Former minister says too much similar housing has been built

Too many similar homes have been built in the outskirts of the capital region without enough regard for demand, former MP and minister Björt Ólafsdóttir said in a discussion on the property market, mbl.is reported.

Hermann Nökkvi Gunnarsson, an aide to Reykjanesbær Mayor Vilhjálmur Árnason, said municipalities had also relied for too long on one-off income from land allocations and development fees. The two spoke on the programme Spursmál about the housing market, construction costs and planned government intervention in the rental market. Both criticised a rent cap proposal by Ragnar Þór Ingólfsson.

Björt said the market was effectively frozen after large numbers of similar homes were built in suburban areas. In some places, the situation had lasted nearly a year or longer. “Too much has been built,” she said.

She called for closer analysis of economic data and market assessments before continuing with the same approach, saying demand for new housing could not be assumed to keep growing as it had before. After efforts to revive construction following the financial crash, growth in tourism had helped drive activity, she said, but circumstances had since changed.

Demand would continue for distinctive properties, Björt said, but large-scale construction of similar homes needed to reflect the new conditions. She pointed to cooling economic activity, a lack of optimism, rising unemployment and foreign workers leaving Iceland.

Hermann said he had not specifically assessed whether too much housing had been built. Instead, he highlighted costs municipalities place on construction, including building-rights fees, infrastructure charges and high land prices.

He said it was unsustainable for municipalities to rely on one-off income to fund ongoing expenses. He cited Reykjanesbær as an example of how lower charges could stimulate the market: no one had applied for a plot there since the start of the year, but ten applications came in during the first days after infrastructure fees were scrapped.

The plots were for detached homes. Depending on the size of the houses, the fees could have exceeded four million krónur per home, Hermann said. After the change, people considering building elsewhere contacted the municipality to ask whether construction was cheaper in Reykjanesbær.

Björt strongly opposed the rent cap plans, saying the government was proceeding despite warnings from economists and other analysts. She said the measure would push prices up.