Iceland Sees Surge in Approved Short-Term Apartment Rentals

architecture vesturbær old houses

Nearly 3,400 apartments in Iceland are now approved for short-term rentals, double the number at its peak in the years before the pandemic. Homeowners are increasingly switching from non-indexed to indexed loans for refinancing.

Sharp increase in short-term rentals

Owners of nearly 3,400 apartments across Iceland have received permission for home rentals for up to three months a year. This is double the number at its peak in the years before the pandemic. 

The increase is particularly noticeable in the capital region, according to Ólafur Þórisson, an economist at the Housing and Construction Authority. “The number has increased by 70% so far this year, from about 1,200 last year to nearly 2,200 this year,” Ólafur told RÚV on Monday. “These are completely new heights that we are reaching.”

Over the weekend, labour leaders and chairpersons of tenant and resident associations in downtown Reykjavik criticised the significant increase in apartment rentals on Airbnb, as indicated by a new monthly report by the Housing and Construction Authority and a survey among tenants.

“The short-term rental market is attracting apartments that would otherwise have been used for residential housing,” Ólafur observed. “We see this trend also in a rental market survey we conducted in the autumn months. Recently, respondents have felt that the supply of suitable residential housing has been decreasing.”

Lenders gravitating towards indexed loans

But it is not only in the rental market that significant changes are noticeable. Homebuyers are shifting from non-indexed to indexed loans like never before, and prepayments of non-indexed loans have tripled in a short time.

Most of the housing loans taken by Icelanders in September were used to pay off older housing loans, not for purchasing new homes. People paid off non-indexed loans worth ISK 20 billion [$146 million / €133 million], mostly by taking new indexed loans and, to a lesser extent, by switching from variable to fixed rates on non-indexed loans.

“In historical context, the prepayments of non-indexed loans are double what the prepayments of indexed loans were after the interest rate reductions during the global pandemic,” Ólafur remarked. “And the amounts now are about ISK 20 billion [$146 million / €133 million] in September alone, just from the prepayment of non-indexed loans.”

When asked what might explain this, Ólafur stated that many non-indexed loans at fixed rates were coming up for an interest rate revision. Also, borrowers were gravitating towards indexed loans. “It is also the case that individuals who signed non-indexed loans at variable rates are moving from high nominal rates to indexed rates in increasing numbers.”

According to the aforementioned new monthly report from the Housing and Construction Authority, more balance is being achieved in the real estate market. The number of purchase agreements increased by 100 from month to month, mainly owing to young people purchasing small apartments.

Vocabulary of Icelandic Youth on the Decline

iceland education

According to the Head of Assessments at the Directorate of Education, declining reading interest and English language dominance have contributed to the decade-long drop in Icelandic youths’ reading comprehension. Students prioritise other activities than reading in their free time.

Free time spent doing something else

Reading comprehension among the Icelandic youth has been on the decline for a decade. In an interview with Mbl.is today, Freyja Birgisdóttir, Head of Assessments at the Directorate of Education, was asked to comment on this trend.

“Reading interest among young people today is not particularly high. It’s just a competition for time, and most choose to do something else in their free time instead of reading. Moreover, as repeatedly pointed out, including by [professor] Eiríkur Rögnvaldsson, Iceland is a very small language community and Icelandic is in decline,” Freyja observed, noting that the OECD´s Programme of International Student Assessment (PISA), which assesses the proficiency of 15-year olds in key academic areas, was really the only tool to compare the aptitude of Icelandic students to their neighbours.

Freyja also discussed the impact of English on the Icelandic language environment. “The vocabulary of Icelandic students is simply declining because they read less. This is compounded by the prevalence of English in their environment. So, if we compare ourselves to other countries with larger language communities, their mother tongue is much more present in their environment than in ours. That’s just a fact. Therefore, we need to be ten times more conscious in protecting Icelandic, and I think that’s also part of it. Proficiency in Icelandic is not as good as it used to be.”

Freyja told Mbl.is that work was underway on a new reading comprehension test for students from the 3rd to 10th grade. “It’s intended to be a kind of formative assessment, meaning the test aims to map the students’ status more precisely, identifying their strengths and weaknesses.”

There are hopes to implement the test, in stages, this spring.

Hellisheiði Closed Temporarily Today Due to Roadwork

Route 1 Iceland

A section of Iceland’s Ring Road over the Hellisheiði mountain pass will be closed today for roadwork. Traffic will be rerouted via Þrengslavegur and Þorlákshafnarvegur during the closure.

Closed between 9 AM and 2 PM

A portion of Iceland´s Ring Road (Route 1) leading over the Hellisheiði mountain pass — connecting the capital area to the South Coast — will be temporarily closed today due to roadwork.

The road will be closed eastbound, towards Hveragerði, between 9 AM and 12 noon. From 10 AM to 2 PM, the road will be closed westbound, towards Reykjavík. Traffic will be redirected via Þrengslavegur and Þorlákshafnarvegur road (see below image of the Þrengslavegur reroute).

Ring Road
Þrengslavegur reroute (Google Maps)