Icelandic housing market faces debate over rent control and supply mismatch

Economist Ólafur Margeirsson has criticized the characterization of the Icelandic housing market as having a “great excess of supply.” He argues that while large, expensive sale apartments are not moving, there remains a critical shortage of small rental units.

This debate follows a proposal by Minister of Social Affairs and Housing Ragnar Þór Ingólfsson to introduce a “rent brake.” The proposed legislation would amend rental laws to ensure that rent increases never exceed the consumer price index. Under this plan, any regular rent increases must be specified in the lease agreement, and exceeding those terms would be prohibited.

Central Bank Governor Ásgeir Jónsson has previously stated that price controls are not a solution to the shortage, suggesting instead that the focus should be on increasing supply. Margeirsson supports this view, noting a mismatch between current construction and actual needs, comparing the situation to a merchant importing luxury sports cars to solve a shortage of affordable vehicles.