Short-term Rentals, Long-term Effects

Reykjavík from above, housing crisis Iceland

As the Reykjavík peninsula rumbles with volcanic activity, the world’s eyes are once again drawn to Iceland’s nature. This free publicity and the uptick in tourist visits it generates come with a price – and local renters are footing the bill.By now, Icelanders know what to expect in the aftermath of volcanic activity. When Eyjafjallajökull […]

This content is only visible under subscription. Subscribe here or log in.

Continue reading

How can I move to Iceland?

Reykjavík pond downtown

Iceland is a beautiful country with much to recommend it: a generally progressive government, friendly locals, a photogenic landscape, and much more. We get a lot of questions at Iceland Review from people thinking about relocating here. We completely understand the impulse, but a word of fair warning: it’s not all the pretty pictures from Instagram! Of course, we’re still in love with Iceland, but for those planning immigrating to Iceland, be prepared for a language barrier, high cost of living, and dark winters.

With those words of warning out of the way, here are our tips on how to move to, and live in, Iceland.

Visas in Iceland

How easy it is to move to Iceland will depend where you come from. Citizens of European Union (EU), European Economic Area (EEA), and European Free Trade Association (EFTA) nations can enter Iceland without any special documentation. Citizens of these nations may work and live here for up to three months, after which they need to register at Registers Iceland.

For citizens outside these countries, notably including the US and UK, the process is admittedly more difficult. There are three major ways to secure a visa for this group: work, marriage, and education. Many younger people will find that attending university in Iceland is an exciting adventure. Education in Iceland is also free, except for a nominal registration fee. Upon graduating, they may choose to settle down in Iceland and find jobs, or else move on. Obtaining a work permit can be a tricky process, as the employer needs to prove, in theory, that the role could not be filled by a native. For most non-specialist roles, this is rather tricky, although Iceland has recently suffered from shortages in healthcare and education. Finding out what fields are in demand in Iceland may be a way of securing a work permit. Finally, the marriage option is not for everyone, and we are by no means suggesting a marriage of convenience! However, if you do happen to fall in love with an Icelander, then Iceland can be an excellent place to raise a family, with comparatively generous parental leave and socialized healthcare.

If you stay in Iceland for long enough, you will also need to register for a kennitala, or social security number. Your kennitala will be used in pretty much all aspects of life here, much more so than in some other countries. You may, for instance, be asked for your kennitala when making a purchase at the store, when registering for a library card, buying a bus pass, or getting a membership to the gym. Rules for registration break down residents into three major groups: citizens of other Nordic countries, EU/EEA/EFTA citizens, and citizens from outside EU/EEA/EFTA. See the Registers Iceland site here for more information on registering to live in Iceland.

If you are still curious about your status, the Directorate of Immigration has a site where you can check whether you will require a visa in Iceland.

If you are curious about work permits in Iceland, you may find the Directorate of Labour’s website helpful.

Housing in Iceland

The housing market can be difficult to break into for recent immigrants. Reykjavík has exploded in the last 15 years with international interest in hotels and development, driving the cost of real estate up. Iceland’s population has also grown rapidly in the last years, and housing development has not kept pace, leading to a housing shortage. Icelanders also generally tend to own their homes, meaning that relatively few houses on the market are for rent.

Rent will of course depend on location, but it generally makes sense for foreigners to move to the capital area due to transportation and job opportunities. As a rule of thumb, for a modest apartment, you can expect to spend around ISK 200,000-300,000 (around USD 1,380-2,070, or EUR 1,420-2,130 at the time of writing). It’s of course possible to find cheaper, but expect a less-than-ideal location, roommates, and the like.

These listings may be helpful for you in your search for housing in Iceland:

Job Hunting in Iceland

Iceland is a great place to work, with plenty of rights and benefits granted to employees. Icelandic unions have also earned Icelandic workers such benefits as stipends for continuing education, and even provide vacation homes to their workers. Some of Iceland’s biggest general trade unions are VR and Efling.

Some may have an image of Iceland as a largely agricultural society, still farming and fishing like in the past. Although these professions do indeed play an important role in the Icelandic economy, the job market in Iceland increasingly favors professions with advanced degrees. Some of Iceland’s largest industries are tourism, service and restaurants, fishing, and construction. Additionally, many in the capital area are also employed in tech, finance, government, media, and academia.

If you’re looking for a job in Iceland, you may find these links helpful:

Other Useful Links for Prospective Icelanders

Inflation Response Measures Target Renters, Pensioners, and Families

Minister of Finance Bjarni Benediktsson

Renters, pensioners, and families with children are the target groups of government measures intended to reduce the impact of inflation on the most vulnerable demographics. The government approved the measures at a cabinet meeting this morning. They include raising social security benefits, income-related child benefits, and housing benefits.

Housing benefits raised by 10%

Almost half of households on the rental market receive housing benefits, according to estimates from the Housing and Construction Authority. Around 70% of them have index-linked leases. Housing benefits will be increased by 10% from June 1, and the income limit for receiving housing benefits will be raised by 3%. The cost of rent has doubled in Iceland over the past decade.

Additional ISK 20,000 per child

Families receiving income-related child benefits will receive an additional ISK 20,000 per child [$153; €145], to be paid out by the end of June. The child benefit system is being reviewed “with the aim of addressing various shortcomings in the system,” in order to better achieve the objectives of reducing child poverty and supporting parents, especially in lower income brackets. From June 1, disability benefits and benefits for old-age pensioners will be increased by 3%.

Inflation continues to climb

Inflation measured 7.2% in Iceland last month. The Central Bank instituted a sharp 1% hike in interest rates in response. Íslandsbanki analysts have predicted that inflation will continue to rise in Iceland, peaking in June at 7.7%.

The notice concludes by stating that the government will “focus on tight fiscal policy to support the Centra Bank’s monetary policy.”

Rental Market in “State of Emergency”, Association Says

architecture downtown Reykjavík houses

The upcoming municipal elections revolve mainly around the “state of emergency in the housing and rental market,” a spokesperson for the Icelandic Tenants’ Association has stated. Since 2005, apartments owned by legal entities that own more than one apartment have nearly doubled, RÚV reports.

Open Meeting at Kex Hostel yesterday

The Icelandic Tenants’ Association held a public meeting at Kex Hostel yesterday. The aim of the meeting was to “demand answers” from candidates in the upcoming municipal elections on how they intended to ensure housing for tenants in Reykjavík.

In an interview with RÚV, Guðmundur Hrafn Arngrímsson, a spokesperson for the Icelandic Tenants’ Association, stated that tenants had been made to suffer from the slow development of housing in the capital region through ever-increasing rent, greater uncertainty, and deteriorating social status.

The Association maintains that legal entities and wealthy individuals have swept up real estate for the sake of profit and that investors have little or no incentive to speed up development as a slow pace ensures higher rent.

A few facts

In its coverage yesterday, RÚV presented a handful of facts to shed light on the state of the rental market.

  • Apartments owned by legal entities that own more than one apartment have nearly doubled since 2005 (from 11,000 to 22,000).
  • The cost of rent has doubled, i.e. increased by 100%, over a single decade. At the same time, rent has increased by just over 15% in other parts of Europe.
  • According to a recent poll conducted by the Housing and Construction Authority, only 10% of tenants willingly choose to rent; 25% are on the rental market because of necessity; and two-thirds of tenants are renting temporarily.
  • Over 10% of tenants allocate over 70% of their disposable income to housing, with the proportion of social housing on the public market being low, despite high demand.

According to the Tenant’s Association, individuals above the age of 35 have “little chance” of escaping the rental market. 63% of young adults below the age of 24 live at home with their parents (39% of those who are under the age of 29).

Renters’ Financial Burden Heavier than Homeowners’ in Iceland

building construction cranes Garðabær

Nearly one quarter of households in Iceland had difficulty making ends meet last year, new figures from Statistics Iceland show. The figure has never been lower and corresponds with an increase in households’ disposable income during the same period. Around 19% of those who were renting considered the financial burden of housing to be heavy last year, compared to 10% of homeowners. Renters were also much more likely to suffer material deprivation than homeowners.

Single adults with children have more difficulty making ends meet

In 2011, 51% of households in Iceland had difficulties making ends meet. Between 2010-2015, the figure was above 40%. In 2021, it measured 24.1%. Households’ gross disposable income is estimated to have increased last year, though high inflation mitigated a rise in purchasing power: in the third quarter of 2021, while households’ gross disposable income rose by around 6.34%, household disposable income per capita only rose by 0.1%.

Households with a single adult and one or more dependent children were more likely to have difficulties making ends meet: around half of them reported that to be the case, while only 16% of households with two or more adults and no children had such financial difficulties.

Renters report a heavier financial burden

Those in rental housing reported more financial difficulties than homeowners last year. While just over 4% of households in Iceland suffered material deprivation, the figure was just under 11% of households on the rental market, compared to only 2.4% of households living in their own property.

Around 22% of Icelandic households lived in rental housing in 2021. This figure has been dropping steadily since 2018, when it was at 31%. Between 2010-2015, a higher percentage of owners regarded their housing as a heavy financial burden, compared to the percentage of renters. Since 2015, the opposite has been true, as seen in the graph below.

According to the survey, a household is considered to suffer from material deprivation if it cannot afford three or more of the following items:

  • To pay rent, mortgage, or utility bills.
  • To keep the home adequately warm.
  • To face unexpected expenses.
  • To eat meat or proteins regularly.
  • To go on a holiday.
  • A television set.
  • A washing machine.
  • A car.
  • A telephone.

If a household cannot afford four or more of the above items, it is considered to suffer from severe material deprivation.

In Focus: Iceland’s Housing Market

For many years, Iceland’s housing market has been characterised by sharply rising prices. Many may have expected the COVID-19 pandemic and associated recession to change that trend, but throughout 2020, real estate prices continued to rise. Perhaps even more unexpected, considering those rising prices and a worse economic outlook, a record number of sales took […]

This content is only visible under subscription. Subscribe here or log in.

Continue reading

Thousands Are Living in Non-Residential Buildings in Iceland

Bræðaborgarstígur fire

Between 5,000 and 7,000 people in Iceland are currently living in properties that have been classified as commercial or industrial buildings and not residential buildings. The largest group among them are people who have lost their jobs as a result of the COVID-19 pandemic. The data comes from a report commissioned in the wake of the deadliest house fire in modern Icelandic history, which took three lives in a crowded housing facility for foreign workers in Reykjavík.

“The report confirms the reality we have been facing for far too long,” stated Drífa Snædal, President of the Icelandic Confederation of Labour (ASÍ). “Housing issues are in a mess, there is a shortage of apartments and people in need have to resort to unapproved housing.” Drífa pointed out that not only does lack of proper housing affect quality of life, but it also has a negative impact on children, who need to have a registered address in order to access schools and other services. She called the lack of proper housing “a threat to people’s health and even their lives.”

In many cases, the unregistered and inadequate housing is provided to temporary workers by their employer, putting workers at risk of homelessness if they lose their job. Fire safety requirements differ between residential, commercial, and industrial housing and those living in non-residential buildings are often not sufficiently protected from the risk of fire.

Read More: Fire Sparks Conversation About Working Conditions Faced by Foreigners

Under current Icelandic legislation, it is illegal to register residence in commercial premises except in exceptional cases. This means there is no official information on exactly how many people live in such housing and where, which can create danger in the event of natural disasters and complicate the work of first responders. The report’s authors proposed allowing temporary residence registration in commercial premises that had fulfilled certain requirements in order to tackle this issue in the short term. They also suggested limiting the number of people who can be registered as residents at a single address, allowing authorities to have a more accurate picture of how many people truly live at each address. Furthermore, they suggested legislation be implemented that makes it mandatory to register all lease agreements: there is no such legislation in place currently. This would provide authorities with more accurate data on the rental market.

Read More: Charged with Endangering Workers in Unsafe Living Quarters

The investigation was conducted by the Housing and Construction Authority in collaboration with representatives from ASÍ, the National Registry, and the fire department.

More Young Icelanders Living With Their Parents During Pandemic

iceland real estate

The percentage of young Icelanders who live with their parents has gone from 42% to 70% in less than a year, according to a survey Zenter performed for the Housing and Construction Authority. It’s clear that COVID-19 plays a role, as 18-24 year-olds’ unemployment has risen 134% in one year.

The Housing and Construction Authority’s economic report states that conditions for buying real estate have never been better, due to lower interest rates. The real estate market has been a busy one since the beginning of summer as more people have been able to buy real estate. This affects the rental market and a recent survey indicates that renters are getting fewer. Iceland’s rental market is an unstable one and not many people choose to rent if they have the option not to.

The percentage of people who rent their home hasn’t been lower since late 2008, just after the banking collapse. Since then, the percentage has hovered between 14-18%, averaging at 16%. Since mid-year 2019, the percentage has steadily gone down, from 18% July 2019 to 13% July 2020. This correlates with the timing of the Central Bank of Iceland lowering interest rates. The Housing and Construction Authority’s last rental survey indicated that nine out of ten would rather own their home than rent if possible.

Since the pandemic started, the supply of rental apartments has increased, rental prices have gone down and more people have the option of buying a home. According to the survey, only 14% of people believed COVID-19 had negatively impacted their position in the rental market. There’s one group however, that’s been disproportionately impacted by the pandemic, 18-24-year-olds. At the end of last year, only 42% of them were living at home with their parents but that number has risen steadily since then, reaching 70% in August. The tourism and hospitality industries, where many in this age group work, are going through a deep recession. Unemployment for people in this age group has more than doubled while at the same time, the percentage of employment overall has decreased by 14.5%. That’s a strong indication that economically speaking, the pandemic is hitting young people harder than others. They’re stuck living with their parents and aren’t entering the rental market or buying their own homes at the moment.

Decline in Tourism Leads to Lower Rates on Rental Market, Temporarily

Reykjavik from above

Rates in Reykjavík’s competitive rental market are on the decline, a development that observers largely credit to an overabundance of unused short-term rentals for tourists, RÚV reports.

According to new data supplied by Registers Iceland, rental prices have dropped by 4.3% in the last three months, amounting to an annual decrease of 0.2%. Vignir Már Lýðsson, an economist who works for the rental guarantee service Leiguskjól, says that the decrease can be attributed to the large number of Airbnb apartments that entered the rental market when the COVID-19 pandemic began and tourism was halted.

In many cases, the owners of these properties have put them on the market at lower rates than they normally world. The rental periods offered are, however, still relatively short-term, which indicates that owners are still hopeful of returning them to the tourist market as soon as possible. “These apartments are generally fully furnished, which indicates that these are Airbnb apartments,” explained Vignir. “The parties who are renting them out have an entirely different and higher required rate of return on their owner’s equity, so these low rental rates won’t last long – these apartments will rather be sold if the tourism market doesn’t right itself.”

There are also cases where landlords have temporarily renewed long-term leases at a lower price. Because of the short-term nature of these lower renewals, this can’t be taken as a permanent change in the market, either. But lower rental market prices has led to demand for rental housing shooting up to previously unseen levels. “We’ve seen demand increase tremendously – as people see these low prices, more people are [entering the rental market] who up until now hadn’t been thinking of moving,” concluded Vignir. “These are, perhaps, people who have been living in their parents’ homes, renting with roommates, and others.”

Interest-Free Loans for First-Time, Low-Income Buyers

If passed, a new bill would see the Icelandic government provide low-income buyers interest-free loans of 20% of the purchase price of their first apartment, RÚV reports. The 20% loan would not require any repayment; rather, the state would recoup 20% of the apartment price at the time of sale.

The bill was proposed by Minister of Social Affairs and Equality Ásmundur Einar Daðason. The income threshold to qualify for the loans would be ISK 7.6 million ($56,400/€50,900) a year for individuals and ISK 10.6 million ($78,700/€69,700) a year for married or cohabitating couples. These thresholds would increase by ISK 1.6 million ($11,900/€10,500) per child or teenager residing in the home.

Per the loan terms, the buyer(s) would put up a minimum of 5% of the purchase price themselves. Up to 75% of the cost would be funded by a loan from a lending institution, and the remaining 20% would come from the government. The government loan would be for 25 years and would not accrue interest or require repayment during that period unless the buyer’s income increased beyond the aforementioned thresholds for three consecutive years during the loan period.

Helping People Get Out of the Rental Market

Ásmundur Einar explained that these loans are aimed at helping people out of the rental market and that the bill represents a significant priority for him. “We are here to help people who haven’t been able to enter the real estate market, but have been stuck [renting]. Both union leadership and the business community have called for this, which is why it has formed the backbone of the government’s housing package and living wage contract.”

The loan would also benefit those who have not owned property in at least five years, thereby aiding those who lost their homes in the wake of Iceland’s 2008 economic collapse. The loans are furthermore intended to go towards new builds, explained Rún Knútsdóttir, a lawyer at the state housing association. “[T]his way, we’re actually also helping to ensure that supply increases commensurately with demand.”

If the bill passes, the government could be expected to put ISK 4 billion ($29.7 million/€26.3 million) towards these home loans in the coming years.

The full loan conditions would be as follows:

  • Loans would only be applicable for apartments in new buildings
  • Loans would only be available to purchase apartments under a specified price limit
  • Loans would only be available to first-time buyers or those who have not owned property in the last five years
  • Loans would only be available to those who cannot make a down payment and are pre-approved
  • A lendee’s mortgage repayments could not be more than 40% of their disposable income