A new report from the Icelandic Housing and Construction Authority (HMS) reveals a severe housing crisis and bleak future prospects. Over the past decade, housing prices and rental costs have risen more in Iceland than in any other European country, far outpacing workers’ wages. Forecasts indicate further rent increases in the near future.
In response to this crisis and grim outlook, the board of Efling Union calls on the government to take radical emergency measures. A resolution was unanimously approved at a board meeting on Thursday, May 8, 2025. The resolution is published in full below.
Deepening Housing Crisis
Efling demands bold emergency action from the government.
The newly released Rental Market Roadmap 2025 from HMS highlights the seriousness of the housing situation, particularly in the rental market, and presents a dark outlook for the future.
Too few affordable housing units are being built for lower-income groups. At the same time, many new apartments are being used for short-term rentals (AirBnB, etc.). Around 20% of apartments in downtown Reykjavík are listed as short-term rentals, at least 4,000 apartments in the capital area and approximately 9,000 nationwide. These units are serving tourists, not residents, who should be staying in hotels instead.
This imbalance between supply and demand has driven housing and rental prices up to unsustainable levels. It is also a major driver of inflation.
According to HMS, both home prices and rents have increased more in Iceland over the past decade than in any other European country, and continue to do so. The situation is therefore exceptionally severe. HMS further forecasts continued rent increases in the coming months if nothing changes.
Housing costs have grown far beyond the annual wages of working people (see accompanying chart). This crisis undermines wage earners’ ability to secure housing and erodes purchasing power. It hits lower-income individuals the hardest. According to HMS, government housing support has been insufficient and poorly targeted.
OECD and Eurostat data show that Iceland has unusually weak protections against rising housing costs. Rent regulation—such as rent caps or controls—is among the weakest in the OECD, even less stringent than in the United States, where market liberalism dominates. This, combined with a major supply-demand imbalance, results in one of the highest housing cost burdens in the developed world. Renters are especially vulnerable.
HMS states that government actions in recent years have fallen far short of solving the crisis. A new draft law on rental housing, aiming to improve contract registration and promote long-term rentals, is a step in the right direction. However, it does not address the root causes of skyrocketing prices, either for rent or for purchase. Radical emergency action is therefore urgently needed, as promised in the current government’s coalition agreement.
What Must Be Done
From the perspective of working people, the following actions are most urgent:
- Strict limits on short-term rentals (AirBnB, etc.) in urban areas, especially the capital.
This is the fastest and most effective way to address the supply-demand imbalance that drives price hikes. - Implement a real rent control mechanism.
Iceland must align more closely with its Nordic and European neighbors. Rent control is also an important tool in fighting inflation. - Improve regulation of housing use.
Apartments must serve as homes, not financial assets for wealthy investors. HMS outlines multiple ways to improve this. - Increase public housing support.
Boost non-profit affordable housing supply for low-income groups and reduce the burden on households. Rental subsidies have not been adjusted for inflation in 2025 and are eroding in real value. Rent control must accompany any such subsidy system to ensure it is effective.
Conclusion
Substantial restrictions on short-term rentals and the implementation of real rent controls cost the government nothing. All that’s needed is the political will.
The Rental Market Roadmap 2025 by HMS proposes several more necessary reforms. But the housing crisis and the worsening outlook demand action now—any further delay is unacceptable.
Further Information:
Source: Statistics Iceland
“Historical data show that rental price developments have been more unfavorable for tenants in Iceland than in the other Nordic countries and the euro area,” states the HMS report Rental Market Roadmap 2025, p. 24.