Finance minister says rent cap need not cut housing supply

Iceland’s planned rent cap could lead landlords to raise base rents in advance, but the effect would be a one-off and need not reduce the supply of rental housing, Finance Minister Daði Már Kristófersson told mbl.is.

Kristófersson said he did not immediately see why the measure would affect supply. He pointed to other steps in the government’s package intended to strengthen the rental and construction markets, including funding the municipal contributions to the general housing scheme that municipalities have previously had to provide. The scheme supports rental homes through public capital grants, with the aim of creating secure housing for people on low incomes.

The bill’s explanatory notes say limits on how often rents can rise could prompt landlords to set higher starting rents to compensate for fewer opportunities to increase rent during a contract. Kristófersson agreed that this could happen under certain market conditions, describing it as a “one-off jump”. He said the bill’s main purpose was to break the automatic link between inflation and rent increases, which contributes to self-reinforcing inflation.