Central bank governor warns rent cap could worsen housing market

Iceland’s central bank governor, Ásgeir Jónsson, says a cap on rents could raise prices and make rental housing harder to find, rather than solve affordability problems. He told mbl.is that market conditions may bring housing and rental costs back into balance without new rent-control legislation.

Jónsson said the number of new homes for sale had not increased over the past month, while banks’ loan-loss provisions for construction companies had risen. The Central Bank’s Financial Stability Committee said last month that loans to the construction sector exceeded 450 billion and had grown by 25 percent year on year.

Although construction companies are generally in a strong financial position after several good years, Jónsson said some would have to give ground as interest accumulates on loans for unsold homes. That adjustment could come through lower prices or a real-terms decline over a longer period, he said. He added that the adjustment may already be under way, though there are still few signs of it.

One possible option, he said, would be to convert some of the unsold homes into rental housing. He also recalled that after the financial crash, many apartments were converted into housing for people aged 60 and older.

Social and Housing Minister Ragnar Þór Ingólfsson introduced a bill this week that would amend the tenancy law to impose a rent cap. Jónsson called the measure “very stupid” at a Central Bank meeting yesterday morning. He said rent caps had been tried in many places with similar results: higher prices and more difficulty finding rental housing.

Jónsson said he expects increased housing supply to lead to more rental homes and believes the market is moving towards resolving the problem without a rent cap.