The Uneven Impact on Households
Edited by Ray Forrest and Ngai-Ming Yip
Chapter 4: Housing in Iceland in the Aftermath of the Global Financial Crisis
Jón Rúnar Sveinsson INTRODUCTION In 1944, Iceland became an independent republic, thereby putting an end to a union of more than five and half centuries with the Kingdom of Denmark. After the Second World War, the new republic entered upon a path of rising economic prosperity, which, despite regular downturns,1 has nevertheless on the whole been spiralling upwards for nearly 70 years. The steepest rise of Iceland’s economic fortunes occurred just after 2000, lasting until about 2007. But during the first week of October 2008, the economy turned dramatically downwards, when the Icelandic banking system collapsed during the onset of the global financial crisis. These events severely affected the Icelandic economy. After an average growth rate (measured as GDP) of 4.0 from 1945 to 2008,2 a sharp downturn of 10.6 per cent was forecast for 2009, together with a rise in unemployment from 1 per cent in 2007 to 9–10 per cent in 2009 and 2010 (Fjármálaráðuneytið, 2009a, p. 3). Iceland’s currency, the króna, lost half of its value against the euro from 1 December 2007 to 1 December 2008.3 This proved devastating for homeowners who had their mortgages wholly or partially in foreign currencies. Iceland is among those Western countries that have been hit hardest at the onset of the global financial and economic crisis; it was possibly the hardest hit. The Icelandic banks were among the first in the world to fail at the beginning of October 2008, opening...