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Real Estate Prices Headed for New Heights

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Real Estate Prices Headed for New Heights

Reykjavík.

Photo: Páll Stefánsson.

The price of real estate in Iceland could go up by as much as 30 percent in the next three years, according to a new forecast from Arion Bank, RÚV reports. Economists believe that 8,000-10,000 apartments need to be constructed until the end of 2019 to keep up with demand.

It has seldom been as difficult for young people to purchase their first home, as it is these days. Housing prices continued to increase last year. In the capital area, they went up by 15 percent from December of 2015 until December of last year, but outside the capital area, that increase was 20 percent.

“The way we see this, between 8,000 and 10,000 apartments are needed for the country as a whole until the end of 2019,” Erna Björg Sverrisdóttir, economist at Arion Bank, remarked. “Then we would be responding to this lack of housing, but we see, based on the plans of SI (the Federation of Icelandic Industries) and the Association of Municipalities in the Capital Area, that it’s unlikely for the supply to be able to slow down price increases in coming semesters.”

The plans of SI and the municipalities call for 1,000 to 3,000 fewer apartments than needed. Erna stated it’s hard to explain why the construction of residential housing takes so long, but pointed out that part of the reason has to do with contractors being busy constructing for industry, such as tourism.

Based on population and economy forecasts, Arion Bank economists expect a substantial increase in housing prices in coming years. “We assume that until the end of 2019, the price of housing will increase by 30 percent,” Erna stated. “We’ve seen very rapid price increases in the real estate market lately, and we expect that to continue, so the highest increases will occur during the first part of this year; we’re predicting about a 14 percent increase.”

When asked for advice for young people who are planning the purchase of their first home, Erna replied, “I’m in this position myself, so the only thing I can advice is to just save.”

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