Building costs in the Nordic countries: “We’re facing high costs for a long time”

24 apr 2024

At a recent NSBO Digital meeting, building costs and subsidies in the Nordic countries was discussed. Here is a short summary of the overall discussion and the situation in each country.

Building prices are increasing in all the Nordic countries and impacts the construction of student housing in different ways. The most common cause for the rising costs is the snowballing prices of building materials, a development much due to higher demand and malfunctioning supply chains during the pandemic. With Russia’s war in Ukraine, the prices for material in general and wood specifically are expected to increase even further.

All of the Nordic countries, except Sweden, has some kind of subsidized loan or grant for building social housing/student housing. It varies a lot on how it is designed, but overall low-interest loans is the most common subsidy. For many countries, different aspects of the subsidies/loans are affected by the rising building costs, making it difficult to make ends meet in individually projects. This has led to several upcoming projects being postponed or cancelled.
 

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Finland

Building costs
The building costs have increased significantly in Finland, and it is mostly due to rising prices of construction material. The prices are expected to rise even further due to the war in Ukraine, sanctions against Russia and Belarus and the general inflation.

Construction has not yet stalled in Finland, although issued building permits are starting to decline. It will be difficult to keep construction cost at a reasonable level and more projects might be postponed. The situation has led to contractors demanding index clauses in the construction agreements, which has made it more difficult for student housing to keep construction costs at a level approved within the system of subsidies.

Subsidies
Financial support for student housing is tied to non-profit organizations, which is a large part of the Finnish student housing market. The state support is a combination of a financial subsidy and a state guaranteed loan with low interest. The investment subsidy covers a maximum of 15 per cent to the total construction cost and can be used for both new construction and major renovations. The loan cannot cover more than 85 per cent of the cost and must be repaid within 40 years. The state covers interest costs above a pre-set limit.

The state support system has certain requirements, for example the operator must be non-profit and have criteria for the tenants, e.g. they have to be students. There are also rent limits and the overall cost for the project has to be approved by the housing authority.
 

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Sweden

Building costs
Building costs have increased dramatically in the past few years, approximately 10 per cent per year compared to 3 per cent previous years. The rising cost for material is because of the pandemic and broken supply chains, but there are also other reasons such as a higher demand for sustainable housing, which effects the price of wood. The war in Ukraine and the sanctions against Russia and Belarus will further increase costs for material in general and wood specifically.

Subsidies
Until the beginning of 2022 there was a government financed investment subsidy for new-built housing for students. The subsidy was a fixed amount per square meter and came with rent regulations. Both the amount of subsidy and rent levels were subject to geographical position of the project. This subsidy was removed by the opposition in January 2022.

Therefore, there are no current financial subsidies or state loans available for new student housing in Sweden. The industry operates with the same market terms as everyone else and new student housing is mostly financed by bank loans. There can be some local support, for example lower land prices. There is a general rent support system for low-income groups, but the design of the system makes it hard for students to predict the risk for re-payment, which makes them hesitant to apply in the first place.
 

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Norway

Building costs
During the last year of the pandemic the construction costs in Norway increased with 14 percent, material costs alone increased over 30 per cent. Reasons for the higher building costs are the close-down during the pandemic, a high demand for wood and higher freight costs which affects both wood and steel. Due to the war in Ukraine, the constructions costs are predicted to rise even higher, and the Norwegian housing sector are preparing for higher costs for a long time ahead.

Subsidies
The state subsidies are only available for the student welfare organizations. Each year the Ministry of Education and Research sets a maximum cost for construction of a student housing unit – at the present around €105 000. The state support is divided into two sectors; a grant which covers a third of the cost (€40 000) and a loan in the Norwegian State Housing bank which covers the rest (€65 000). The maximum cost is linked to the overall consumer price index (CPI). This presents a problem since the construction costs are increasing significantly faster than the CPI. Currently, there are no extra grants due to the extraordinary situation.

 

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Denmark

Building cost
The building costs in Denmark have increased 10 – 20 per cent in the last year. Rising prices for metal and wood materials are the main reason for the overall higher costs, but also a lack of manpower which is generating higher wages. The situation has postponed several social housing projects, including student housing. Entrepreneurs also have trouble delivering current projects on budget and time.

Subsidies
The Danish subsidies for student housing is connected to the type of housing, i.e. student housing which is categorized under social housing. It is divided into two types, subsidized loans for new construction and a financial rent support for low-income groups.

To acquire the subsidized loans the total cost must at maximum be around €3 400/sq. m. One part of the subsidized loans covers 8-12 per cent of the total cost, and even though it is a loan there is no interest or repayment for the first 50 years and therefore often seen as a grant. Another 2 per cent is a deposit from the students which they pay when they move in and receive when they move out. In case of vacancies, the landlord has to cover that cost. The rest must be acquired on the regular market, where there is a subsidy for interests higher than 3,4 per cent.

Low-income groups, where students are included, can in general get a subsidy which covers up to 15 per cent of the rent. This is highly used by students in Denmark.
 

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Iceland

Building costs
In Iceland the building costs has not yet risen as much as might be expected, which can be explained by a number of measures taken by the Icelandic government during the pandemic. These measures are only in place until June 2022, and after that an increase of anywhere in between 5 to 35 per cent is expected. Due to the risk for earthquakes, construction in Iceland needs a solid construction of reinforced steel and concrete, materials all expected to become more expensive following the war in Ukraine. A shortage of construction worker is also to be expected, increasing the cost of labour. The position of Iceland requires long and complicated transports, and the increase in energy prices will in larger extent effect the Icelandic housing market.

Subsidies
A new system was put in place in 2016 in order to create a more sustainable social housing system in Iceland. The government makes an initial grant towards a building construction in the form of an interest-free loan. The loan must be paid back after all other loans are paid, and after that 50 per cent of the rent (after deducting maintenance costs) goes to a social housing fund and not the property owner. Some student housing organizations has chosen not to take part in the system as future profits of the rent is preferably spent in their own organization rather than transferred to a common fund.