Iceland fears house price bubble due to incoming expat investors

Published:  27 Aug at 6 PM
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Iceland’s house prices are rising due to increased demand by foreign investors, expatriates and migrants.

Over the past decade, the tiny island nation of Iceland has seen an explosion in the numbers of foreign investors, expat professionals and even tourists buying up local real estate. The influx is causing inflation, especially in the real estate sector, with lawmakers and economists expressing their concern about rising prices overall and the inability of Icelanders to get onto the property ladder as a result.

In the years following the 2008 financial crisis, Iceland emerged ahead of the pack as one of the planet’s most stable economies. Gradual normalisation across the banking sector and strong gains in the export of manufactured goods and fish products have supported the island’s successful economic resurgence. However, the relatively new wave of tourists has now soared from around 550,000 in 2008 to over two million a year in 2017/2018. The hospitality sector has benefited greatly, as have consumer-oriented services, but the increase has brought challenges to the island’s population of around 350,000, especially since the numbers of expats and migrants have also soared

Housing is the most vulnerable, as increasing numbers of tourists are opting for longer stays, causing rentals and house prices to rise beyond a reasonable level for local people, with a lack of new construction not helping the gap between demand and supply. Having survived the 2008 crisis and its resultant bubble, Icelanders are far less than enthusiastic about a repeat due to the island’s new-found popularity with foreigners. The government has responded by restricting foreign ownership of land as well as property in a bid to preserve affordability for its citizens.

The price increases are also restricting social mobility for the island’s population, leading to a rise in unemployment. Icelanders from rural areas can’t afford accommodation in the towns and employers are finding it difficult to fill vacancies. In addition, as with so many European countries, demographics show the population is gradually ageing. The country’s immigration policies are tough but, as an European Economic Area member, Iceland has welcomed EU citizens. Environmental issues linked with an increasing population are also a cause for concern, especially if they relate to increasing property ownership and accelerated development.
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