MDI carried out research for the Prime Minister’s Office. The project researched whether the central government subsidy system is a suitable tool enabling municipalities to grow. The study provided an overview of the operation of the state subsidy system at both the theoreticl and empirical levels and examined the features of a good state subsidy system and the emerging incentives for residents' choices. The study conducted an empirical study based on statistical methods on the factors influencing housing production, migration and the demographic structure in Finland in different types of municipalities - both growing urban areas and small municipalities losing their population. An overview of international examples and good practices in the Nordic countries and in other western European countries was conducted. In addition, the simulation model provided an insight into the alternative instruments used by the state subsidy system and their effects and made suggestions for the further development of the system. The key question in the study was whether the state subsidy system is the right channel to encourage municipalities to increase housing production. The work was carried out in collaboration with Urban Research. More information in Finnish: https://julkaisut.valtioneuvosto.fi/handle/10024/161275