki is occasionally applied directly to facilitate the development of sites that have a more difficult position on the market. In Stockholm, so-called growth ground-rents are sometimes used in the ground lease system for sites that are more difficult to develop. In that case, the end users do not pay the full annual ground rent based on the agreed land price until 10 years later. In Stockholm, as in Amsterdam, building multi- storey parking facilities is often not cost-effective in the : the market value does not cover the all-in construction costs. To build these parking facilities anyway, the property developers sometimes receive a subsidy for a number of years. After that time, the developers do have to pay an annual ground rent agreed in advance, which is based on the residual value of the land. It has been stated above that the decision is occasionally made in Helsinki to sell the full ownership of land. This involves an explicit administrative decision. The reason for such a decision might be that the site will otherwise be difficult to develop. Selling full ownership apparently represents sufficient incentive to convince hesitant developers. Financial and economic reasons (such as a top selling price) may also give the municipality enough reason to sell full ownership of the land.

The municipal authority and the market parties As far as the relationship between the municipal authority and the market parties is concerned, the three cities differ in the way in which they select market parties. In both Helsinki and Stockholm, market parties are selected relatively often (and in any case more often than in Amsterdam) by selling projects on the market to the highest bidder. The selection criteria for the tenders in Helsinki and Stockholm are different: - In Helsinki, a detailed plan is auctioned based on a combination of price and quality, in which the aspect of quality is considered relatively important. Sometimes the minimum price that the devel- oper has to pay is determined; sometimes the basis is the maximum housing price (purchase or rent) for the future resident, e.g. in the HITAS system. But with that price as a given, the final choice is determined by testing the architectural quality of the plan submitted;

7 - In Stockholm, the criteria used in the selection of market parties have been made much more ex- plicit in the last few years, mainly in the context of stimulating production. The key aspects are the performance on previous projects, innovative thinking, financial parameters and the construction costs. It is interesting to note that the municipality works with the developer and an independent architect (who is responsible for monitoring quality) when selecting the construction company. The explicit goal is to reduce construction costs, sometimes by as much as 20%. The aim is to achieve standardisation and repeat the results of successful projects. The municipality tries to bring in con- struction companies from outside the city, who charge lower prices. The impression is that there is much less competition in the Scandinavian countries between develop- ers/construction companies. The markets are smaller and the physical distances are larger than in the Netherlands.

Deadlines in planning. In all three cities, the developer faces deadlines in planning . If the Municipality of Amsterdam and the developer reach an agreement on the land price and the moment when the developer assumes owner- ship of the land, the land price is indexed with the passing of time. If the land is not transferred to the developer within the agreed term of one year (sometimes two), accompanied by simultaneous payment of the agreed land price, two things may happen. Either the developer pays a reserve fee, or the land offer lapses. In the two Scandinavian cities, the selected parties sign so-called development agree- ments. In Stockholm, this means that a production contract must be signed between the selected party and the municipality within a period of two years; in Helsinki, the developer must have started construc- tion within two years. If these deadlines are not met, the development agreements are null and void. In Stockholm, all the financial and economic risks in such a case are for the developer.

Important findings and lessons to be learned

Helsinki achieves its targets for housing production. This has in any case been true in the last few years, and the prognoses are optimistic. Amsterdam is catching up and may make its targets for the 2002-2006 period. Stockholm almost certainly will not. The difference in successfully achieving the set targets cannot easily be attributed to just a few factors. The differences are too great as regards the administrative, social and cultural context in which the housing needs of the cities must be met. Perhaps part of the explanation can be found in the fact that Stockholm and Amsterdam have a number of levels in their administration, or in the fact that Helsinki handles a larger percentage of the planning itself by drawing up more detailed plans and builds a significant percentage of the production requirement itself, through its own housing corporations. However, there are a number of areas where the cities can learn from each other, or work together in tackling specific problems: • Stockholm makes no distinction in housing development between free-market homes and social housing. Homes are built according to the market. Rent allowances put part of the housing sup- ply within the reach of the lower-income groups. In Amsterdam, that would eliminate a lot of ne- gotiations between the municipality and the corporations regarding unprofitable investments; • Introducing more flexibility in land allocation: by using growth ground-leases in difficult locations as in Stockholm, for example, or by choosing to sell the land instead of leasing it out as in Hel- sinki; • The way in which the municipality and developers work together in Stockholm and Helsinki to reduce construction costs definitely deserves more attention in Amsterdam; • The increasingly strict European environmental regulations are making inner-city housing pro- duction more and more difficult. This limits the flexibility that can be granted to developers to ar- rive at a plan that is in line with the market. Stockholm and Amsterdam in particular could learn

8 more in their approach to this problem and stand together in their position toward conptualisa- tion and implementation of European legislation.

Next steps

A number of concrete topics present opportunities for continued bilateral exchanges of knowledge be- tween the cities concerned, such as: • Dealing with European regulations on noise and air quality (Amsterdam, Stockholm) • The influence of quality aspects on construction costs (Helsinki, Amsterdam)

This report is intended to bring the findings of the city exchange to the attention of: • the colleagues of the three cities' representatives in Helsinki, Amsterdam and Stockholm; • other European cities facing major housing development requirements; • European forums, such as .

We also aim to achieve broader and deeper knowledge, which may also incorporate the approaches used in other cities (such as ). Cities and other partners who want to share knowledge or have further project ideas are kindly asked to react.

Cor de Jong [email protected]

Constan van Ginneken [email protected]

Development Corporation Amsterdam, City of Amsterdam 2005

i The city of Amsterdam has issued two comparative researches where the following items are com- pared between several European cities (, , , /Haringey, Stockholm, Hel- sinki and Amsterdam): a. Land price policy b. Ground lease systems Information can be obtained at the Development Corporation Amsterdam: Mr Jeroen den Uyl [email protected]

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