Reykjavík is third on the list of cities where housing prices have increased the most within the last year, namely by 16.6%, The Guardian reports.
According to research by property consultancy Knight Frank published by the British newspaper, only Berlin in Germany and Ízmir in Turkey are higher on the list, with 20.5% and 18.5% increases, respectively. Other German cities such as Munich, Hamburg and Frankfurt are also listed in the top ten.
Factors such as more accessible loans and a surge in population growth can be identified as the causes driving prices up in Germany, prompting warning of a new bubble waiting to burst. According to Bundensbank, Germany’s central bank, the prices of a considerable number of properties in Germany are actually inflated by 15% in major cities and up to 35% in Berlin.
In Reykjavík, instead, the surge in prices has mostly been attributed to an increase in tourism. As more homeowners rented their properties via Airbnb, not enough apartments were built in the past few years to make up for the lack of housing in the capital area.
Subsequently, according to Visir, the prices of property in Reykjavík increased by 19% between 2016 and 2017, while real estate analysts were expecting a further 6-9% increase between 2017 and 2018—well below the numbers provided by Knight Frank.
When real estate prices in the capital area reached a historical peak in January, they decreased by 0.1% for about a month. Local analysts, however, don’t expect the numbers to decrease in the future. “It’s unlikely to happen in the next few months,” Ólafur Heiðar Helgason, an economist from the Housing Financing Fund in Iceland says. “Most parties are forecasting a 6% to 9% increase within the year.”
Although Ólafur clarifies that the recent surge in real estate prices is far from being as worrisome as it was, for instance, right before the 2008 crash, he also admits that the process has not been followed by a parallel increment in wages. “We have to begin wondering whether we’ve actually reached the tolerance limits, when it comes to price growth,” Ólafur adds.