Helsinki In Middle of Unethical Behaviour!

The City of Helsinki owns a company called HEKA that builds and rents out thousands of apartments in Helsinki to ordinary working folk and pensioners who choose to rent either because they cannot afford to buy a home or because their work is not sufficiently permanent for them to settle in Helsinki.

Many of the tenants are low income or pensioners who may also be receiving financial support to rent such a home in Helsinki. The city needs workers to run public services and many companies employ taxpaying workers in low-income jobs. It is important to have the availability of low-cost apartments for these good people.

However, it has come to light that Helsinki has indicated that it must increase rents by an average of 12% because it is said that the rate of interest on the debt needed to finance the construction and maintenance of these homes has increased.

The cost of building the apartments is spread over 30 years for most of these apartments, and this cost is amortized each year using an annuity with an interest rate of probably 4%.

The costs of construction vary each year but on average a big player like HEKA can command low costs with construction companies, and even when you take into account that the city owns the land on which the homes are built the average cost of construction of the portfolio should not exceed €4500 a square meter over the past 20 years.

This will result in a financial cost for tenants of some €750 each month for an apartment that is 50 square meters. On top of this financial cost is the cost of maintenance (“hoitovastike” in Finnish) which is around €4 per square meter each month, or €200 each month. This covers maintenance, heating, water and electricity. Bigger repairs take place every 50 years and are covered by new loans, when all of the old loans have been repaid.

Inflation has no or little impact on the original construction financial arrangements because the city uses a fixed rate like 4% mentioned above for the calculating a steady cost of servicing the loans. Readers should recall that the cost of money has been well below 4% on average for the last 20 years! Inflation does impact maintenance costs but a 12% increase would only represent €24 each month which is far below what HEKA is demanding.

Your correspondent is an independent financial expert, and even though the above calculations are a simplification, the numbers are still well within the ballpark. Not all apartment blocks are built at the same cost over time, nor are they all built in the best central areas of Helsinki. Many apartments are far from the center, and most of them are fairly basic.

Readers may draw their own conclusions, but the rent increases that have been announced are excessive and inequitable. In comparison, new free market rental apartments just 30 minutes from the center of Helsinki in Espoo and Kirkkonummi are well below these rents!

Helsinki has a mayor who has not taken resolute action to stop long delays in making basic monthly salary payments to thousands of city workers for months. This is a disgrace, just like HEKA’s demands for these excessive rent increases. In both cases there is very little that city workers and tenants can do. Our sympathy is for their plight – the political leadership needs to be shaken up.

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