News - 02.01.2026

The Year 2025: Iceland vs. Young People

At one of the many meetings on housing issues I attended in 2025, a ministry employee remarked on a noticeable change in university students visiting the Government Offices on academic field trips. Previously, the students’ excitement over the refreshments had somewhat overshadowed their interest in the topics at hand—but not anymore. Young people now arrive full of burning questions about housing and relentlessly grill their hosts.

Perhaps this can be seen as a positive development: that young people are becoming more responsible and thinking more about their future and a roof over their heads than their next pint of beer. But another perspective is that financial and housing worries are robbing them of their university years—time that should be spent learning, maturing, and occasionally letting loose.

A Broken Intergenerational Promise

After World War II, most European nations were determined to avoid a return to the instability of the interwar period. Part of this effort involved building comprehensive healthcare and welfare systems, strengthening trade unions, ensuring employment, and promoting housing security. In this context, people often spoke of the “intergenerational promise”, that each new generation would have a better life than the one before. And to a large extent, that promise was fulfilled.

For a long time, parents could reasonably expect that their children would have access to education, better and more secure jobs, affordable housing, a stronger healthcare system, higher wages, and upward social mobility. But now the tide is turning, and young people are gradually facing worse conditions and fewer rights than their parents had at the same age. This is a serious and worrying development.

In Iceland, the most striking example of this is in the housing sector. According to an analysis by the Housing and Construction Authority, renters now need to save for over eleven years to afford a down payment on a small apartment. Just eight years ago, that timeframe was under five years. It’s like running a marathon while the finish line keeps moving further away. Increasingly, young people must rely on help from their parents to secure stable housing, and in 2025, a growing gap could be seen between those with such support and those without.

Whether buying or renting, young people face such heavy financial burdens that there's little room for error. Under these circumstances, it's hard to pursue unfunded dreams, whether traveling to distant lands or engaging in creative pursuits that don’t pay. This trend is clearly visible in universities, where more and more young people are working extensively or even full-time while studying. Work alongside study has always been common in Iceland, but now the roles are reversed: students are studying alongside full-time work. There’s a fundamental difference between the two.

So why don’t they just take student loans? Because, at the same time Althingi approved converting part of student loans into grants, it also radically changed the loan terms. Instead of offering loans with low, indexed interest rates, student loans now come with interest rates almost on par with the market. With high interest rates becoming the rule rather than the exception, it’s no wonder many don’t dare venture into this financial quicksand.

In short, opportunities for young people to pursue higher education are shrinking, just when critical thinking is becoming increasingly valuable to society. While there are many positive aspects to the AI revolution, there is unanimous agreement that user knowledge and critical thinking are key to ensuring humans control technology, not the other way around.

Eroding Rights in the Labour Market

For a long time, the Icelandic labour market has been characterized by low unemployment, and young people have generally been able to find work. Iceland consistently ranks among the lowest in international comparisons of young people who are neither in school nor employment. Long-term inactivity early in life is difficult to reverse, so opportunities must be available to prevent it.

The flexibility of the Icelandic labour market can be important in this regard; in Iceland, it is unusually easy to hire and fire staff, which increases the likelihood that companies will hire when times are good. In return, wage earners have enjoyed strong unemployment insurance when times are tough.

In 2025, however, the government, without consulting the labour market, proposed reducing the duration of unemployment benefits from 30 months to 18 months and increasing the accrual period. A bill from the Minister of Social Affairs, which is still under discussion in Althingi and hopefully won’t go any further, has been sharply criticized by the labour movement, but surprisingly supported by some union leaders. That support is astonishing. These are rights that were fought for, and it is much harder to win rights than to take them away.

One argument made for these changes is that 30 months of unemployment registration is too long, not beneficial, and that people need different forms of assistance. That might be true in some cases. However, it's important to note that the right to unemployment insurance is earned, and the long-term unemployed are not necessarily continuously registered for thirty months, but rather cumulatively over time. It is precisely the role of the Directorate of Labour to assist this group, which is not large, and provide them with the resources they need to return to employment. Much has been lacking in this area.

Cutting unemployment benefits does not secure employment for people — quite the opposite. If the proposed changes go through, this small group will largely have to rely on municipal welfare support, which is a poverty trap, while also falling out of the safety net of the Directorate of Labour, where activation measures are supposed to happen.

Extending the accrual period can also mean that people are left without any rights if they lose their jobs—meaning workers must bear the full cost of labour market flexibility. The Ministry of Social Affairs’ justification for these changes is among the weakest found in any government bill. What remains is a political agenda to strip people of their rights and offer the younger generations a bleaker future than previous generations enjoyed.

Families with Children and the Government That Forgot Its Commitments

Finally, we must touch on the situation of families with children. Not long ago, the government’s involvement in the current collective agreements — signed in 2024 — was shaped by a desire to support families with children amid inflation, high interest rates, low wage increases, and a difficult housing market. School meals were made free of charge, child and housing benefits were increased, and there were promises to keep fee hikes in check during the contract period, especially for families with children.

But what’s the reality now, almost two years later? The government has cut both housing and child benefits, and municipalities are competing to raise preschool fees in order to push parents to reduce their children’s hours in preschool. This has been accompanied by a terrible public debate, marked by complete disregard for the realities facing parents of young children and the role preschools play in the labour market and in gender equality.

Some municipal leaders (and some unions of preschool employees) have seen it as natural to shift the challenges of shortening the workweek in preschools onto parents, in the form of higher fees and reduced services. Apparently, this shortening of the workweek was not supposed to cost anything — except for parents!

Parents are being led to believe that having their children in preschool during the hours when staff take time off under the shortened workweek is somehow harmful to the children. And although studies show the negative impact of the Kópavogur model of financial steering in preschool policy, more and more municipalities are adopting it.

As of this writing, Reykjavík City Council members are still sitting on proposals which — if adopted — will result in permanent changes to preschool services in Iceland by cementing a flawed model and introducing income-based preschool fees.

And once again, the next generation is left holding the short end of the stick.

A Course Correction in 2026

The good news is that it’s not too late to change course. The year 2026 could easily become the year in which the government and municipalities honour their commitments under the current collective agreements and the Minister of Social Affairs abandons the plans to weaken unemployment insurance.

The City of Reykjavík can take its preschool proposals back to the drawing board and consider the needs and interests of young parents in designing new solutions. Most importantly, the Central Bank and the government can take responsibility and free public finances from a flawed ideology that manifests in squeezing indebted families in the name of defeating inflation — a strategy that has clearly failed, as the root causes of inflation largely lie in housing issues.

Fixing the housing market is therefore one of the most important political tasks of 2026, and the responsibility lies not only with municipalities but also with the government.

The foundations of Icelandic society remain strong. Now is the time to pledge not to erode them,or undertake reforms that reduce the prosperity of future generations. Instead, we should strengthen the foundations and support young people, whether they are studying or working, raising families, or entering the labour market.

We at VR will not stand idly by in this fight. We are the largest union of young people in Iceland, and we are determined to ensure that their future is at least as bright as that of the generation before them.

At the very least, let’s hope that young people’s academic visits no longer revolve around housing worries. That alone would be a worthy New Year’s resolution for society!

Halla Gunnarsdóttir, Leader of VR.

This article was first published on heimildin.is on December 30, 2025.