Reykjavík Grapevine - 13.04.2012, Blaðsíða 21

Reykjavík Grapevine - 13.04.2012, Blaðsíða 21
Average price per square meter in the Capital area (1.000 ISK) Rental price index Jan 2011 - Feb 2012. 1981 1985 1990 1995 2000 2005 2010 50.000 0 100.000 150.000 200.000 250.000 300.000 Jan 2011 Jan 2012 M ar 2011 M ay 2011 Jul 2011 Sept 2011 N ov 2011 102.5 100 105 107.5 110 112.5 115 significantly more expensive due to the crisis-induced inflation. “Of course inflation has been a problem in Iceland for a long time,” Sigurður explains. “The indexation was meant to encourage owners of money to lend because nobody wants to lend money long-term without being sure that it won’t burn up.” This worked fine for the last 30 years when salaries typically exceeded infla- tion, but it became clear that there was a flaw in the system when the trend re- versed. “Suddenly the relationship be- tween salaries and inflation didn’t hold true,” Sigurður says. “People’s salaries have been kept constant for three years while cumulative inflation has gone up over 40%. This is why people are so an- gry.” In other countries, such as in Poland and Chile, where mortgages have been indexed, salaries were also indexed so that the mortgage payment is always relative to salary. “Iceland is, as far as I can tell, the only country using a sys- tem where obligations are indexed but salary is not,” Sigurður says. “My per- sonal view is that the system is flawed.” “pROpERTY ISN’T GOING ANYWHERE” While Iceland’s current leftist gov- ernment has taken some steps to re- lieve the resulting debt burden facing homeowners—for instance, by passing the Law on Mitigation of Residential Mortgage Payments—many still find themselves in a tight spot. In 2011, the Central Bank of Iceland submitted the following information to the EFTA Sur- veillance Authority: - 25% of households have mortgag- es that are more than 500% of annual income (debt situation); - Around 12% of households use over 50% of their disposable income to ser- vice their mortgages (debt service abil- ity); - The total debt service of 1/6 of house- holds is in excess of half of their dispos- able income (debt service ability); - Around 20% of households have neg- ative net assets and 22% have only a marginally positive net equity position (net assets of households). Despite all this, housing prices have not plummeted. Bucking a trend seen widely in post-collapse Europe, Ice- land’s housing prices are rising. This is not making it any easier for the average person to enter the housing market. “I think the rising housing prices can somewhat be explained by the capital controls, which mean that there are limited investment opportunities. If you want something safe, you can buy government bonds or you can buy a house. It’s basically a flight to safety for investors. You hear stories of people taking money out of the bank or from under the mattress and putting it into property, which is not going anywhere,” Sigurður says. “There’s also a limited supply of new properties. Hardly any homes have been built since 2008, so there is a shortage, which is especially evident with smaller apartments selling for less than 15 million ISK. People—typically young people buying their first home— fight heavily for the smaller apartments. So it’s just supply and demand at play.” THE GOVERNMENT’S NEW AGENDA Working on behalf of the Ministry of Welfare (formerly the Minister of Social Affairs and Social Security), a consul- tative committee charged with look- ing into ways to meet changed hous- ing needs post-crash, reported in 2011 that the percentage of households in long-term rental homes is lower in Iceland than it in most European and Nordic countries and recommended that government officials work toward strengthen the rental market. While the previous government en- couraged home ownership through in- terest benefits given to offset the mort- gage costs of purchasing residential housing, Sigurður tells me the that the current government plans to re-evalu- ate this system in the coming years so that it does not discriminate between ownership and non-ownership. “After the crash people have been saying that it is not desirable to have a system that encourages you to bor- row. Obviously you always have to bor- row some amount to buy a home, but the current system encourages you to borrow even more because that entails benefits and interest repayments,” Sig- urður explains. “The benefits should not pull you one way or the other.” DEVELOpING A RENTAL MARKET Due to foreclosures, the HFF—which, as a state institution, cannot go bankrupt— now owns 1750 properties. “Instead of having a fire sale—shaving off thirty percent and putting them on the mar- ket—the plan is to slowly put their prop- erties on the market,” Sigurður says. Of those 1750, Sigurður says 650 are rented out. “If people lose their home, we are obliged to offer that person or the tenants living in the home a twelve month rental contract,” he says. “After that we have no obligation, but we have been renewing contracts for the sec- ond or third time.” In the meantime, the HFF owns 1150 that currently not on the market. Thus far the properties that HFF owns have otherwise not been available for rent, but by summer, Sigurður says they will for the first time be on the rental mar- ket. “We have properties that we could sell or we could rent and we will try to do either one,” he says. “Of course, es- pecially in areas where there is a short- age of rental housing, like here in Reyk- javík, we will try to increase the supply of rental housing.” The banks too own a number of apartments, which are also collecting dust—or so they think. While there are no official numbers, a number of peo- ple have taken up squatting since the financial crash. In one case, a couple moved into an empty apartment on Laugavegur after the banks foreclosed on its previous owners. While it sat empty, a furnace exploded leaving water to sit in the empty apartment for an unknown pe- riod of time. The damage is evident as I peak inside and there is a musty smell, but the couple say they live comfortably and rent-free. They tell me that a bank representative once showed up to find them there, but ultimately did nothing. In another case, certain tenants have found themselves living for free when the apartments they inhabit get repossessed—it seems the collapsed banks creditors are not all that inter- ested in reaping from their investments. “The apartment we were renting was auctioned off from under the owners,” a 29-year-old student tells me, “they just arrived one day and told us that it had been auctioned off to the bank. Then nothing happened for almost a year. We just stopped paying rent, and the new owners never showed up to claim it or attempt to charge us rent. I’ve heard of lots of other examples of this happen- ing, I am sure there are people living for free right now all over Reykjavík.” DEMYSTIFYING THE MARKET Sigurður says the rental market is still very much a mystery. “After we accu- mulated so many properties I realized that the market was like a black box,” he says. “I had no way of finding out how many people were renting in the market. Nobody could give me a pre- cise answer.” The first step HFF is taking to de- velop the market is to make it more transparent. “What we have been do- ing, for example, in collaboration with The National Registry (Þjóðskrá), is fig- uring out what the market price for rent is in different areas,” he says. “We are also encouraging that all rental agree- ments be registered so that we can ab- sorb pricing data and people will have a better idea of what it will cost them to live and rental companies that want to invest in property somewhere can ac- curately estimate how much they can rent it out for.” With data about the cost of renting by size and location last year published time by the National Registry in collab- oration with the HFF, for the first time last February, it is possible to start ana- lysing the rental market and whether it is makes sense to rent or to buy. RENT IS NOT CHEAp Naturally, the rental market varies de- pending on whether we’re talking about Reykjavík or Ísafjörður. And it probably comes as no surprise that it’s most ex- pensive to rent in downtown Reykjavík, postal code 101. A two-room, 63 square metre, apartment in 101 Reykjavík rented for an average 109.863 ISK/month in 2011. To afford rent, somebody working full- time (171 hours/month) at minimum wage (182.000 ISK/month in 2011) would need to work 103 hours, which is 60% of the work month. There is slight variation in the aver- age price of an apartment in the greater Reykjavík area, with a pocket of lesser expensive apartments being found in Breiðholt, which has a large concentra- tion of social housing. Still, somebody working at minimum wage would need to work at least 87 hours in a month to afford rent there. The least expensive in Iceland apartments are located in the remote Westfjords. An average two-room, 63 square metre, apartment in Ísafjörður, which is considered the capital of this region, rented for 57.477 ISK/month in 2011. To afford renting this apart- ment, somebody working for minimum wage would need to work 54 hours per month, which is 32% of the work month. LESS EXpENSIVE TO BUY The price-to-rent ratio—which com- pares the price of a home to what it would rent for over a twelve-month pe- riod—is widely used in the Unites States to determine whether it makes more sense to rent or to buy in the current housing market. It is generally believed in the States that if the ratio is above 20 that it is a better idea to rent while if it is below 20, it is a better idea to buy. If the same threshold applies in Iceland, preliminary price-rent calcu- lations by the HFF indicate that in all Reykjavík postal codes, renting is more expensive relative to buying—with the ratio ranging from 14 in downtown Reykjavík (postal code 101) to 10,65 in Breiðholt (postal codes 109 and 111). This of course is a rough measure, but as a rough measure it suggests that rent is high for the current housing market conditions. So it seems that Ice- landers’ almost philosophical aversion to renting is partly based in the stub- born pride depicted in Halldór Laxnes’ ‘Independent People,’ and partly in the fact that at the moment buying still seems to make more sense. Unfortunately it’s just no longer an option for everybody. “People’s salaries have been kept fairly constant for three years while cumulative inflation has gone up over forty percent. This is why people are so angry.” KEEpING IT LEGAL By Ólafur Halldór Ólafsson Given this increased demand for rental apartments, landlords are reportedly get- ting away with renting to tenants without going through the proper legal channels, paying taxes or providing a lease. This of course results in poorly protected tenants that are left without a choice to accept of- ten-illegal and usually uncertain terms. It is common for black market renters to be asked to leave without notice at the whim of landlords who have perhaps finally been able to sell their over-mortgaged flats. On the excellent expat blog Iceland Chronicles, blogger ‘Pu The Owl’ de- scribes her experience, “A lot of land- owners would not offer a regular contract and would only accept to be paid in black money, which of course is very profitable for them but doesn’t provide any guaran- tee to the tenant. Some asked from four to six months in advance as initial payment, which is totally crazy in some cases, given the condition of the apartments and given the services included in the rent.” As an experienced tenant I will stress this: You need to make sure you sign a lease with your landlord. With out a lease, you will be entirely unprotected legally and on uncertain terms—and you won’t receive state rent benefits. You apply for rent benefits by turning in a special form that is available from your local authorities or social services offices. The purpose of rent benefits is to bring down the cost of accommodation for lower income tenants and to reduce inequality on the rental market. Rent benefit entitlements are calculated on the basis of an apartments rent and the tenants income, net assets and number of dependent children. All those who inhab- it residential premises that they rent are entitled to rent benefit. Foreign nation- als residing in Iceland are also entitled to rent benefit. Tenants living in rented state or social housing are also entitled. The basic sum for each flat is 13.500 ISK; an additional 14.000 ISK is paid in respect of the first child, 8.500 ISK in re- spect for a second and 5.500 ISK in re- spect of a third. The children must be reg- istered inhabitants in the premises. The maximum monthly amount of rent benefit is 46.000 ISK, and it may never exceed 50% of the total rental costs. There are three factors, which dis- qualify applicants from receiving rent benefits. If the tenant—or any other per- son occupying the tenant’s premises—is a close relative or associate of a landlord who lives in the same building, he or she is ineligible. If a tenant or any co-inhabit- ant is currently exercising his or her rights to interest benefits (interest repayments for apartment owners), they are ineligible. If the lease is made for a period of less than six months, the tenant is ineligible. People do cheat the system. The most common way to do so is when people share flats and only one individual is a registered inhabitant of the premises. Some Resources For Finding A place To Rent In Reykjavík Newspapers Fréttablaðið (online: www.visir.is) and Morgunblaðið (online: www.mbl.is) both contain housing sections. Online classifieds Leigulistinn.is: basically a pay-for-use Craigslist. Classifieds on www.leiga.is, www.bland.is and www.grapevine.is all contain free housing sections. Word of mouth Iceland is a small, sparsely populated country and its apartments are often rented by word of mouth or through so- cial networks like Facebook. While this may work well for the native population, it may prove harder for new Icelanders. Solution? Befriend an Icelander. Cooperative housing: www.buseti.is, www.bumenn.is Family: Again, Iceland is a small country. Given the volatile nature of the housing market, some may rent from their fam- ily, which may prove to be a more secure long-term option. Establishing family connections in Iceland may prove a bit of a task for the uninitiated, unfortunately. DISCLAIMER: This list is by no means com- prehensive. We’re just trying to help. If you have tips on finding housing, please drop us a line at grapevine@grapevine.is and we will share your wisdom with all our readers!

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