Financial Hurdles and Land Shortages Stifle Housing Growth Skip to content
Miðborg Reykjavíkur - tekið úr byggingakrana
Photo: Golli. Reykjavík City.

Financial Hurdles and Land Shortages Stifle Housing Growth

The Housing and Construction Authority (HSM) reports that new apartment construction has decreased by 9.3% compared to last year, and only 56% of the estimated housing need will be met next year. The CEO of a local construction company has attributed the shortfall in housing to governmental inaction, high financing costs, and insufficient land availability.

Only 56% of housing needs met

As noted in a recent report by the Housing and Construction Authority (HSM), construction has commenced on 9.3% fewer apartments compared to the same period last year. The scope of new projects has also contracted by a third year-on-year while the number of apartments is at the same stage of progress as they were a year ago. Furthermore, HSM expects 3,020 fully completed apartments this year and 2,768 apartments next year, which would only meet 56% of the estimated housing need.

In an interview with the evening news on Stöð 2 yesterday, Gylfi Gíslason, the CEO of the construction company Jáverk, traced this state of affairs to governmental inaction in matters of housing; high financing costs and a lack of land availability were slowing down construction.

As noted by Gylfi – and substantiated by HSM’s recent report – it is necessary to build twice as much as is currently being done to meet housing needs, and, due to this, significant price increases are expected soon. Indeed, HMS has for several months highlighted that not enough is being built in the country relative to population growth, Vísir notes. Gylfi added that this situation was anticipated.

“Land is needed to build houses, and the cost of capital has been too expensive due to interest rates. Furthermore, a decision was made, over a year ago, and without prior warning, to increase taxation – vis-a-vis a reduction in the VAT refund on new buildings. All of this has had an impact. In the long term, we just need a greatly increased supply of land,” Gylfi remarked.

Asked about the government’s actions over the past months regarding the situation, Gylfi replied that little had happened: “An increased supply of land has not yet materialised. Interest rates are at their highest. Everyone in this market predicted it would be like this. Perhaps it is only now becoming a reality.”

When asked if government action was coming too late, Gylfi replied thusly: “Yes, yes. Or maybe we just want it this way. That’s quite possible. There was a desire to reduce economic overheating. It was criticised that this was happening on both the supply and demand sides. It was done, and I believe that these consequences are becoming visible if these forecasts prove correct,” Gylfi concluded.

Residential property prices risen by 5.2%

As noted in a recent article on the HMS website, over the past twelve months, residential property prices have risen by 5.2%, with the annual increase reaching 5.7% in February.

The new residential price index rose by 0.8% month-on-month in March, compared to a 1.9% increase in February. Since the start of the year, residential prices have been rising faster in rural areas than in the capital region.

In March, single-family homes in the capital region increased by 1.1% month-on-month and have now risen by 4.6% over the last twelve months. Multi-family homes in the capital region increased by 0.6% month-on-month and have risen by 4.9% over the past twelve months.

Sign up for our weekly newsletter

Get news from Iceland, photos, and in-depth stories delivered to your inbox every week!

* indicates required

Subscribe to Iceland Review

In-depth stories and high-quality photography showcasing life in Iceland!

Share article

Facebook
Twitter