The cornerstone of unity

SOCIAL POLICY 
61 SOCIAL HOUSING 
After the Second World War there was a considerable shortage of housing in Finland, which was intensified by 
migration from the countryside to towns that was brought about by structural changes in society. At the same 
time, the commercial banks had a limited possibility to grant loans, so social housing, the so-called Arava 
housing system, was established in 1949 in order to solve the problem. 
Since the commercial banks were reluctant to issue secondary loans with higher risks, the Arava system 
adopted the granting of such loans as its core function. 
In the 1950s and 60s the system granted loans for owner-occupied dwellings which promoted their 
construction. In addition to its housing policy objectives, the system strove to encourage citizens to save in 
advance for housing. This was considered an important way of ensuring ongoing economic development and 
reinforcing the banking system. 
The basic idea was to provide public loans at reasonable rates of interest in order to guarantee that, having 
been granted an 
initial loan from a monetary institution, the buyer’s own contribution would not become 
unreasonably high. The social impact of the idea was that the system allowed middle-class and even low-income 
workers to buy a place to live, and the proportion of owner-occupied dwellings rose relatively fast to over 70% of 
all dwellings. The system has offered hundreds of thousands of Finns a chance to get on the property ladder. 
Along with the educational system (innovations nos. 40 and 41), it has been one of the most important pillars of 
Finnish governmental policy, which aims for an egalitarian social structure. 
The Arava system was not only restricted to granting reasonable public loans 
– it also had an impact on the 
quality and cost of construction as it took special notice of architectural quality and the functionality of new 

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neighbourhoods. This means that it can still be claimed that many of the best housing areas in Finland are mainly 
constructed through Arava funding. 
The idea was to build the new neighbourhoods so that they had a versatile social structure from the very 
beginning. The planning principle was that every housing area should include both non-subsidised and 
subsidised construction, and the distribution of building types should be diverse. Housing blocks were built 
relatively low, almost without exception with three or four storeys. 
In the 1950s and 60s Arava housing consisted mainly of owner-occupied flats. As a result of rapid structural 
changes in the Finnish economy in the 1970s, the focus was shifted to the construction of rental accommodation. 
However, even then the areas were designed so that they would include both rental and owner-occupied flats. 
Special attention was paid not only to quality but also to keeping the construction costs as reasonable as 
possible. Since the 1970s, construction firms were systematically asked to submit competitive offers. 
Considering that Arava dwellings had a better benefit-cost ratio and cheaper financing than other flats in the 
market, it was important to extend the benefits to cover more than just original buyers; those moving in later should 
also be able to benefit from the reasonable prices. It was thus ruled that owner-occupied Arava dwellings could 
only be sold to the municipality or to a buyer named by the municipality, and only at a regulated price that 
accounted for inflation but not other increases in value. 
This practice also eliminated all forms of illegal pricing, which is always possible when the seller can choose 
the buyer. This solution enabled the municipality to offer not only rental dwellings but also reasonably priced 
owner-occupied flats for e.g. young first-time buyers, who are otherwise often at a disadvantage. The selling of 
rental dwellings is also regulated, which guarantees that the housing stock fulfils its original intention, especially 
in growing cities where there is a constant demand for reasonably priced rental dwellings. 
Since the 1970s the Arava system supported in increasing amounts major repairs in building stock, and 
attent
ion has also been paid to the buildings’ energy-saving levels. All Arava dwellings have been constructed 
with at least triple-glazed windows since 1973, long before nonsubsidised housing. 
With the relaxation of the Finnish monetary policy after the end of 1980s, considerable reforms were made to 
the Arava system. The most essential of these included the founding of the Housing Fund of Finland as a 
revolving fund. In the fund model the incoming interest and amortization payments can be used as a revenue of 
the fund. The Fund can also acquire part of its necessary funding from the general financial and capital market. 
An important development was that granting of interest subsidy loans displaced the direct lending of the Fund. In 
the interest-subsidy model the fund issues interest subsidies for commercial loans granted to developers. In 
order to obtain a favourable interest level for these loans, a bidding process is used. 
Between 1949 and 2015 Arava loans have financed the construction of more than one million apartments or 
other homes and the basic renovation of approximately 380,000 homes. Approximately 445,000 Arava homes 
were owner occupied, while 540,000 were rental units and 45,000 right-of-occupancy homes.
Over 60% of rental dwellings are directly or indirectly owned by municipalities, while the vast majority of the 
rest are owned by non-profit organisations. Part of these organisations specialise in improving housing 
conditions for the elderly, students or other people living in poor conditions. These activities have an ever-
increasing importance. 
Martti Lujanen 
– former deputy director general at
the Finnish Ministry of the Environment