Nordea: The Finns' housing affordability still on a good level
19.3.2007The rise in home prices decelerated towards the end of last year. Still, the prices rose faster than the average income level developed. Moreover, a rise in the interest rates increased homebuyers' expenditure. Households' housing affordability index weakened slightly, but continued higher than at the turn of the millennium.
During the last quarter of 2006, the index value rose to 42.3, whereas its highest value in 2000 stood at 44.0. Historically, the index still remains quite favourable. At the end of 1989 the index was at its highest, at 102.0.
- The rise in home prices has widened the price differences between various areas. Last year the price of an average-sized Finnish home rose by 9,370 euros. In Helsinki the price of an average-sized home increased by 18,500 euros, whereas in Pori the home prices even decreased, says Reijo Heiskanen, Nordea's economist. - Housing affordability has, however, developed more steadily, as in the areas of higher price levels income in euros has also increased more.
| Home price | Loan servicing cost/month |
Index 3/2006 | Index 4/2006 | Change | |
|---|---|---|---|---|---|
| Whole Finland | 140390 | 526 | 40,8 | 42,3 | 1,5 |
| Kokkola | 84403 | 316 | 23,2 | 27,3 | 4,0 |
| Pori | 87091 | 326 | 27,3 | 27,6 | 0,3 |
| Kajaani | 88320 | 331 | 26,3 | 28,0 | 1,7 |
| Kotka | 89318 | 335 | 27,1 | 27,0 | 0,1 |
| Seinäjoki | 96307 | 361 | 29,4 | 30,7 | 1,2 |
| Rovaniemi | 97382 | 365 | 29,0 | 31,0 | 2,0 |
| Lahti | 108365 | 406 | 32,9 | 34,7 | 1,7 |
| Vaasa | 109056 | 408 | 31,4 | 33,2 | 1,8 |
| Mikkeli | 116429 | 436 | 35,7 | 38,6 | 2,9 |
| Lappeenranta | 117350 | 440 | 36,9 | 36,9 | 0,0 |
| Oulu | 120730 | 452 | 32,9 | 34,3 | 1,4 |
| Hämeenlinna | 121190 | 454 | 35,6 | 37,0 | 1,4 |
| Jyväskylä | 123494 | 463 | 37,0 | 37,8 | 0,8 |
| Joensuu | 125952 | 472 | 37,3 | 40,2 | 3,0 |
| Turku | 126950 | 475 | 38,1 | 39,1 | 1,5 |
| Kuopio | 128717 | 482 | 39,8 | 39,9 | 0,1 |
| Porvoo | 147379 | 552 | 42,3 | 41,6 | -0,7 |
| Tampere | 149222 | 559 | 42,6 | 44,1 | 1,5 |
| Vantaa | 157747 | 559 | 43,2 | 45,2 | 2,0 |
| Espoo | 195994 | 734 | 44,1 | 45,8 | 1,7 |
| Helsinki | 239002 | 895 | 60,7 | 63,1 | 2,4 |
The gap in prices has widened in Helsinki, too. In a major part of Helsinki the situation in relation to income is the same as in Espoo or in Vantaa; only the City Centre clearly differs from the other areas.
In Finland the home prices have risen slower than in the other Nordic countries, and the price level is lower here. Measured by the housing affordability index, Sweden is on the same line with Finland, but in Denmark and in Norway the affordability is markedly weaker, their indexes being close to 60.
In this index housing loan costs are calculated for a 76.8 square meter dwelling, which, according to Statistics Finland, is the average size of a home in Finland. The loan taken out to purchase the home is 70 per cent of the purchase price and the loan period is 25 years.
The basis for the index is that loan costs, excluding tax deductions, should not exceed 25% of the household's gross income. If the index is 100, the household spends 25 per cent of its gross income for loan servicing. The smaller the figure is, the better the household's ability to buy a home.
