EP202 · Economy · first published 2023-07-11

The government is making the housing crisis worse | Petri Roininen | Negotiator 202

Petri Roininen, chief executive of Investors House and the channel's very first guest, joins Sami Miettinen in July 2023. The claim is a narrow one: the government is dismantling housing subsidies without cutting housing taxes, and on top of the rate shock it reinforces a downward path. This write-up separates out the asymmetry between subsidies and taxes, the trap in amortisation-free periods on housing company loans, the municipalities' vertical cartel in zoning, and Roininen's two-down, two-up thesis. The guest is an interested party twice over — as the CEO of a listed property company and as a Centre Party actor — and that is disclosed.

Sami Miettinen · Sections: AI and the Economy

The government is making the housing crisis worse | Petri Roininen | Negotiator 202

Summary: Petri Roininen, chief executive of Investors House and the channel’s very first guest, joins Sami Miettinen in July 2023. The claim is a narrow one: the government is dismantling housing subsidies without cutting housing taxes, and on top of the rate shock it reinforces a downward path. This write-up separates out the asymmetry between subsidies and taxes, the trap in amortisation-free periods on housing company loans, the municipalities’ vertical cartel in zoning, and Roininen’s two-down, two-up thesis. The guest is an interested party twice over — as the CEO of a listed property company and as a Centre Party actor — and that is disclosed.

A note on reading this, on interests, and on the source

The recording is from 11 July 2023, about three weeks after Petteri Orpo’s government took office, and at the point in the rate cycle where housing transactions had already stopped but construction bankruptcies were not yet visible in the statistics. Three things are worth reading before the content.

• The guest is an interested party twice over. Petri Roininen is the chief executive of Investors House, a listed property investment company, and he had just joined the Centre Party after his own run at parliament. His assessments of housing policy are therefore made from both an industry and a party position. This write-up reports them as his views and does not present them as its own conclusions.
• The host is an interested party too. Sami Miettinen says in the episode that his own monthly mortgage instalment has gone from a thousand euros to 1,800. It is the episode’s most concrete number and it is his own.
• The source. This write-up rests on the episode’s MacWhisper transcript (Finnish, punctuated, 326 cues). Proper nouns were corrected separately. The transcript contains one roughly 28-second gap at 18:14–18:42; sentences end and begin cleanly on either side of it, so nothing is cut off mid-sentence, but its content is unknown.

1. The claim that carries the episode: subsidies down, taxes not

Roininen’s starting point is not that cutting subsidies is wrong. The opposite: housing carries what he describes as three overlapping layers of support — production subsidies, ownership subsidies and rent subsidies — and unwinding them is “perfectly sensible”.

The criticism is about the asymmetry:

About 46 per cent of the price of a new home is tax of one form or another. If subsidies are cut but taxes are not, the flywheel keeps spinning the same way — only the household’s share grows.

And in the programme the movement is the other way, he says: real estate tax on the land itself is being tightened, which shows up in the cost of both rented and owner-occupied housing. Miettinen compresses the same point into one line, and it is the sharpest formulation in the episode:

The government is cutting transfers ideologically correctly — and failing to reduce the tax burden ideologically incorrectly.

Roininen had expected larger structural moves in both housing and corporate taxation (cutting business subsidies and corporation tax at the same time) and did not find them.

Public debt. His forecast for the parliamentary term is 30–40 billion euros of additional public debt — roughly the same, he says, as the previous government ran up while being criticised for it. Miettinen points out that money has inflated; Roininen dismisses it briefly: a euro is a euro. This is a forecast rather than an observation and should be read as one.

2. Four billion out of the equity portfolio — to do what?

Roininen approves outright of reducing the state’s listed holdings: the state is not the best possible owner and the ownership is not necessary. His criticism is about where the money goes.

Some four billion euros are being directed at rail investments, most of which would in his view have been made in any case — infrastructure maintenance is long-horizon work and is invested in every parliamentary term. As alternatives he names paying down debt, cutting taxes, and a fund model for financing growth companies.

Miettinen admits his own bias openly here — for all my fiscal conservatism I have a perverse infrastructure fetish — and Roininen answers with a comparison to Japan: there fast trains are a necessity because there are many people and little space. In Finland, once you leave Helsinki, “there is nothing but forest”.

3. The mechanics of the rate shock: one household, one number

The best teaching moment in the episode is where a personal number is converted into a macroeconomic one.

• Monthly instalment €1,000 → €1,800, roughly €10,000 a year more.
• Preserving the same purchasing power would require a gross pay rise of about €20,000 — on the order of 2.6 times what the labour market was producing that summer.
• From which it follows directly that the consumer housing market has stopped.

Roininen adds an observation about the choice of rate period: the one-month Euribor spreads a rate change across twelve instalments a year and is therefore better from a risk management point of view than the twelve-month — contrary to the common intuition. This is the opposite of what one usually hears at a bank counter, and the episode gives the reasoning.

How prices move. Roininen describes how a property market reacts to a shock: transactions stop first, and only then do prices find a level. Eighteen months of decline so far, about 8 per cent in nominal prices and clearly more once adjusted for inflation. This write-up does not state a precise real figure: the transcript gives two different numbers for it, and the episode itself notes that the difference between 7 and 17 is enormous. Miettinen’s aside is usable everywhere regardless: a chart must always say whether it is nominal or real.

4. Does the housing allowance end up in rents — and a natural experiment

Miettinen makes the methodologically most interesting point of the episode here: because Helsinki’s housing allowances were moved to the level of the surrounding municipalities, a comparative setup has been created. If prices and rents fall more in Helsinki than elsewhere, that is economic evidence of the subsidy capitalising into rents.

Roininen’s own answer is direct and it is a demand argument: a market into which 2.6 billion euros a year are poured will inevitably see a price effect. This is a contested question on which research findings vary, and in the episode it is stated as a position — not as a literature review.

The rent increase pressure is the episode’s hardest single forecast. In owner-occupied housing the blow has been absorbed by the owner-occupier; on the rental side it has been absorbed by the landlord, who has not dared raise rents while supply is plentiful. Roininen’s estimate:

• A landlord may need a 20 per cent increase just to break even.
• Heka, the City of Helsinki’s rental company, has indicated increases of about 10 per cent from the start of next year.
• KOVA, the association for affordable housing providers, has said its members’ need runs to as much as 20 per cent, and roughly 95 per cent of their stock is leveraged.
• Once the non-profit, municipally owned operators move first, the rest follow.

Tied to this is the episode’s bleakest observation about the tenant’s position: the customer of a non-profit landlord cannot vote with their feet, because there is no alternative.

5. Housing company loans and the amortisation-free trap

Roininen defends the instrument before criticising its use. Without housing company loans new homes would not be built: the buyer cannot afford to own two flats across the move, and the builder’s balance sheet cannot carry the whole financing.

The interest rate effect, he says, is exactly the same in a housing company loan as in a personal mortgage. The difference lies elsewhere:

The poison is the amortisation-free period. It should not be practised, because it creates an illusion — and when the amortisation finally starts, it is large.

Miettinen admits his own mistake here: he paid off his share of the housing company loan a year earlier, thinking he had negotiated better terms than the company, but had not himself worked out the post-amortisation-free delta very carefully. When interest and principal land in the same lap, the result according to Roininen is forced sales at the individual level of a kind not seen in decades.

The banker’s view — the best single exchange in the episode

Miettinen puts the investor’s argument, crediting it to a piece written by Aki Pyysing: when an asset’s value falls, surely that is a better situation for the financier and the buyer than a bubble. Roininen’s answer shifts the frame:

From the investor-owner’s point of view it looks exactly like that. But in the banker’s trousers it looks different: the collateral position has weakened, the general economic situation has weakened, and the cash flow that services the loans has possibly weakened too.

Attached to this is a line both of them know — a banker lends you an umbrella when the sun shines and asks for it back when it rains — and Miettinen’s version of the old definition of credit: a bank grants a loan to whoever can prove they do not need it.

Timing. New mortgage and housing company loan restrictions had arrived that very week. Roininen’s verdict is harsh and it lands on the authorities too — the Bank of Finland, the Financial Supervisory Authority and the whole sector: the measures should have been taken two, three, four, perhaps five years ago, not now. Now they reinforce a downward path.

6. The four cornerstones of housing policy

This is the most structural section of the episode and it is usable without taking a view on the government.

1. Zoning. In the capital region a scarce good has been created out of zoned residential land — even though space exists. That is why plots are expensive.
2. Taxation. The 46 per cent tax content of new housing production is disproportionate; the levers Roininen names are land use charges, VAT and transfer tax.
3. Competition. The sector suffers from a lack of competition — and the reason, he argues, is that a large share of the operators are public. This produces the episode’s most interesting concept (section 7).
4. Financing. Balance sheets and their regulation; “a real craft”.

The vertical cartel

Roininen’s formulation of the municipality’s role in housing production is precise and worth reading whole:

The municipality has the land, the right to zone it, the right to convey the plots, its own development companies, and at the end of it the tenants and the housing allowance. A vertical cartel.

And the consequence: when the dominant operators are vertically integrated, it affects the whole competitive setting. Miettinen asks whether the health and social services region reform broke this up. Roininen says no, and it is the episode’s most counterintuitive point: the reform moved the properties to an operator even more integrated than the municipalities, and the wellbeing services counties compete with each other no more than municipalities did.

The word cartel is an analogy here rather than a competition law claim, and should be read that way.

The zoning authority decides everything about the building

The episode’s second structural observation concerns who actually designs a Finnish building. Not the builder and not the owner, but the detailed plan: number of storeys, square metres, the mix of flats, the facade, parking spaces, bicycle spaces, play areas, club rooms.

From which, in Roininen’s view, little room is left for listening to customer needs, for innovation or for cost efficiency. His concrete proposal has two parts and is easy to check afterwards: reduce the number of things a detailed plan specifies, and assess with every detailed plan what building the specified house would cost and whose wallet it fits.

7. Investors, funds and commercial property

• The listed property sector fell hard across northern Europe the previous year — because of rising rates and uncertainty in the bond market, since these companies typically finance themselves with bonds. This year it has stabilised.
• Property funds are an industry roughly fifteen years old in Finland. Roininen’s point is that its resilience through a cyclical crisis has never been tested — in the financial crisis the sector did not yet exist at scale. The test comes now.
• Private investors. Finland has, by his count, 300,000 housing investors in a country of 5.5 million. Some are experienced, but for those who came in after the start of the 2010s this is the first time interest costs rise, rents are hard to raise, values fall and financing tightens at the same time. His advice is short and bleak: do what is necessary and hold on through the next year.
• Commercial property. E-commerce was supposed to kill retail space; Roininen’s observation is that good locations still perform, but space requirements shrink (a clothing retailer no longer needs the square metres it used to). In offices, remote work cuts the floor area inevitably, but what remains is expected to be of higher quality. The capital region has over a million square metres of empty office space, which on a quick calculation corresponds to about 50,000 jobs — and those do not appear overnight.

8. A creeping crisis: why this is not 2008

This is the episode’s thesis and it is stated unusually clearly.

Roininen’s upper reference point is the 1990s depression: this is worse than the financial crisis but clearly lighter than the 1990s, because then both the economy and the banks collapsed.

It shows up in construction first. When the volume of housing starts falls 60 per cent, the old projects carry the industry for about eighteen months — and when those finish in the summer and no new ones begin, unemployment starts in the autumn. Small and medium-sized builders are already failing at a rate not seen since the 1990s depression.

The only quick rescue is the ECB. What would be needed, Roininen says, is a strong signal of falling rates and then the act itself. Miettinen adds realism: Finland and the euro area have never been rate hawks and follow the US cycle with a lag.

9. Right-of-occupancy housing — one sentence in the programme

A small but concrete point that is easily missed. Right-of-occupancy housing sits between renting and owning. Roininen’s numbers: about 100,000 Finns live in it and about 1,500 units are built a year.

The government programme contains one sentence: support for new right-of-occupancy housing ends. In practice that means no more will be built — the existing stock is maintained. His criticism is about timing: right now this could be one of the few tenure forms still pulling.

From which he draws a more general lesson that applies well beyond housing policy: decisions have long lead times, and if the underlying conditions change between the decision and its effect, the outcome easily lands at the wrong point in the cycle.

10. Public finances regardless of the cycle

The most general and perhaps most durable argument in the closing section is not about housing at all. Roininen says he took part in a discussion about what the business cycle means for the management of public finances, and no clear conclusion emerged. His own is this:

Regardless of where the cycle goes, those who have been chosen to run this country should by now know how to manage public finances so that we can take it. That traditional thinking that we will act when the good times come — we never act when the times are good.

Miettinen adds one checkable historical claim, which he states with emphasis on its precision: of the last three governments, 2015–2019 is the only one that reduced earned income tax in every income bracket, and even so it managed with less new debt than the others. This is his position, and the Laffer reading attached to it is an interpretation, not a measurement.

11. Why a fiscally right-wing entrepreneur joined the Centre Party

The last section is personal and it answers the question directly.

Roininen describes himself as the fiscal right of a centre-right party. His reasoning for the choice of party is mechanical rather than ideological: getting into parliament via a party that is not already in parliament is extremely difficult. The last to manage it was the Young Finns in 1995, for a single term; in this century nobody has entered parliament from outside it without splitting off from an existing group.

Once that became obvious, the alternatives had to be weighed — and out of the conversations came this solution. He is now part of a working group considering how the Centre Party positions itself.

Miettinen closes by thanking him for the Centre Party not having joined the summer’s culture war the way the other opposition parties did, and Roininen dismisses it briefly: it does not really suit my grain.

Claims presented as claims

• The estimate of 30–40 billion in additional debt over the parliamentary term.
• The claim that the housing allowance ends up in rents.
• The estimate that rents carry as much as 20 per cent of increase pressure.
• The description of the municipalities’ role as a vertical cartel.
• The reading of the link between the 2015–2019 tax cuts and debt development.
• The “two down, two up” cycle forecast.

What stays with you

1. Cutting subsidies without cutting taxes is not a structural reform, it is a transfer of cost. That is the one-sentence core, and it is checkable against the programme.
2. An amortisation-free period is a trap, not flexibility. The rate effect on a housing company loan is the same as on a personal mortgage; the difference is that the amortisation-free period hides the second layer until both land at once.
3. The zoning authority designs the building. If construction costs are to come down, the place to look is the content of the detailed plan, not the builder’s margin.
4. A creeping crisis is slower but harder to treat than a sudden one. There is no support-package answer to a real-economy and interest rate crisis — only lower rates.

How the episode runs

• 00:00 — Petri Roininen returns as the channel’s first ever guest
• 01:10 — The programme cuts housing subsidies but not housing taxes
• 02:57 — The total tax rate and public debt over the parliamentary term
• 04:07 — Selling the state’s listed holdings and the rail investments
• 05:51 — The culture war crowds out fixing the economy
• 07:05 — Euribor rose: a monthly instalment from 1,000 to 1,800 euros
• 08:16 — Purchasing power collapsed and housing transactions stopped
• 09:12 — A different crisis from the financial crisis
• 10:06 — Does the housing allowance end up in rents
• 11:08 — A 20 per cent rent increase pressure, Heka goes first
• 14:03 — Housing company loans and the amortisation-free trap
• 16:38 — The banker’s view of a falling collateral value
• 18:42 — The lending restrictions arrived at the worst possible moment
• 19:18 — Support for right-of-occupancy housing ends
• 20:41 — The four cornerstones of housing policy
• 21:40 — The municipalities’ vertical cartel in construction
• 22:58 — Property funds and the listed real estate sector
• 24:43 — Finland’s 300,000 housing investors put to the test
• 26:25 — Commercial property and offices after remote work
• 29:07 — The zoning authority decides everything about the building
• 31:35 — A creeping crisis, not a collapse
• 32:46 — Construction bankruptcies and unemployment in the autumn
• 33:50 — ECB rate cuts are the only quick rescue
• 34:32 — Public finances must be managed regardless of the cycle
• 36:23 — Why Roininen joined the Centre Party
• 38:34 — Closing words and the Platinum continuation on ice hockey

Markdown: index.md · Suomeksi