FCCA report: Inefficient regulation preventing sufficient availability of housing

To ensure a sufficient supply of housing, fundamental changes must be made to construction regulation and land use control. In practice, this means shifting from what currently amounts to limiting the overall supply to genuinely improving the situation. Examined from this viewpoint, regulation is clearly not efficient enough, says a report published today by the Finnish Competition and Consumer Authority.

The FCCA’s reportTarjonnan tiellä – rakentamisen sääntely ja paradigmaattisen muutoksen tarve (Obstacles to supply – construction regulation and the need for a paradigm shift) (in Finnish), takes a look at the need to develop regulation from the viewpoint of ensuring overall supply. The report presents four key development proposals.

1. Speeding up the processing of local detailed plans and increasing the landowners’ right of initiative

Section 58 of the Land Use and Building Act could require that, once a landowner has made an initiative to draw up a local detailed plan or make an amendment to one, the municipality must decide on any action to be taken within two months of the initiation of the plan. If the municipality decides to draw up or change a local detailed plan on the basis of an initiative proposed in line with the new provision, in its decision the municipality must present a target timetable for drawing up or amending the plan.

2. Lighter planning procedure regarding changes in the purpose of buildings

A provision could be added to section 66 of the Land Use and Building Act, enabling the amendment of a local detailed plan in certain, special cases without applying the provisions on the participation and assessment scheme and negotiations between authorities. A prerequisite for this procedure would be that it involved an office or similar building being converted into housing, without significantly increasing the amount of construction in the planning area.

3. Regional government reform and better strategic control of land use

During the regional government reform, any changes to regional administration must be accompanied by amendments to the Land Use and Building Act. At the same time, we should aim to strengthen the strategic approach to land use control and develop better ways of evaluating the economic effects of planning. This would force both regional government and municipalities to observe land use control from the viewpoints of both its regulatory necessity and economic effects.

4. Distorted incentive structures and the need to develop real estate taxation

If municipalities and regions lack the incentive to grow fast, they will not use the means available to speed up planning and supply plots. A real estate tax or land use fees could be developed into better tools for financing the growth of municipalities. Tools for the use of price mechanisms would also distort the market less than bans or regulations do.

Use of the above tools promoting the overall housing supply would require acknowledging certain financial realities more openly, for example. This would involve a wider debate on the extent to which various objectives, some of which are contradictory, can be included in a single act. We also need an open debate on how distorted incentive structures can be corrected.

Creating a basis of sufficient overall supply is also the key precondition for entering, or threatening to enter, the sector, thereby creating competitive pressure that will prevent any further price rises.

Further information
Ari Ahonen, Head of Research, tel. +358 (0)29 505 3368, email firstname.lastname@kkv.fi