By George Hammond
There is a popular myth about how Iceland came by its name — that Nordic pioneers, wanting to keep the island to themselves, settled on a title as unenticing as possible. More than a millennium later, any deterrent effect that choice might have had has certainly worn off.
Iceland was the strongest performing housing market in a recent Global Property Guide survey; the residential property price index was up 23 per cent in the year to the second quarter of 2017, according to Statistics Iceland, a government agency. Reykjavik, Iceland’s capital, has been the engine of that growth.
The Capital region, Reykjavik’s metropolitan area, covers roughly 1 per cent of Iceland’s landmass but is home to 216,000 people — about 63 per cent of the nation’s population. “Work opportunities for those who live in the countryside are narrow,” says Svan Gunnar Guðlaugsson, a broker at Miklaborg, a Reykjavik estate agent. “The trend is that people are moving to Reykjavik.”
The price of a flat in the city rose 25.5 per cent last year, with much of the gain attributed to tourism. Iceland welcomed almost 40 per cent more visitors in 2016 — about 1.8m — than in 2015. Tourists come to Europe’s northernmost capital for its geothermal spas, the Northern Lights and the barren landscapes that have featured in the HBO drama Game of Thrones. Numbers are up again, with an estimated 2.2m visitors expected for 2017.
The boom has encouraged many Icelanders to turn to tourist-let sites such as Airbnb for extra income, and it is not uncommon for landlords to force tenants out for the lucrative summer months. Recent legal changes require anyone renting out a home on the site for more than 90 days to obtain a licence.
Limited stock is also behind the surge in house prices. “In the financial crisis we had from 2008 to 2011, the building market froze and we had no new housing built during this time,” says Guðlaugsson. “Slowly the market started to recover, but at the same time we had a big boost in tourists coming to Iceland.” The number of residential developments coming on the market is picking up: the 1,513 units completed in 2016 marked an increase of 35.1 per cent on the previous year. Still, that figure is some way off the pace of construction between 2003 and 2008, when an average of 2,900 units a year went on the market.
Though Reykjavik’s population is small compared with other European capitals, it is growing steadily. Over the past five years the Capital region’s population has grown more than 8 per cent, while the number of foreign citizens has almost doubled.
Growth is forecast to continue, albeit more slowly. A report by Iceland’s Arion Bank predicts price rises of 9.7 per cent in 2018, and 7.5 per cent in 2019. Guðlaugsson also anticipates a calmer year ahead. “The market has been stabilising and we see more new homes coming on the market than before,” he says.
Photographs: Pipop Boosarakumwadi/Getty Images; Peter Horrox/Getty Images; Sumos/Getty Images; Vvoevale/Dreamstime