Durable housing model in Finland: population changes on a regional level and their effect on housing prices in Finland

Abstract

This empirical paper aims to study the effects population changes have had on housing markets on a regional level in Finland from 1988 to 2018 and further understand the implications polarized growth could have on local housing markets in the future. The framework for the analysis is Glaeser & Gyourko’s (2005) durable housing model, which allows for asymmetric changes in prices regarding population change. The basis is that prices increase less in magnitude in growing cities than they decrease in declining cities. We only partially observe the model’s effect in Finland, with housing prices declining in regions with decreased population, while the results from regions with population we observe a rise in housing prices, but we cannot conclude the magnitude. We also see that in recent years there has been a divergence in the housing market with most regions seeing relative decline in housing prices except for a few key regions. This is in line with current population predictions for the regions of Finland. We also note that Finland is facing a declining population in the future and this poses further challenges for regional development and income equality.