Reykjanesbær scraps building fees to revive construction market

Reykjanesbær has abolished building rights fees for residential and commercial properties, with early signs that the decision is increasing demand in the construction market, mbl.is reported.

The fees previously amounted to 35,000 Icelandic krónur per square metre for residential buildings and 6,000 krónur per square metre for commercial buildings. They have now been reduced to zero.

Reykjanesbær Mayor Vilhjálmur Árnason discussed the decision on the latest episode of Spursmál alongside Alexandra Jóhannesdóttir, mayor of Suðurnesjabær. He said the aim was to give the construction market “oxygen” during a period of high interest rates and rising construction costs.

“We saw that this was a good opportunity to reverse this awful development of increasing taxation and bringing forward the cost of all construction,” Vilhjálmur said.

For an individual building a 150-square-metre home, the previous fee would have amounted to 5.25 million krónur.

“This is one of the largest tax discounts at the municipal level that we have introduced in a long time,” Vilhjálmur said.

He rejected the idea that Reykjanesbær was sacrificing long-term revenue. Instead, he said, the goal was to attract more residents and businesses and thereby expand the municipality’s future income sources.

New residents would pay municipal income tax and property taxes on detached homes, while growing companies would pay more property taxes. An increase in jobs would also generate additional municipal income tax revenue, he said.

Vilhjálmur said the response to the decision had been strong, including from people around Iceland who welcomed a municipality reducing charges rather than increasing them.

The most notable sign, he said, was that demand for building plots had already begun to rise. Around 10 parties applied for plots at the latest meeting of the planning committee, whereas there had been little or no such activity in recent months.

“Applications for plots are not stopping now,” Vilhjálmur said. He added that companies were in constant contact asking where vacant plots were available and where they could buy land.

Alexandra said conditions in Suðurnesjabær were good because the municipality had never imposed comparable building rights fees. It also had the lowest road construction fees in the Suðurnes region and had long experienced strong demand for plots.

However, she said high interest rates were significantly holding back construction.

“We have allocated a huge number of plots, but there is still a freeze in the market. We can clearly see that people are holding back simply because of the interest rates,” Alexandra said.

Suðurnesjabær is therefore placing greater emphasis on planning work so that enough plots will be available when construction activity resumes. Vilhjálmur said Reykjanesbær also needed to speed up its planning work.