Age of housing

   Mar 22, 2024     7 min read

Owning a roof over your head in Iceland is just pretty difficult. Renting a roof over your head in Iceland, on the other hand, is almost a dystopian nightmare, at least in comparison to comparable countries. Whether considering loan agreements - with indexation or variable interest rates that place almost all the risk on the borrower - or rental agreements that greatly discriminate against tenants, most victims of the housing market are aware that the right to safe and adequate housing is at best fragile.

This is nothing new, and the current government has often announced that it will now address the issue and do something about the housing situation in Iceland. Most of the measures that have been implemented aim to make it easier for people to buy housing, either with loans or by allowing them to use private pension savings to pay down loans. At the same time, the Central Bank is trying to reduce people’s ability to buy housing in the form of interest rate hikes and restrictions on payment capacity, because one does not need much economics knowledge to realize that by increasing people’s ability to buy housing, you increase demand, which in turn raises prices. Therefore, the Central Bank had to raise policy rates, due to these inflation-driving fiscal decisions of the government.

What needs to be done is to increase supply. That keeps housing prices in check and thus works against inflation and overheating. But supply can only be increased by adding more housing units in the country than population growth.

And how do we do that? Unfortunately, there are not many quick solutions. On one hand, actions are needed to increase housing supply as soon as possible, as there is a dire need. The demand has been significant for many years, let alone now when the residents of Grindavík need to find new housing. Along with these actions, it is also necessary to think 10, 50, and 100 years into the future and ensure safe, healthy, and adequate housing in line with population growth and demographic forecasts.

Fortunately, there are several measures that can be taken with little notice and at little cost.

Residence in Summer Houses

First, it’s worth mentioning the need to allow residences in areas with reduced municipal services. In plain language, we’d call it moving into a summer house. Quite a few people already live in summer houses, so it would at least allow them to reside there legally. This also gives municipalities flexibility in planning matters.

There are about 15,000 summer houses in Iceland. Certainly, not all are suitable for year-round residence, but many are as substantial as any other single-family home. Allowing their owners to register there and move in would free up some housing in urban areas, which could then be sold or rented out. It’s hard to estimate exactly how many would take advantage of this arrangement, but even if only 5% of summer houses were moved into, that’s still about 750 housing units. Every little bit helps.

If there were a will in Parliament and the Minister of Housing, laws and regulations could be changed later this year. The cost is very low, although municipalities would need to be compensated for the additional cost of servicing residents in rural areas, even though such service would be limited. Revenue for municipalities with numerous holiday home settlements would also increase with an increased population and provide a more accurate picture of the number of people already residing in municipalities with large summer house settlements. This measure would especially strengthen those municipalities to offer more diverse services, both for residents in holiday settlements and those with traditional residence.

Home Rentals

Across the country, there are over 4,000 apartments where no one is registered as a resident, and in the capital area, there are about 1,000 apartments fully rented to tourists. We are not talking about individuals renting out their apartments to tourists while they themselves are traveling, but only apartments where no one lives, nothing is contributed to the housing crisis, but only money is made by renting to tourists.

A bill before Parliament would ban the rental of residential housing to tourists, except for up to 90 days a year. Given that the right to safe housing always outweighs the right to be a tourist, it is correct to approve this bill as soon as possible. This would force the owners of these apartments to either sell them or rent them out for long-term leases to people living in Iceland.

Now some capitalist takes a deep breath and hisses “Property rights!” on the intake. And yes, it’s true, this is an intervention in property rights that come with buying real estate. But the European Court of Human Rights has repeatedly concluded that housing is considered a basic need and therefore it is justifiable to force property owners to offer it for rent at a reasonable price. And here we are not even talking about putting any brake on rental prices, just ensuring that residential housing is available for the country’s residents.

Clearly, this provision would take some time to implement, as it would be necessary to give owners of guest apartments time to meet the commitments they have already made to prospective guests and an opportunity to sell the apartments if they do not wish to be long-term landlords.

Long-term Actions

Icelanders have been fortunate to survive on an economy that largely revolves around external impacts on the nation’s economy, rather than being planned for the long term. The Marshall Plan aid, the herring boom, the financial sector’s overseas expansion, and the tourism explosion are examples of this. This mindset does not work when it comes to planning the housing market for the long term. It is the duty of every government, in consultation with municipalities and other stakeholders, to set a housing policy that ensures people this basic need: safe housing.

If short-term measures go well, we will have a little leeway to set a realistic housing policy based on the best available data, funded, and with the housing security of residents as a guiding light. This policy also needs to be adaptable to economic fluctuations and contribute to long-term stability without sacrificing the fundamental goal of ensuring safe, habitable, and adequate housing for all.

Housing for the Next 100 Years

It would be very easy to embark on a huge effort to develop a housing policy and end up with a gigantic document full of various promises. That would be fine as long as the fundamental objectives of the policy are not sacrificed along the way. But here are some points that would be useful in shaping the policy:

  • Ensure sufficient housing supply in line with population trends for the next decades, even a century.
  • Integration with the pension system, ensuring that everyone can live in debt-free housing when retirement begins.
  • Explore more diverse arrangements than buying or renting, such as lease-to-buy through pension funds and non-profit housing models.
  • Encourage investment in eco-friendly and healthy construction, rewarding proper maintenance for the future.
  • Balance the position of buyers against lenders and tenants against landlords, to increase predictability and stability.
  • Ensure that the policy always takes into account the best available technology, both for new construction and maintenance.

We need to ask ourselves where and how we want to live in Iceland. The current government’s policy is that the ratio between the capital area and the countryside does not change in terms of population. But that is not a vision for the future. That is stagnation. We need to ask ourselves what the settlement in the country looks like when a million people live in Iceland or when 500,000 live in the capital area. Where and how we want to do more and better. We can only do that by doing it all together, by thinking together about what Iceland will look like at the end of the next electoral term and where we are heading in the next 50 years or the next century.

I have often talked about how we are rather poor at thinking about the future. It is part of the driftwood economy we have lived with. Nature just gives or takes and thus we live and move in the present. But if we imagine a street, somewhere in the country, that was set aside for the story of the next thousand years. Where we would build house after house for the next thousand years. Where each house would symbolize each century of those thousand years. 10 houses in a row where each house is the house of each century for those thousand years. Each house would be a collection of every 100 years. We could already place a few houses of the past, that would be a good start. But then we would need to plan the house of this century and imagine that future generations will do the same and eventually we would have built a thousand-year street.

We need long-term thinking in housing, and not just in the sense of building more apartments, but where and how we will build up Iceland over the next century and where we create space for Icelanders for the next thousand years of the republic