Construction downturn deepens as building material sales fall

Construction and the property market are facing a serious downturn, mbl.is reports, with sales of several types of building materials declining sharply and unemployment in the sector increasing.

“The contraction is clear and the situation is serious,” said Sigurður Brynjar Pálsson, chief executive of BYKO. Sales of cement fell by 15% in the first half of 2026 compared with the same period last year.

Production at concrete plants has declined at a similar pace, falling by an estimated 36,000 cubic metres this year. Retail sales of building materials, however, have remained stable.

“Periods of contraction always come regularly, followed by an upswing. I have seen this repeatedly,” said Björn Ingi Viktorsson, chief executive of Steypustöðin. He said the current trend was mainly due to less residential construction than until recently.

A large number of homes are known to remain unsold, including in new clusters of apartment buildings in various parts of the capital area.

“The number of unemployed people in the sector is rising, the number of people working in it is falling and payment defaults are increasing. We are therefore no longer seeing isolated signs of weakness, but a continuous trend that is causing concern,” said economist Ingólfur Bender of SI.

Sigurður Brynjar said the situation in construction and the property market was not unexpected. He argued that excessive government spending was creating tension in the economy, leading to inflation that was being met with high interest rates. He called for the authorities to introduce measures to restrain spending.

Despite the changed conditions in the property market, the number of first-time buyers has not fallen and their share of all buyers has remained fairly stable. This was stated by Tómas Brynjólfsson, deputy governor for financial stability at the Central Bank of Iceland, at HMS’s autumn meeting on Thursday.

Financing a property purchase remains difficult for many. More than six in ten university-educated people aged 34 or younger who have bought property received financial assistance from someone other than a lending institution.

The article notes that university-educated groups have fallen behind in terms of wages and face significantly heavier student loan burdens than older generations.