A BLACK BOX
In post-collapse Iceland, mortgages are hard to come by, and a growing number of people are turning to the rental market. Yet, with such increased demand, finding apartments to rent for would-be tenants is only getting more difficult. So where are we supposed to live? By Anna Andersen
“When we advertise an apartment for rent, it’s gone two or three days later,” Brandur Gunnarsson, a real estate agent at Stakfell agency tells me. “We continue getting inquiries about it for the following two weeks, though. A rental usually gets at least fifty to sixty enquires.” Another real estate agent, this one working for Eignatorg, Björgvin Guðjónsson, says that in his opinion the rental market is very underdeveloped. “When you find a flat to rent, it’s typically because it’s for sale or the owner is not using it for a short period of time,” he says. “So you regularly have to move, and it’s difficult to find an apartment that you could rent for ten years.” In fact 56% of Icelanders say that there are either few or very few rental housing options that would suit their family’s needs, according to a Capacent poll conducted for the Housing Financing Fund (Íbúðalánasjóður) in October 2011. A TEMPORARY OPTION It has long been the government’s policy to encourage home ownership and the large majority of Icelanders own their homes today. As a result, the rental market is historically small and has been seen as a temporary option. While this wasn’t such a problem before the financial crisis of 2008, when loans were given to just about anybody, it has become increasingly evident that the housing needs of a fair chunk of people are not being met. There appears to be a problem that needs solving.
The Housing Financing Fund (Íbúðalánasjóður, HFF) was founded by the government to provide individuals with loans for the purchase, construction and renovation of residential housing in Iceland, or as its director Sigurður Erlingsson puts it, “it’s a government agency with the task of making sure Icelanders have a place to live.” Sigurður confirms that there is increasingly a demand for rental housing in the greater Reykjavík area. “Our polls show that crash or no crash, people still want to own their homes,” Sigurður says. “Icelanders are quite individualist, and much like Americans, they pride themselves in owning a home.” However, it’s not that simple. The post-crash reality is that not everybody can afford to buy a home. “I think the obvious reason is that there is a larger group of people who, due to their finances, are not eligible to borrow money,” he says. “We can see in our polls that there is a direct connection between having a poor state of finances and entering the rental market.” In fact, 24% of all people applying for a regular mortgage last year said that they were denied, according to the aforementioned Capacent poll. “That was really surprising,” Sigurður says, “and it supports the idea that there are some people who need to rent because they won’t be able to get a loan in the next few years.” HOMES FOR EVERYBODY! Prior to the financial collapse, nearly everybody was eligible to borrow money. The game-changing year is 2004,
when recently privatised bank entity Kaupþing began offering competitive housing loans. Not only were they competitive with the HFF, but they were also “allowing up to 80% loan financing (as opposed to the 70% limit applicable to HFF at the time),” a July 18, 2011 EFTA decision states. This led the other two large private banks to offer similar mortgages, which in turn led the HFF to lower interest rates on their mortgages and to lend on a higher loan to value ratio, with the HFF briefly offering up to 90% loan financing. Meanwhile, the banks were offering up to 100% loan financing and in some cases bank loans far exceeded property value. A particularly glaring example is a certain home in 101 Reykjavík, which was advertised for auction with a debt to Arion Bank (formerly Kaupþing) totalling 516.821.227 million ISK (around 4 million USD)—a property that had been valued at 77 million ISK (around 600,000 USD) in March 2010. In light of these developments, housing prices skyrocketed—within two years, apartment prices in the capital area had doubled. PROBLEM? In the wake of the 2008 financial crisis, it turns out that the lending system was problematic for a number of reasons. First, loans pegged to foreign currency—which have since been ruled illegal—became up to two times as expensive due to the króna’s plummet. Second, indexed loans—which make up the bulk of the housing loans—became