Visitors recently enjoyed the view of Icebergs that calved from glaciers in Jokulsarlon, Iceland.Photo: Getty Images
REYKJAVIK, Iceland—Iceland’s tourism push helped save the once-remote island from a deep economic crisis, but now that business is booming the North Atlantic nation is straining under the weight of the windfall.
Attracted by its spectacular volcanic landscape and easy air routes, about 2.2 million tourists are expected to flow into the country of 330,000 people this year, almost five times as many as in 2010, according to the International Monetary Fund. Tourism is now the country’s biggest industry, ahead of its traditional lifeline, fishing.
The scale of the tourism explosion has caught the government unprepared, leaving infrastructure strained and outnumbered Icelanders complaining about scarce housing, rising rental prices and roadside litter.
“We wanted more tourism and we worked hard to make it happen....But this immense growth was not something that anyone could foresee,” said Sigrun Brynja Einarsdottir, a top Department of Tourism official.
The capital city of Reykjavik, seen from Hallgrimskirkja church.Photo: michaela rehle/Reuters
Tourism has been a mixed blessing for many destinations across the world. A rise in budget travel and an emerging Chinese middle class have contributed to a welcome rise in visitor spending, but also afflicted fragile locations from Bali to Venice.
Iceland has come a long way back since 2008, when its overleveraged banking system collapsed and unemployment shot up. The local currency, the krona, has strengthened, and the economy grew by 7.2% in 2016—the fastest pace among developed economies. The government this year removed almost all of the remaining capital controls imposed in the depths of the crisis.
The influx of tourists, a majority of them American and British, dates to the 2010 eruption of the Eyjafjallajokull volcano, which sent ash clouds across Europe and disrupted air travel.
The government responded with a marketing campaign that drew global attention to Iceland’s magnificent geysers, milky blue waters and craggy moonscapes. Supported by a currency still recovering from the crisis and airlines offering free stopovers on their intercontinental routes, visitors flocked here.
For some, the tactic has worked too well. On the streets of the capital—a compact city of brightly colored houses where the tallest building until recently was the landmark 240-foot Hallgrimskirkja church—some normally placid Icelanders have begun to grumble.
Once pristine sites are now crowded, and streets are clogged with rental cars. Building new hotel capacity takes time, so the country has turned to platforms like Airbnb—a trend, economists say, has helped to push up house prices. They surged 18.3% in the year through March in Iceland’s capital, compared with 6.3% a year earlier, according to broker Knight Frank.
Mixed Blessing / The number of visitors to Iceland has jumped in recent years, straining infrastructure and pushing up housing prices. Sources: Icelandic Tourist Board (visitors); Eurostat (population)
“The situation downtown is getting impossible today. Prices are up and very few apartments are available,” said Kolbrun Yr Einarsdottir, who works at an artist-run museum in Reykjavik. She and her husband were kicked out of their apartment in 2014 because, she said, the owner wanted to rent it out through Airbnb.
“It was not a surprise,” Ms. Einarsdottir said. “It had been happening around us.”
At least one of every eight apartments downtown was used for short-term lets during last year’s high season, according to Elvar Orri Hreinsson, a research analyst at Islandsbanki, who said the ratio is probably higher now.
Airbnb says hosts in Iceland are typically people sharing spaces in their homes a handful of times a month, not full-time businesses. “Airbnb helps spread tourism benefits to local residents” by boosting their incomes, said Airbnb spokesman Bernard D’heygere.
Iceland’s government recently required official registration for home sharing and business licenses for people who rent out their accommodation for more than 90 days a year or make more than about $18,000 in rental income.
The government has also taken measures to upgrade Iceland’s roads, bridges and parking lots. Responding to outrages over bad tourist behavior, it has put more toilets and garbage cans in the countryside.
With American tourists outnumbering Icelanders, demand for embassy services—such as the replacement of lost passports—has risen sharply, according to Jill Esposito, chargé d’affaires at the U.S. Embassy in Reykjavik.
Tourists visited the landmark 240-foot Hallgrimskirkja church this month.Photo: michaela rehle/Reuters
To some, it all seems worryingly familiar. The pace of growth is reminiscent of the years leading up to the financial crisis, which hit Iceland harder than most.
A supercharged economy hasn’t only sparked a stronger krona and higher home prices but also spurred demand for labor, driving up wages. Iceland’s unemployment rate in May was 2.6%, the lowest in the developed world, according to the Organization for Economic Cooperation and Development.
Although Iceland’s economy is on “a firmer footing” than the last time it grew this fast, “overheating risks are a clear and present concern,” the IMF said in a recent report.
Mar Gudmundsson, governor of Iceland’s central bank, said the pace of growth has become “a little bit uncomfortable,” but noted the economy is “very far away from a credit-driven overheating boom.”
Some slowing may already be under way. The krona’s rise over the past three years has made Iceland pricier for foreign visitors—a trend, economists say, that could eventually curb visitor growth.
Will Weiner, a consultant from Pittsburgh who visited Reykjavik on an extended stopover, noted that particular tourist experience. “I thought it was a little interesting to pay $5 for a basic drip coffee,” he said.
Travelers recently traversed the Gulfoss waterfall in Reykjavik.Photo: Hasan Esen/Anadolu Agency/Getty Images
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