Construction companies expect demand for housing to weaken toward end of year

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The rise in interest rates, economic uncertainty, and faster inflation have reduced sales of new homes on the market in the early part of the year. Weaker demand has forced construction companies to reduce the number of construction starts for owner-occupied dwellings.
     “The housing market has slowed down from last year. The number of unsold homes has remained at the same level on average, because we have reduced the number of new projects in the early part of the year”, says Juha Hetemäki, CEO of the Skanska construction company.
     
Because of slower housing construction, the YIT construction company is launching co-determination talks concerning 40 employees. The possible staff reductions stem from the reduction in the construction of new buildings.
     “We began to put on the brakes already last summer. In the early part of the year, sales have gone according to budget, but the budget is much more cautious than last year”, says Ilpo Jalasjoki, managing director of YIT Construction.
     
Consumer uncertainty has been increased by news of instability in the international economy. The credit crisis on the US housing market and the rise in food prices are the main factors.
     A week ago the European Central Bank decided not to change its reference rate in order to reduce inflation pressure. The bank had hinted at a possible interest rate increase.
     The overall rise in interest rates has not yet affected the real estate market in Finland, says Erkka Valkiala of the housing investment company Sato, but he expects that it will soon.
     “It is quite certain that a rise in interest rages will certainly not boost sales.”
     
The past three years have been a time of intense housing construction, although already last autumn there were signs of slower growth.
     “In the record years, sales were boosted by an exceptionally low interest rate level of two to three per cent”, Valkila says.
     The slowdown in housing sales has made construction companies keep keen watch on changes on the market.
     “We do not have a precise number of new targets this year. We move forward completely according to how sales go”, Jalasjoki says.
     
In early 2008 construction companies held a record number of ready buildings that had not been sold. RT, an organisation representing most of Finland’s construction companies, says that its member companies had built 1,450 dwellings which remain unsold.
     The number is probably closer to 2,000, as the figures do not include construction companies that are not members of RT.
      “The peak has probably been reached. Construction companies are very adept at postponing and restarting construction”, says RT economist Bo Salmén.
      Construction companies began to postpone construction starts already last year, when the backlog of unsold apartments began to grow.
     
The combined effects of higher construction costs and rising interest rates also has a negative effect on production of rental housing, says Hetemäki.
      New apartments are constantly needed, especially in the Helsinki region. Jalasjoki says that more rental housing is needed for attracting labour to the region, and he is calling for new models for supporting rental accommodation.
      “In the present situation, the question has arisen, whether or not employer-provided dwellings will increase again in the future. The Helsinki region has a shortage of labour, and rents are very high. It can be that employers will need to help employees with housing to get them to work in the Helsinki region”, Jalasjoki ponders.


Previously in HS International Edition:
  Real estate agents: rise in housing prices calming down, property market still normal (2.5.2008)
  High interest rates plague home owners (10.6.2008)
  Most common housing loan payback period now 25 years (16.5.2008)

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