Industry leader warns Iceland’s rent cap could reduce rental supply

Iceland’s proposed rent cap could reduce the supply of rental housing and push rents higher over time, Þorsteinn Víglundsson, chairman of the Federation of Icelandic Industries and CEO of Hornsteinn, told mbl.is.

In a Facebook post, Þorsteinn also criticised the lack of analysis of the bill’s long-term effects in its explanatory memorandum. The bill, introduced by Social Affairs and Housing Minister Ragnar Þór Ingólfsson, would generally prevent landlords from raising rents more than once a year and limit increases to changes in the consumer price index.

Þorsteinn said experience in other countries suggests rent caps can make rents more predictable in the short term but reduce the supply of rental housing over time. He said some landlords might choose to sell their apartments rather than continue renting them if their ability to raise rents is restricted.

He also expects landlords to offer shorter leases and renew them less often. He said the number of inflation-indexed rental contracts could rise. Figures from HMS cited by Þorsteinn show that about 63 per cent of rental contracts are indexed today.

Þorsteinn said wages have risen faster than prices over the long term, while property prices have followed a similar pattern. If landlords are prevented from raising rents in line with property prices over time, he wrote, they will have an incentive to sell rather than rent out their properties. He also warned that rents could diverge significantly between older and newer contracts.

He said he did not doubt the bill was proposed with good intentions, but that this did not guarantee positive results. He called for an analysis of the long-term effects of government intervention in markets, saying none was included in the bill’s explanatory memorandum.