Reykjavík Grapevine - 13.04.2012, Side 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!