Financial Hurdles and Land Shortages Stifle Housing Growth

Miðborg Reykjavíkur - tekið úr byggingakrana

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.

Hot Water Shortage in Selfoss: Public Pool Closed Indefinitely

Selfoss - Suðurland - Ölfusá

A fire in an electrical box of the Selfossveitur utility company has led to a hot-water shortage in Selfoss. The Árborg municipality has encouraged residents to save water and the public swimming pool in Selfoss has been closed indefinitely.

Contingency plan activated

As noted in a press release from the Árborg municipality yesterday, an electrical box in one of the boreholes of the Selfossveitur utility company caught fire on the night before Thursday, December 8. The fire forced a reduction in energy production, leading to a shortage of hot water.  

Selfossveitur subsequently activated its contingency plan, with residents of the Árborg municipality being encouraged to use their hot water sparingly. The municipality’s website offers advice to residents on how best to save water, including ensuring that windows and front doors remain closed and making sure that radiators are not blocked by long curtains or furniture.

In light of the shortages, Sundhöll Selfoss, the public swimming pool in the town of Selfoss, has been indefinitely closed.

“Which is why we’ve decided to close the Selfoss public swimming pool indefinitely. We will let you know immediately when we have a more detailed timeline regarding when we’ll open again,” a press release from the Selfoss swimming pool on Facebook reads.

 

Árborg municipality
Fire in electrical junction box (Arborg.is)

Staffing Shortages May Counteract Tourism Growth

tourists on perlan

A new forecast by Isavia projects that 5.7 million passengers will pass through Keflavík Airport in 2022. According to the Director of the Icelandic Travel Industry Association, the tourism industry must hire between seven and nine thousand foreign workers to meet demand.

A shortage of waiters and chefs

On Wednesday, Isavia – a company that handles the operation and development of all airports in Iceland – released its 2022 passenger forecast. The forecast, the first since the onset of the COVID-19 pandemic, projects that the total number of passengers passing through Keflavík Airport will be 5.7 million.

Following the report’s publication, RÚV interviewed the Director of the Association of Companies in Hotel and Accommodation Services (FHG), Kristófer Óliversson, who stated that staffing shortages in the sector would mean that hotels and guesthouses would be unable to meet demand in some areas of the country. “There are always regions that are difficult and have been difficult, but we’ve seen improvement year on year. Continued development means a greater likelihood of available rooms.”

According to Kristófer, a shortage of waiters and chefs is common among associated companies, given that many have abandoned their jobs during the pandemic. Although a few have returned, new hires account for ca. 70-80% of staff today. Kristófer also observed that the tourism industry would need time to recover after the pandemic. Despite improving forecasts, the sector had been hit hardest by the pandemic.

A shortage of seven to nine thousand employees

Addressing the near future of the tourism sector, Jóhannes Þór Skúlason, Director of the Icelandic Travel Industry Association, told RÚV that improving prospects were certainly good; nevertheless, conditions could arise wherein fewer travelers could secure desired services, with staffing shortages playing a significant role.

“In general, I’d say that a great many who worked in tourism before the pandemic have now left the industry: ca. 9 thousand people were gone at the end of 2021 when compared to 2019, half of them Icelandic and the other half of foreign extraction,” Jóhannes Þór observed.

Aside from a staff shortage in the restaurant sector, there are not enough guides to meet demand. As noted by RÚV, data from Statistics Iceland indicates that there were over 33 thousand employees in the tourism industry before the pandemic. This number plummeted with the onset of COVID-19, and unemployment rose. According to Jóhannes Þór, these workers have not returned to these jobs, especially Icelanders, which means more foreign employees would need to be hired with the concomitant training costs.

“If we take a broad view, I would say that to meet demand, this year and the next, we’re short between seven to nine thousand foreign workers, and that’s about two thousand more than before the pandemic.”

As noted by RÚV, the high season may also see a shortage of rental cars. Data from the Icelandic Transport Authority indicates that there are fewer rental cars in the country today when compared to before the pandemic. As dealerships have not imported enough cars, some rental companies, like Bílaleiga Akureyrar, e.g., have begun importing cars themselves to meet demand.

30,000 New Apartments Needed to Meet Demand

apartments downtown Reykjavík housing

An estimated 30,000 new apartments are needed in Iceland over the next decade to meet expected demand. Despite a record number of apartments having been constructed last year, the demand has only increased, according to the Housing and Construction Authority.

500 more apartments than originally estimated

At the beginning of 2021, the Housing and Construction Authority published a report on housing demand in Iceland. The original report estimated that 3,950 apartments would need to be constructed by the end of the year to maintain stability in the housing market. With the population growing at a quicker rate than previously expected, however, the Authority has updated its report, revising its estimate to 4,450 apartments.

In an interview with Vísir, Karlotta Halldórsdóttir – an economics specialist with the Housing and Construction Authority – stated that the demand for housing in Iceland was relatively high. “We are constructing approximately 3,000 apartments annually, which is quite good. However, its speaks to a considerable shortage, the fact that approximately 4,500 apartments are needed this year to meet demand.” Karlotta added that this shortage did not mean homelessness but rather that young adults would be living at home with their parents for longer, or that more individuals would be residing in non-residential buildings or unauthorised housing.

A shortage of plots

According to Karlotta, contractors have complained of a shortage of building sites, which municipalities must provide. “A shortage of plots is inhibitory to the construction of apartments. It appears as if contractors are capable of building more but that the paucity of land makes it difficult.”

A record number of new apartments were constructed last year, approximately 3,800. “In reality, it’s not the pace of construction; it’s just that there is great demand these days,” Karlotta remarked. Despite this increased demand, Karlotta encouraged buyers to remain patient.

“I think it’s important for buyers not to rush. More apartments will become available. We’re seeing a rise in prices, which most likely originates with a lack of supply, but buyers should take their time, as opposed to rushing to buy.”

Increased demand for larger homes

Earlier this month, RÚV reported that Landsbankinn’s Department of Economics had predicted a 10.5% increase in real-estate prices in 2021 compared to last year. Þorsteinn Arnalds, Director of the Housing and Construction Authority, stated that this increase was to be attributed to lower interest rates. Þorsteinn added that the pandemic has seen increased demand for larger, single-family homes.

“It’s clear that single-family homes, especially larger homes, have seen a rise in prices. Maybe this owes to the increased need for better and roomier housing following social restrictions. I don’t expect this trend to change in the capital area, as we don’t expect the supply of single-family homes to increase in the immediate future; it’s mainly apartment buildings that are being constructed.