Wealth disparities highlighted in Finland: Capital region prospers, Eastern Finland struggles

By admin On May 30, 2024

Oulunkylä, Helsinki, May 27, 2024, with the Kalasatama tower buildings in the background. LEHTIKUVA

A recent analysis by Hannu Nummiaro, an economist at LähiTapiola, reveals stark regional disparities in household wealth accumulation in Finland. While residents in the capital region have seen their wealth grow by over €400 per month, those in Eastern Finland have experienced a monthly loss of €170.

The comprehensive data indicates that the value of Finnish households’ real estate and financial assets has been declining for over two years,

continuing this trend in the first quarter of 2024. Despite a recent slight recovery in Eastern Finland, the long-term picture shows significant gaps between regions.

According to Nummiaro’s wealth index, which tracks the value of properties, deposits, mutual funds, and stocks since 2016, the capital region has seen a robust increase in wealth. Households there have benefited from a €410 monthly rise in asset values, primarily driven by real estate appreciation and substantial gains in financial assets. In contrast, Eastern Finland has struggled, with average monthly losses of €170 due to declining property values.

“Since 2016, property values in Eastern Finland have dropped by an average of €215 per month, while in the capital region, they have risen by €173 per month,” explained Nummiaro. “Additionally, residents in the capital region hold more stocks and mutual funds, resulting in an average financial asset gain of €237 per month per household.”

Average Monthly Wealth Growth in Finnish Households (2016 Q4 to Present, €/Month/Household):

Region Own Home Deposits, Mutual Funds, Stocks Total Entire Country -€58 €113 €54 Southern Finland -€3 €152 €150 Western Finland -€91 €92 €1 Eastern Finland -€215 €42 -€174 Northern Finland -€20 €51 €31 Capital Region €173 €237 €410 Rest of Finland -€97 €80 -€17

Nummiaro’s analysis also shows that the value of Finnish household assets began declining over two years ago, with real estate prices dropping for the past 18 months. This trend persisted in the first quarter of 2024, except in Eastern Finland, where property values have shown slight recovery.

“In Eastern Finland, property prices plummeted following Russia’s invasion of Ukraine. The market’s dramatic correction may have balanced supply and demand. Currently, prices are experiencing modest growth,” Nummiaro noted. “Nationally, apartment and row house prices hit their lowest in January, though single-family homes continued to decline, particularly in Northern Finland.”

Despite the fluctuations, Nummiaro emphasizes the importance of viewing the data over the long term. The index tracks property prices using a moving annual average, reflecting longer-term trends.

Real Returns and Economic Resilience

The value of different asset classes has fluctuated significantly in recent years, influenced by global economic shocks such as the COVID-19 pandemic, rising consumer prices, and conflicts in Ukraine and the Middle East. From early 2020 until the downturn began in 2022, Finnish household assets saw a significant rise of over 10%. However, both real estate and financial assets have since reverted to pre-pandemic trends.

“From 2017 to 2019, the average return on deposits, mutual funds, and stocks was around 10%, while real estate values declined nearly 2%. Projecting those trends to today, we’re close to the current levels,” Nummiaro observed.

Overall, household assets have generated an average return of about 3% since 2016. Yet, inflation has eroded the purchasing power of this wealth, resulting in a real return of negative 15%.

“About half of Finns’ wealth is tied to their homes. Including other properties and vacation homes, real estate assets account for nearly two-thirds of their total wealth. With property prices dropping nationwide, real wealth returns have suffered significantly,” Nummiaro said.

However, financial assets like stocks, mutual funds, and deposits have preserved their value, providing some economic resilience.

“As global economic momentum strengthens, we can expect good returns from riskier investments like stocks or high-yield bonds. Markets may fluctuate, but long-term investors can diversify beyond local real estate markets to improve overall asset returns. It’s wise not to put all eggs in one basket,” Nummiaro concluded.

This analysis underscores the importance of regional economic policies and diversified investment strategies to mitigate the impact of regional disparities in wealth accumulation.

Source: www.helsinkitimes.fi