Icelanders’ Home Equity Has Doubled in Five Years

apartments downtown Reykjavík housing

Icelanders are taking out more mortgage loans and their collective home equity has doubled in the last five years, Kjarninn reports. This according to data recently published by Statistics Iceland.

After debt was deducted, Icelanders’ combined home equity was ISK 4.034 billion [$29.031 million; €24.959 million] at the end of last year, which is double what it was in 2015. All total, 78% of Icelandic households’ equity is tied up in real estate.

The value of real estate owned by Icelanders has also increased dramatically in recent years. At the end of 2010, according to real estate assessment (fasteignamat), the total value of Icelander-owned real estate was ISK 2.353 billion [$16.933 million; €14.558 million], whereas at the end of 2019, this total had increased to ISK 5.648 billion [$40.645 million; €34.944 million]. This is a total value increase of 140%. These valuations are, however, only based on assessment value, not market value.

Housing loans are also dramatically increasing. Icelanders’ combined mortgage debt was ISK 1.614 billion [$11.615 million; € 9,985 million] at the end of 2019, which is an increase of 141 billion [$1.014 billion; €872.377 million] from the previous year. Housing loans have increased by ISK 352 billion [$2.533 million; €2.178 million] since 2016, or 28%. By contrast, between 2011 and 2016, loans taken out by the nation’s homeowners had only increased ISK 56 billion [$403.004 million; € 346.476 million], or 4.6%.

The trend of increased debt and higher real estate prices has continued in spite of this year’s economic shocks. According to the Central Bank of Iceland’s recent Financial Stability Report (in English), total household debt in Iceland amounted to nearly 79% of the GDP at the end of June, a percentage increase of just over 2% in the last year. From 2016 and up until this year, the nation’s indebtedness has been in line with economic growth.

According to the report, “Growth in household debt is driven by an increase in mortgage loans, while other debt has contracted in real terms, as it has in the past few years. Notwithstanding the uncertainty afoot, household demand for mortgage loans is still robust, owing to falling financing costs and stable real wages despite the economic contraction. In July, net new lending to households totalled nearly 32 b.kr., about 80% above the twelve-month average.”

Icelandic households’ asset position has, nonetheless, improved. Home equity, which accounts for assets in excess of debt, increased considerably last year and is now twice as much as the GDP. Ten years ago, home equity was equal to the GDP.

Changes to Parental Leave Law Encourage More Equal Division of Childcare

Reykjavík baby

Proposed changes to Iceland’s parental leave law hope to more equally balance childcare responsibilities between mothers and fathers, Kjarninn reports. If the current revisions are passed, both of a child’s parents would be allotted six months of leave, but only one of those months would be transferable between parents.

A new draft of the new parental leave law has been published on the government’s website and will be open for public comment until October 7.

At the end of 2019, parliament voted to extend parental leave from nine months to 12. This change will go into effect on January 1, 2021 and, per Minister of Social Affairs and Children Ásmundur Einar Daðason, will be extended in stages. Parental leave in Iceland is currently 10 months—four months per parent plus two that can be shared between them. However, studies have shown that the majority of fathers in Iceland only take the four months specifically allotted to them, while the majority of mothers take their four months as well as the two months that they could potentially be sharing with their partners.

Changing the status quo

The revised bill hopes to change this status quo by making paternity leave nontransferable. The logic is that if paternal leave is not sharable to the same extent it is now, parents—particularly fathers—will be encouraged to shoulder an equal burden of the childcare in their households and will also be in a stronger position to negotiate with their employers about taking their full allotted leave time.

Another significant change to the current law would be that parents would have a shorter timeframe in which to exercise their right to take parental leave—a year and a half instead of two. The aim of this change is to ensure that parents take their leave when their children are in the greatest need of their care, that is, from the time of their birth to when they are eligible for daycare.

The drafted bill also proposes that both parents have an independent right to two months’ leave in the event of a miscarriage or stillbirth that takes place after 18 months’ pregancy.