News - 13.11.2025

What Will It Take for the Government to Take the Housing Crisis Seriously?

At the end of this month, it will have been a year since the people of Iceland went to the polls and chose between quite a few political parties. The lead-up to the election was relatively tense, and undoubtedly there are differing interpretations of what caused the previous government to fall. In my view, one of the main reasons it was unsustainable was the housing crisis. Housing was (and is) in disarray, and that affects everything else: the economy, public finances, inflation and interest rates, people’s livelihoods, financial security, equality and poverty – the list goes on.
So it was encouraging to see in the new government’s policy platform that housing security for the people was to be made a priority, with both emergency measures and systemic reforms.

Then Came Winter, Then Spring, and Then Autumn.

A “Big” Package?

In the autumn, representatives of the governing majority began to fuel expectations about the government’s upcoming housing and economic package. It was to be “big”, with economic measures that would have a real impact and would “entail action to counter overheating, more targeted housing support, increased residential construction with greater efficiency and predictability,” to quote the Prime Minister.
Expectations grew, and when the package was finally unveiled, it was initially met with a positive reception. But upon closer inspection, that optimism quickly diminished, as the largest questions remained unanswered.

How will sufficient and appropriate residential construction be ensured? What is the long-term strategy, and what are the short-term actions that could bring people relief now? There is also a noticeable lack of detail on important matters—whether in terms of development in Úlfarsárdalur (where figures vary between 2,000 and 4,000 apartments or somewhere in between), or the new framework for using private pension savings to reduce mortgage debt.

Furthermore, government funding for housing issues is shrinking at the same time as households are shouldering the enormous cost of the housing crisis—both through direct housing costs and through higher prices in times of inflation. Inflation excluding housing has fluctuated between 2.8% and 3.5% this year, which is within the Central Bank's margin of error. If not for the housing crisis, there would be no need for high interest rates, which in turn only deepen the crisis rather than alleviate it.

Poorly Built and Poorly Managed

Housing is an expansive and complex policy area, where action in one area can affect all others. The field is marked by confusion and inconsistency, though that is improving thanks to the thorough work of the Housing and Construction Authority. It must be a priority to reach a point where there is at least general agreement on the actual demand for residential construction.
There is also no shared understanding of the role of the state and municipalities in housing policy. Many municipalities feel they are making a solid contribution to construction, but when everything is added up, we are still far from meeting the need for affordable housing across the country.

There is a tendency for the various responsible parties to point fingers at each other: developers blame the city, the city blames the developers. For example, no one has been able to clearly answer why housing is being built that doesn’t meet people’s needs — and what should be done to ensure appropriate development. Why is it being built wrong, and why is the system so broken that some people can own multiple homes while others — even those in full-time employment—cannot afford a roof over their heads?

This is why it’s clear that the state must take on a broader role in housing. There must be oversight — perhaps even direct leadership. Municipalities do not seem capable of handling infrastructure development on their own, and it is unacceptable to simply wait and hope that such development will be funded by investors, which often results in far greater costs for the public in the long run.

The Vicious Cycle Must Be Broken

Given how enormous the effects of the housing crisis are on the economy, on collective bargaining, and on society as a whole, it is baffling how little emphasis both the current and previous governments have placed on this issue.

The labour movement has tried different approaches to get the government to live up to its responsibility in housing matters — sometimes through encouragement, other times through criticism. Much good work has been done, especially in developing the public rental housing system. But overall, the measures are always half-hearted — and that is incomprehensible.

At the same time, house prices rise so rapidly year to year that anyone who doesn’t regularly follow real estate ads or property assessments loses all sense of pricing. And the cost? It’s paid by working people at the end of every single month. The housing crisis fuels inflation, and as a result, everyday shopping becomes more expensive. This vicious cycle must be broken—starting now.

Halla Gunnarsdóttir, Leader of VR

First published in Morgunblaðið, November 13, 2025