Municipalities Land Planning Gamble

The OECD back in 2006, was sending some recommendation and warning regarding the land planning:

• "Tax subsidies to housing may largely be capitalised in higher land prices"
• "Slow planning procedures and municipalities’ unwillingness to provide building land have limited the growth of the housing stock in growth regions."
• "This would argue for improving municipalities’ incentives to provide building land, speeding up planning procedures and a phased removal of the tax advantage associated with housing."

In the autumn 2007, it seems that the government, in particular the Housing ministry is sending clear messages to the municipalities. Here is the housing minister, Jan Vapaavuori , message:

"Suurin hidaste hänen (Jan Vapaavuori, Housing Minister ) mielestään on kuntien kaavoitusmonopoli. Pääkaupunkiseudun kunnat pelkäävät veropohjan rapautumista eivätkä halua kaavoittaa tarpeeksi maata kohtuuhintaista asumista varten. Kunnat odottavat muiden kuntien tekevän aloitteen."

The biggest hindrance is the monopole of land planning. The communities in the Helsinki area are afraid to lose big income revenue if the price of the land is falling. There are basically manipulating the supply to keep artificially high price level of Land therefore housing. This distortion is putting pressure on prices and future construction.

The municipalities are waiting for the other municipalities to make the move. (or are we seeing a new cartel?)

"Eikö asian voisi ratkaista pakkolailla, joka heikentäisi kuntien kaavoitusmonopolia?"

This issue can be solved by introducing a new law that will break the land planning monopoly.

"Uskon jo viran puolesta, että asunto-ongelma ratkeaa nykyistä paremmalla kuntien välisellä yhteistyöllä. Jää nähtäväksi, onnistutaanko. Mutta jos ei onnistuta, palataan teemoihin, jotka mainitsit."

The ministry will work with municipalities to solve this current issue. If it doesn't succeed then the law will be introduced.

"Vapaavuori väläytti jo aiemmin tänä vuonna, että jos kunnat eivät kaavoita niin sitten ne itkevät ja kaavoittavat."

Vapaavuoru already said it beginning of the year, if municipalities don't speed up the land planning procedures , they will be more pain later when they will be forced to do it.

So when the law will be introduced or when the municipalities are pushed to speed up the land planning process, then the pressure on land price will fall bringing the housing price down. This is always happenning when all the majority of citizen have already purchase a home. We witnessed a similar situation in the Car tax reform. It was introduced when the Car industry had problem and was technically in a "recession"and again most have already made a car purchase therefore being robbed 10 of thousands of euro of purchasing power through custom and car tax.

Source: talouselama