Estonia plans 1,000 new apartments in small towns

Estonia’s Climate Ministry plans to launch a pilot next year to build about 1,000 modern apartments in small towns, ERR reported. The state budget will not fund the construction, so local governments, developers or businesses may have to cover the costs of apartments left vacant.

The ministry says few new homes are being built outside the Tallinn and Tartu regions, even though about a third of Estonia’s population lives elsewhere and people there also want modern housing.

Climate Ministry Deputy Secretary General Ivo Jaanisoo said private developers have little incentive to build in places such as Paide and Põlva. Construction costs are similar to those in Tallinn, while sale and rental prices are much lower. Developers and lenders are also concerned that some apartments may not find tenants.

The ministry is working with the European Investment Bank on a financing model that would group new developments in small towns into a larger portfolio. The ministry hopes economies of scale will reduce costs and encourage private banks to lend for apartment construction.

Local governments have proposed more than 100 plots for the pilot. They will need to make a final decision on whether to participate, and the ministry plans to select the sites early next year.

One unresolved question is who would cover rent for an empty apartment. Under one possible arrangement, a town or municipality would guarantee rental income when a unit has no tenant. Developers, local employers, the central government or municipalities could also take on some of the vacancy risk, Jaanisoo said. The ministry expects to settle on a solution in the coming months.

Once the financing model and plan are ready, the state will invite bids from builders and operators. Jaanisoo said many plots already have detailed plans, which could allow developers to move quickly. The first apartment buildings could be completed by 2030.