Finland: Local Land Policies & Housing Supply's Responsiveness

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A new study (Advancing understanding of the linkages between local land policy interventions and the responsiveness of housing supply: Intervention mechanisms in the Finnish context by Tea Lönnroth, Pauliina Krigsholm, Heidi Falkenbach, and Elias Oikarinen) published in Land Use Policy digs into the complex ways that municipal land use policies and interventions can affect the responsiveness of housing supply to changes in demand.

The researchers developed a conceptual framework and analyzed empirical data to illuminate these dynamics.

Finnish context

• To examine how this plays out in practice, the researchers analyzed extensive interview data on land policy practices in Finland's 30 largest cities, representing 61% of the population.  

• Finnish cities play a uniquely decisive role in development. They create and approve detailed plans, issue permits, acquire and sell/lease lots, and can compel development.

• The researchers identified 23 specific land policy "indicators" representing the key intervention mechanisms in the Finnish context. One indicator is using "reminders to build" on vacant lots.

The mechanisms

• The researchers group the 23 sub-mechanisms/indicators into seven key "intervention mechanisms"

• Theoretically, these mechanisms directly impact the marginal costs of housing development (e.g., fees, restrictions) or indirectly through time-related expenses and process delays.

• The mechanisms build on a review of urban economics literature. The direct impacts align with studies showing that interventions affecting development costs or buildable land supply influence housing production. The indirect impacts relate to research on how approval delays and uncertainties affect development.

Breakdown of the mechanisms

1. Municipal land reserve building - how actively cities acquire and hold land for development

   1. Land acquisition activity and land holdings

   2. Pre-emption of land

   3. Expropriation

2. Planning delays - issues that slow down planning processes

   1. Stakeholder involvement

   2. Stakeholder pressure

   3. Planning delay (including new plans and alterations)

   4. Plan appeals

   5. (Weak) State of Municipal Finance

3. Delays in availability of buildable land - efficiency of supplying serviced lots

   1. Conveyance process delay

   2. Planning of privately owned land for a new residential area

4. Plan implementation delays - e.g., permitting and development control

   1. Post-planning process

   2. Conveyance stipulation of building obligation (extensions)

   3. Reminder to build

5. Impacts on development costs and profit margins - e.g., fees, requirements

   1. Land value capture practices

   2. Incentives in land use agreements

   3. Inclusionary housing requirements

   4. Residential structure requirements

   5. Requirements of local detailed plans

   6. Objects of protection

6. Market competition effects - how policies influence developer competition

   1. Developer steering

   2. Land market constraints

7. Builders' costs of delaying development - policies that incentivize timely building

   1. Applicability of contractual penalties

   2. Vacant urban land tax

Findings

• Analysis revealed significant variation in how Finnish cities apply the 23 land policy indicators.

• For example, 70% of cities rarely or never use reminders to build, while 10% apply them systematically. There is also variation in how strictly cities enforce building permit requirements.

• By scoring each city on the indicators and aggregating them, the researchers categorized cities into "restrictive," "moderate," and "permissive" based on the overall housing restrictiveness of their policy combinations.

• Restrictive cities tend to apply restrictive policies across all seven intervention mechanisms, whereas permissive cities are consistently permissive. Few towns are restrictive on some mechanisms but not others.

Why it matters

• The research adds more evidence that municipal land policy choices influence housing supply responsiveness meaningfully and that effects likely cumulate across different interventions.

• It provides a structured way to assess the overall housing-supply-openness of city policies and compare them across cities in Finland and possibly other countries. Planners could adapt the framework to their contexts.

• With housing affordability a widespread challenge, such analysis could help cities optimize policies to meet public goals while minimizing negative supply impacts that put upward pressure on prices.

Bottomline

We know that cities regulate and intervene in land and development markets, which has complex but essential implications for housing supply. This study provides a clearer picture of the mechanisms (at least in Finland) involved and a tool for evaluating a key outcome—the cumulative housing restrictiveness of city policies.

While the exact magnitude of effects requires further study, the findings suggest cities should carefully consider how their policy choices may be stacking the deck against housing development. Paying close attention could help thread the needle in pursuing planning aims while enabling supply to respond to housing demand.