On the formation of housing prices in Finland

Econometric study of housing demand, supply and prices 1970–1988

Astract

The first part of the study examines the long-term trends in real housing prices. For this purpose, the average price per square metre of dwellings in the inner city of Helsinki was calculated for the years 1947–1969 from stamp duty data held by the Helsinki Tax Office. The upward trend in real prices estimated from the data was 6.5 percent per year. During the years 1970–1988, the annual increase in the inner city of Helsinki was 3.3 percent per year, while the corresponding figure for the country as a whole was only 0.8 percent.

In the second part of the study, a recursive demand-supply model was estimated, which explained the price variation observed during the years 1970–1988 quite well when assessed by statistical criteria. Housing demand is explained in the model by demographic factors, the real interest rate, the increase in housing supply, and endogenous price expectations. Supply, in turn, is influenced by housing prices, construction costs, and cyclical expectations.

The model predicts that real housing prices will fall by 23 percent during 1990. (AI translation)

• ISSN: 0358-5980
• ISBN: 951-9282-14-9
• Publication in PDF-format