How can you cheat with housing subsidies…

One of the fastest growing areas of public expenditure are housing subsidies. In 2018 they increased by 33% from 2017 to a new record of over €2 billion! The amount of subsidies has doubled over the last 13 years which means that the increase has been in the order of 6% each year which is many times higher than inflation.

The subsidy is managed by the Social Insurance Institution of Finland (KELA) and is mainly aimed at the housing rental market and is available for elderly folk, students and those with low incomes. 

There was a big increase in unemployment after the financial crisis or 2007/08 but since then the unemployment rate has fallen and the fall has not been reflected in the recent sharp increase in the subsidies.

The housing rental market is deregulated where the public and private sector are active participants in many different roles – financier, contractor, and developer. One of the biggest developments in recent years has been the increased activity of the trade union movement through its own companies and through investment funds. Both groups have ramped up their volumes with high levels of debt financing as well as with new equity investments.

These two groups have been working closely with the construction industry that has increased construction of new apartment buildings in all of the major cities. The number of new homes rose from 35 000 in 2017 to almost 45 000 in 2018 in the whole of Finland. The number of new homes for the last 2 years are sharply higher than the previous ten years that were between 20 000 and 30 000 homes.

This large increase in production has resulted in many new homes being purchased at a discount by the above groups and investors and then put on the rental market for profit. The rents are not controlled and landlords want to secure the highest possible income from their properties.

People seeking work and other low income residents cannot afford to buy and the high cost of renting has resulted in significant increases housing subsidies.

There can be no question that the government’s housing subsidy policy has been extremely generous for the construction industry and for the owners of rental apartments. The same folk who complain about high taxes and government expenditure have been profiting nicely from this extraordinary generous welfare payments.

Extreme and harmful practices are now beginning to be noted in this sector. One of the construction companies is said to be offering apartments by agreeing to guarantee rental income for 2 years as well as offering a 2 year grace period for a housing loan that covers 70% of the cost of the apartment. The costs of the loan would be a tax deductible cost for the owner. The construction company is also openly encouraging the new owners secure a housing subsidy from KELA for their student children who would then rent the apartment while they study! All perfectly legal but you can imagine what will be happening when interest rates increase and investors suddenly find that their investments are not earning sufficient rent to cover loan repayments and maintenance costs…

If parents can afford to buy an apartment for their offspring to rent then why does the government then need to spend taxpayers’ money on housing grants! 

It appears that the best explanation for the big growth in housing subsidies is not coming from those who need to be supported but from those people who have discovered that they can play the government’s dumb policies.

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