Rural Housing Challenges in the Nordic Region

There are huge dissimilarities between the rural areas of the Nordic Region – both between the different countries, and autonomous areas, and internally within them. Even so, what they have in common is that most rural areas face challenges regarding empty houses and, at the same time, a lack of suitable housing for defined needs. Good, well-functioning housing provision is essential for the continued prosperity and wellbeing of individuals and families, and it is therefore also essential for rural communities.
This project focuses on understanding the character of the challenges involved in housing people in the rural areas of the Nordics. Via interviews, a picture of the predominant challenges facing the Nordic countries emerges, and the specific nature of these challenges is described in five case studies. Based on these, we have identified various mitigating measures at national and municipal level. The lessons learned from this are described in three areas: public support to bridge the financial gap (lack of capital for construction), the specific role of municipalities, and finally how rental housing can be a tool to supplement the existing, dominant, privately-owned housing structure in rural areas.
Various correlating trends strongly influence responses to the housing challenges faced in Nordic rural areas. Demographic trends such as urbanisation, an ageing population, migration and the creation of companies and jobs locally lead to a rural housing market where a general tendency to overcapacity is exacerbated and at the same time a lack of suitable housing in growth areas and in rural towns (where services tend to be localised).
Despite the requirement for suitable housing in rural areas across the Nordics, conventional market mechanisms tend not to be able to meet the demand. The main challenge in this regard is low house prices in most rural areas – prices which are often well below the cost of construction or of refurbishing existing units. This can attract those with cash to buy cheap houses. For most people, however, housing is the largest investment they will make in their lives.
To meet it, it is necessary to take out a loan from a bank or other financial institution so as to finance the purchasing, construction or refurbishing of a suitable house or apartment. In this situation, low and potentially decreasing market prices are a challenge. Given the need to secure the value underlying a loan, the financial sector has become reluctant to offer any loan at all.
Either that or they will purely offer loan conditions up to a certain degree of the assessed market value of the property. This leaves potential buyers with a significant financial gap between the possible loan level and the actual cost of construction. This gap is extraordinary steep in rural areas, given low market prices for housing.
This challenge of securing a loan for construction, refurbishing, or just buying existing houses, acts as a barrier to development in rural locations. It enforces the trends towards urbanisation and a declining rural population. This problem is well recognised by the Nordic governments, who have established a range of measures to mitigate the situation.
Public measures to support “risk” capital for the construction of houses in rural areas
The governments in the Nordic countries and autonomous regions all recognise the challenges we have set out above, especially with relation to the financing of construction in rural places. The measures for ensuring capital for building in these areas which are currently in use, or under consideration, vary across the different countries. Denmark is seeking to meet the challenge by trying to reduce the supply of houses, thereby achieving a better balance between supply and demand for rural housing. This should – among other things – reduce downward pressure on house prices, and so reduce the financial gap. All other countries have adopted measures directed towards the demand side, by providing access to loan capital. Designing measures for supporting capital to enable construction in rural areas requires those involved to take certain key issues into consideration:
Loans, guarantees or subsidies: Support measures are generally offered in terms of a direct loan from the state or municipality for the purposes of funding construction. Alternatively, it can come via banks, which are willing to raise a loan based on public guarantee for parts of it. Some countries offer direct subsidies to reduce constructions costs, especially in the building of rentals for specific social groups – such as the elderly, young people or students.
Conditions for support: Support measures are conditioned in various ways: as a social requirement on the lenders (e.g. directed towards young people or the elderly), in terms of types of housing (e.g. rentals addressed to specific groups, as mentioned), or differentiated geographically in addressing local challenges (e.g. urban or rural housing problems).
Top-up loan or ‘last priority’ loans: In all cases public support only involves assisting the private financial system when there is a need to address the financial gap after regular lending opportunities have been exhausted. The public loan/guarantees are offered on top of loans offered by banks on ordinary terms, and thereby increase the loan limit. Public support measures are therefore provided as second or third priority, the most risky part of the total loan. Banks will get their money ahead of the public loan/guarantee, when the loan is repaid.
Market value or construction costs: The public top-up loan is often related to the market value (as a bank loan) and involves raising the loan limit. Other measures directly address the financial gap in rural areas by relating loan to the cost of construction, rather than to the market value of the house.
Mitigating the housing challenge at local and municipal level Based on our case studies, it is possible to examine various activities at the level of citizen as well
as municipal action for mitigating the various housing challenges identified here. In general, municipalities have been active in increasing the attractiveness of a location, for example – as illustrated in the hierarchy of choice in selecting a residence. In so doing they potentially influence house price levels locally in an upward direction. This also tends to increase non-market values for house buyers. It means that they are more willing to take on financial risk (provided they are
able to bridge the financial gap) in order to realise values not set by prices in the market – qualities such as good living opportunities, a beneficial natural environment, a decent service infrastructure, and other social benefits of the location and its neighbourhood.
Besides general activities for improving the attractiveness of an area, the municipalities have played different, often overlapping, roles in relation to preparing and completing building projects.
Financial role: In a few situations where the municipalities have the legal opportunity to do so, they have taken on a direct role in providing loans or guarantees for construction projects. This has been done as start-up loans in Norway, as guarantees in Sweden (under consideration), or as co-financing for the purchase and removal of houses in poor condition in Denmark.
Planning role: Municipalities generally have responsibility for spatial planning in the municipality, including the area being developed. Planning activities can be reactive, such as handling applications from investors interested in construction. Alternatively, the municipality can also be pro-active in the planning process. Examples in these case studies include formulating a municipal housing plan, buying up land and preparing plots for construction, providing municipal
services at low- or cost-price, etc.
Facilitation role: In our case studies, several municipalities have played the role of facilitator in relation to specific construction projects, reducing the risk for investors by linking demand for, and the potential supply of, housing etc. In parallel, there are examples of long-term facilitation brought about by establishing a paid facilitator position, and an example of a municipality
encouraging a local activist culture by giving people a role in municipal planning.
Rentals to supplement the dominant private-owned housing Despite the fact that privately-owned, individual houses remain the dominant housing type in Nordic rural areas, most of the projects in these case studies involve the construction of rental houses or apartments. In these instances, different arguments for building for rent are highlighted, though always as supplementary feature to the existing, private-ownership housing sector.

New rental property as permanent/long-term housing: In our case studies the needs of the elderly and of those in low-income households were especially highlighted. Housing for the elderly was seen as a way of offering suitable accommodation with less space and fewer maintenance requirements in the locality. This also frees up houses and encourages a moving chain – one which allows young families and others to access cheap houses.
New rental property as short-term housing/a steppingstone: Newcomers and young people were specially mentioned in these case studies. For both groups, rental accommodation can offer a suitable place for people to live while they adjust to the local community and save money so that they can buy a house of their own. This applies to young families, to foreign migrants or workers moving within a region, or to town folk curious about rural living, but not yet willing to invest in their own house (with the related risk of making a loss due to low and decreasing prices).