At Least 35,000 New Apartments Needed in the Next Ten Years

Iceland needs to build 3,500 to 4,000 apartments a year in order to stabilize the housing market, RÚV reports. The last few years have seen a boom in housing construction, but this has recently slowed, possibly due to pandemic-related factors. Even if construction picks up again, however, market observers believe more aggressive action is needed to stabilize the market in the short-term.

See Also: Iceland’s Real Estate Prices See Highest Increase in Nordic Region

The local housing market gradually recovered after the 2008 financial crash, and the last three years in particular have seen considerable development. In 2021, a record 3,800 apartments were built. Even so, housing prices in Iceland have risen faster than anywhere else in Europe, driven up by the dwindling supply, as well as increased purchasing power and low interest rates.

New population projections from Statistics Iceland have thrown the housing shortage into stark relief; the country is growing at a faster rate than previously projected, which means that it’s imperative that Iceland have more housing as soon as soon as possible. “In our opinion, and the opinion of local municipalities, roughly 35,000 apartments will be needed in the next ten years,” said deputy director of Iceland’s Housing and Construction Authority (HCA) Anna Guðmunda Ingvarsdóttir. But instead of construction picking up to meet this demand, it’s actually slowed.

“Instead of around 3,000 apartments being built this year and next,” explains Anna Guðmunda, “we’ll have around 2,800-3,000. When what we really need is to be building 3,500 apartments—or better yet, 4,000.”

Reason for stall is uncertain, but could be pandemic-related

The exact reason for the housing construction slow-down at a time when demand and prices are at their highest is a bit of a mystery. Many have suggested that there are simply not enough plots available for new builds, but according to the HCA’s data, this doesn’t seem to be the reality.

“The land issue […] is not as big a problem as has been suggested,” said Anna Guðmunda. “As an example, [the HCA] compared capital-area municipal associations’ development plans. We found that it would actually be possible to build 14,001 apartments now, provided that the plots are actually fit for construction and that those who own the plots are ready to get started. So what’s really holding things up—that’s something we need to take a closer look at.”

This analysis is in line with editor and Kjarninn journalist Jónas Atli Gunnarsson’s findings. “If you look at the statistics, there’s not really a shortage of plots,” he explained. “A lot of construction permits have been issued over the last three years, but hundreds of them are still unused. If that was the real estate market’s main bottleneck, all these permits would be new.”

“It could be the pandemic,” he continued. “We’ve had various economic downturns over the last two years and uncertainty about the economy reduces investors’ willingness to put money into developing residential properties. Then there is the supply chain breakdown, which reduces the number of construction supplies we get, and then lockdown protocols have reduced construction activity because people haven’t been able to come to work. So there are a lot of reasons why people aren’t building.”

No quick fixes

Even if there is a boom in construction, it will still take years for the market to fully recover, Jónas Atli continues.

“We’ve had this hiccup in the construction market—it takes so long to build apartments. So even though construction is booming now, it will take two years for new builds to go on the market. If demand remains this high in the meantime, we’ll continue to have this tension.”

Jónas Atli believes that in order to stabilize the market, municipalities should focus their attentions on construction, while the government and the Central Bank should work on slowing demand.

“This is done by lowering the maximum loan-to-value ratio, it’s also done by raising interest and maybe by setting limits where people can only buy maybe two or three apartments as investments. But these aren’t popular measures.”

And no matter what, there are no quick fixes to this situation, Jónas Atli continues.

“Unfortunately, any quick fixes wouldn’t work in the long-term. There is only one good solution, and that’s the long-term solution: building more.”

Construction Begins on Largest Residential Neighborhood Outside of the Capital Area

thorlakshofn iceland

Construction began on a new residential neighbourhood in the south coast village of Þorlákshöfn last week. Vísir reports that the neighbourhood, christened Móabyggð, will home 450 residents in 78 apartments and, when completed, will be the biggest housing development in South Iceland—and possibly the whole country, outside of the capital area.

According to an announcement about the project, the apartments will be two to four rooms, ranging from 60 to 95 m2 [645 — 1022 ft2]. The buildings, which will have poured concrete construction, will be built on site, have external insulation, and aluminium cladding. The 78 apartments will be configured in 11 low-rise apartment buildings connected by ‘eco-streets,’ which—with an eye to the nation’s transition away from fossil fuels—will feature charging stations to allow people to charge electric vehicles. Eco-friendly materials will also be used in the buildings’ construction.

The apartments will not be uniform, but rather will have varied construction and offer many of the same advantages of freestanding, single-family homes. The neighbourhood’s location was chosen with the needs of residents in mind, close to all major services such as health care, kindergartens and schools, gyms, and the swimming pool.

Þorlákshöfn is located on the southern coast of Iceland in the municipality of Ölfus, just under an hour away from Reykjavík. It currently has 1,847 residents and is an important working harbour with a ferry that runs back and forth from the Westman Islands. Its primary industries are fish processing and ship-outfitting, as well tourist services.

In the coming years, Þorlákshöfn authorities plan to attract more ship traffic to their harbour with an expansion that would accommodate larger ships. Fish farming on land is also a growing industry in the municipality.

New Neighbourhood By Reykjavík Airport to Prioritise Pedestrians

skerjafjörður

Pedestrian- and cyclist-friendly design is the focus of a new residential development by Reykjavík’s domestic airport. The plans for the development, an addition to the existing Skerjafjörður neighbourhood, were presented at an online town hall meeting yesterday. The development is a part of the City of Reykjavík’s “green development” initiative.

Design Prioritises Pedestrians and Cyclists

“Pedestrians and cyclists will be the first priority in all of the neighbourhood’s design,” a notice on the City of Reykjavík website states. All parking for the development will be located within the parking garage, with limited parking spaces at street level to ensure accessibility. The neighbourhood will be also be serviced by public transportation.

“The neighbourhood will be surrounded by green spaces, a new beach area, and there will be space for squares, playgrounds and lounge areas, and a lot of plants between the buildings,” the notice continues. The neighbourhood has other environmentally-friendly elements, including a filtration system for rainwater.

Construction in Two Stages

The Skerjafjörður development will be built in two stages. The first stage will consist of the construction of 700 apartment buildings, 2-5 stories high, along with a preschool, elementary school, and a covered parking garage with a grocery store and shops on ground level. The development will also contain student housing and affordable units. The second stage of construction, which involves filling land and the creation of a beach, is currently undergoing an environmental assessment. The entire development will contain 1,300-1,500 apartments, with the first phase of construction is expected to begin at the end of this year.

skerjafjörður
Photo: Reykjavíkurborg.

Should Not Affect Airport Operations

According to the notice, the Skerjafjörður development “will not impair the current operations nor the utilisation of Reykjavík Airport.” Though a decision has been made to eventually move the airport out of the city centre, City Councillor Vigdís Hauksdóttir of the Centre Party says that the city is violating its agreement with the state by starting construction before a new location for the airport has been confirmed.

Sigurborg Ósk Haraldsdóttir, chairperson of the City’s Planning and Transportation Committee, denies the construction is in violation of any agreements. “Residents have voted to move the airport. The general zoning plan says that the airport should go. It is economically advantageous to move the airport,” she told Vísir reporters. “Now we are facing climate change and one of the biggest steps we can take is to densify the area and build a residential development where the airport is.”

New Apartments Either Too Big or Too Pricey, Report Suggests

iceland real estate

In an interview with RÚV, Landsbanki economist Ari Skúlason states that residential apartments have been constructed that, despite warning signs, buyers do not want or cannot afford. As noted in a recent report by the Iceland Housing and Construction Authority (Húsnæðis- og mannvirkjastofnun), the upshot of such construction is that new apartments take roughly twice as long to sell than older apartments.

Slow sales for new apartments

A recent report by the Iceland Housing and Construction Authority notes that the housing market in the Greater Reykjavík Area in 2019 was mostly stable. Three of every four apartments were sold for less than the asking price, whereas only 6-7% went for more (most often in zip codes 103 and 108, and in Kópavogur and Garðabær).

The report makes special mention of average sales time, i.e. how long, on average, it takes to sell an apartment.

It took on average 87 days for homeowners to sell apartments in the Greater Reykjavík Area in 2019 (which is comparable to previous years), as compared to an average of 176 days for new residential apartments. If only the last three months of 2019 are taken into account, it took on average 217 days for new apartments to be sold.

A shortage of smaller, simpler apartments

The report suggests that either the market is not fulfilling the needs of buyers or prices are driving them away. Ari Skúlason, an economist with the Landsbanki bank, believes both to be true. “I think it’s evident that during the past few years we’ve seen residential apartments constructed that are too big and that people don’t want. We also need smaller, simpler apartments. The writing has been on the wall for many years, and yet we have seen a great deal of energy invested in the construction of apartments that people do not want and, perhaps, cannot afford to buy.

Discounts in select neighbourhoods

As noted in his interview with RÚV, Ari does not expect prices for new residential apartments to drop: price stagnation is more likely. “It could be possible, in certain neighbourhoods, like in central Reykjavík, that homeowners will need to offer a discount to sell their apartments.”

The report also notes that 3,400 new apartments were put on the market in Iceland last year, the greatest increase since 2008 when 3,700 apartments were added to the Icelandic market.