## Iceland: Selected Issues

_IMF Staff Country Reports, June 27, 2022_

## Source details

**Canonical URL:** [Iceland: Selected Issues](https://www.imf.org/en/publications/cr/issues/2022/06/27/iceland-selected-issues-519998)

## Other formats

- [Markdown version](/en/publications/cr/issues/2022/06/27/iceland-selected-issues-519998/index.md)
- [Structured JSON version](/en/publications/cr/issues/2022/06/27/iceland-selected-issues-519998/index.json)
- [Bundle manifest](/en/publications/cr/issues/2022/06/27/iceland-selected-issues-519998/bundle-manifest.json)

## Bibliographic details
- Published: June 27, 2022
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400214608.002

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### Summary and key findings
- This Selected Issues paper on Iceland analyzes housing market risks and housing affordability.
- House prices in Iceland have increased markedly since the onset of the coronavirus disease-pandemic, with signs that the valuations have exceeded macro fundamentals and long-term trends.
- Overvaluation has important implications for macroeconomic and financial stability, and housing affordability.
- House price cycles seem to be closely linked with the business cycle, indicating an amplification risk in the event of price correction.
- IMF’s quantitative analysis examines the interplay between house prices and related factors.

### Analysis and outlook
- The ongoing monetary policy tightening cycle should help address Iceland’s house price pressures.
- Further macroprudential tightening through binding and effective borrower-based measures could help contain systemic risks and create further buffers in the financial sector.
- In the medium term, focusing on structural measures that reduce construction costs and increase supply by eliminating red-tape and reducing the period for obtaining building permits is likely to have the highest pay-off.

### Policy recommendations
- Continue and calibrate monetary policy tightening to address house price pressures.
- Implement further macroprudential tightening, prioritizing binding and effective borrower-based measures to contain systemic risks and enhance financial-sector buffers.
- Pursue structural reforms to reduce construction costs and increase housing supply, including eliminating red-tape and reducing the period for obtaining building permits.

### Subjects and keywords
- Subject: Environment, International organization, Monetary policy, National accounts, Prices, Taxes
- Keywords: C. informing housing market policy, Carbon tax, D. containing housing market, Energy exchange transition, Global, Greenhouse gas emissions, Housing, housing affordability, Housing prices, I. carbon absorption

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## Content in this bundle

- **Iceland: Selected Issues; IMF Country Report No. 22/194; June 3, 2022**
  - [Iceland: Selected Issues; IMF Country Report No. 22/194; June 3, 2022 (Markdown version)](/-/media/files/publications/cr/2022/english/1islea2022002.pdf.md){rel="alternate" type="text/markdown"}
  - [Iceland: Selected Issues; IMF Country Report No. 22/194; June 3, 2022 (PDF)](/-/media/files/publications/cr/2022/english/1islea2022002.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/cr/issues/2022/06/27/iceland-selected-issues-519998_