4. Housing in Finland: Gambling with Variable Interest Rates

Economic shocks in Europe differ depending on geography, institutions and socio-economic structures. During 2008–2023, average GDP growth in Finland was slightly above zero per cent, and in October 2022, the country turned into recession and housing markets and construction collapsed. There are three shocks that we consider as explanations. The COVID-19 pandemic had negative effects on service sectors, and it led to an increase in remote working, but they do not explain the crisis. The same applies to energy crisis and hindrances of trade caused by Russia’s attack on Ukraine. Heating in urban areas is based on centralized facilities using a variety of other raw materials than gas and coal. The greatest impacts came from the ECB’s monetary policy. Low interest rates and credit expansion kept housing prices in slight increase. In June 2022, the ECB’s interest rate hikes started as inflation took off and soon housing markets in Finland collapsed. The Eurozone has a single currency, but many markets for finance. In Finland, about 90 per cent of loans for housing and small and medium size firms have variable interest rates updated in 12 months or shorter intervals. The main cause for the current economic and housing crisis in Finland was the huge increase in interest expenses.