Property prices to rise 9.5% this year

Sigurður Bogi Sævarsson

House prices in Iceland are set to rise by 9.5% this year and by 8% each year for the next three years, according to new forecasts by Icelandic bank Landsbankinn.

Prices have been rising steadily in recent times and this trend shows no signs of stopping, according to Landbankinn economist Ari Skúla­son.

There are several factors contributing to rising prices, which are affecting flats and houses in almost equal measure.

Market conducive to price rises

Firstly, supply of housing, particularly new housing, will clearly not meet demand over the next few years. A lack of plentiful available housing usually has the effect of pushing up prices.

Secondly, the arrival of pension funds on the Icelandic mortgage market has increased competition and access to credit. Potential buyers with more money at their disposal also has the effect of making housing more expensive.

Thirdly, demographic and social factors such as the necessary arrival of greater numbers of foreign workers to Iceland and the increasing trend of owners renting out accommodation to tourists rather than tenants place further pressure on the housing market.

“No housing bubble”

Skúla­son does not, however, consider that Icelandic is experiencing a housing price bubble, as housing prices have not increased significantly more that people’s purchasing power. Neither is the sale price/construction price ratio indicative of a price bubble.

The Federation of Icelandic Industries estimates that the accumulated housing shortfall for 2011-14 was in the region of 2,500-3,000 dwellings.

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