Regional Differences in the Estonian Real Estate Market Are Deepening

The activity of the real estate market is determined by the purchasing power of incomes, interest rates, and household confidence. While these changes are reflected in the real estate market quickly, the impact of demographic changes manifests slowly and often remains less noticeable in the background.

Population decline and aging, falling birth rates, and the concentration of people in larger centers shape regional real estate markets differently. Therefore, the demographic changes that await us are becoming an increasingly important topic.

Population concentrates in Harju and Tartu counties

According to the main forecast of Statistics Estonia, Estonia's population will decline by approximately 3% by 2050 compared to the present. The population concentrates where there are more jobs, higher wages, and better educational and development opportunities.

While the population has grown in Harju, Tartu, Pärnu, and Rapla counties over the last decade, by 2050 growth is only projected in Harju and Tartu counties. The population of the remaining 13 counties will decline, most significantly in Ida-Viru county.

Population expands to the outskirts of major cities

However, regional population forecasts do not mean that the population will grow evenly throughout Harju and Tartu counties – the number of residents may increase primarily in the surroundings of larger cities, while some regions decline. Infrastructure development and more affordable housing outside cities promote population concentration on the outskirts of major cities in addition to living in cities themselves. For example, Harju county's share of Estonia's population has grown from 44% to 47% over ten years, and according to forecasts, it will reach 51% by 2050. Meanwhile, population growth in Tallinn has been slower than elsewhere in Harju county, which suggests the expansion of residents and housing demand beyond the capital.

At the same time, developed infrastructure and relative proximity to jobs or educational institutions also allow residents of some counties to remain permanently in their home county. One such example is Rapla county, where approximately 45% of employed residents work outside their home county, including 28% in Tallinn. Thus, the attractiveness of some counties as a place to live depends greatly on transport connections to attraction centers and the ability to offer affordable housing and good quality of life.

There are fewer potential homebuyers and renters

According to Swedbank data, approximately 90% of residential loan clients are residents aged 20–49. Although not all people in this age group are potential homebuyers, changes in their numbers help estimate future housing demand.

Over the last decade, the number of residents aged 20–49 in Estonia has declined by approximately 2.5%. According to forecasts, this will decrease by 9% by 2040 compared to today and by approximately 14% by 2050. Decline is projected in all counties, and in several counties the decrease may exceed 20%.

Although actual developments may not fully coincide with forecasts, they still point to the fact that housing demand prospects are not the same throughout Estonia. Regional differences may deepen, and population loss may make selling real estate and also developing it increasingly difficult precisely where there are fewer potential buyers.

Regional price differences may deepen

Better employment opportunities and higher incomes generally allow attraction centers to pay higher prices for real estate. However, this may not mean equal opportunities for everyone to purchase housing, as incomes differ even in attraction centers.

For example, last year, with Võru's average monthly salary, one could purchase on average 1.3 m² of apartment space, while with Tallinn's average monthly salary only 0.6 m². In regions farther from attraction centers, purchase prices may be cheaper, but limited employment opportunities, lower incomes, and a smaller pool of buyers keep demand smaller as well.

The price gap between attraction centers and other regions may increase further over time. This does not automatically mean price decline, as market developments are also influenced by interest rates and the economic environment. However, price growth may differ even more regionally in the future. In Harju and Tartu counties, population growth increases the overall demand for residential space even if the number of residents aged 20–49 declines. Elsewhere in Estonia, both the population and the number of residents aged 20–49 are declining, which may reduce both the overall demand for residential space and the number of potential homebuyers and renters.

It should also be noted that population decline and aging can affect demand and price levels, but price is also shaped by the quality and supply of the housing stock. Additionally, housing demand is also affected by the purchase of second homes or vacation homes and regional tourism development, especially in areas where there is greater demand for short-term rentals.

Smaller households have so far supported housing needs

Between 2015 and 2025, Estonia's population grew by 4%, but the number of households increased by 12% during the same period, mainly due to the growth in the number of single-person households. According to Eurostat data, the share of single-person households in Estonia grew from 36% to 45% over ten years. In addition, the share of households with a single adult under 65 increased from 20% to 25%, which has further increased housing demand.

Thus, although the number of residents aged 20–49 is declining over time, this may be mitigated by growth in the number of households. However, the impact of this trend may weaken in the future. Estonia's share of single-adult households under 65 is already one of the largest in the European Union comparison, and there are few countries with higher figures, including Finland (30%), Sweden (28%), and Denmark (27%).

How to preserve the vitality of distant regions?

To preserve the vitality of regions located far from major attraction centers, affordable housing and good infrastructure alone are not sufficient, but it is also important to create jobs and economic opportunities outside the capital region. The future of regions depends on whether people have the opportunity to find suitable work near their homes and see long-term development prospects there as well. Otherwise, life in Estonia will become even more capital-centric, and the population and vitality of distant regions will decline even further.