“There is a lot of expansion in the construction industry, it started significantly last year and according to plans it will increase over the next two to three years. Both in the construction industry and construction, “says Halldór Grönvold, Deputy CEO of ASÍ.
The construction industry has been picking up again in recent months, and residential housing construction has increased after a huge slump following the economic collapse of 2008. Approved construction plans in 2015 in Reykjavík was 73 percent more than the year before and was nearly comparable as it was over the years 2000 to 2008. The volume of construction in hotels and restaurants in Reykjavík has increased tenfold from 320 square meters and 846 cubic meters in 2012 to 13,600 square meters and 44 thousand cubic meters in 2015.
Demand for foreign labor in the construction industry is growing, but has not yet reached the previous heights reached before the collapse. The CEO of one of the largest construction companies in the country says that the emphasis on construction in the housing market has changed, there is more emphasis on smaller apartments and the suburbs have given in a bit. He expects continued growth in the construction industry and increased demand over the next two years.
Not more approved in a decade
In 2015, the approved building volume in Reykjavík was 235 thousand square meters and 912 thousand cubic meters. The approved building volume has not been higher since 2004 and was thirteen times higher than in 2010. The approved building volume for residential housing has been increasing significantly and amounted to 151 thousand square meters in 2015, 74 percent more than in 2014. The building volume was more than three times higher in 2015 but in 2012.
Árni Jóhannsson, director of the building and construction department at the Confederation of Icelandic Industries, says that the approved amount of construction does not necessarily give a correct picture of what is actually going on.
“There has been no special growth and development when it comes to the housing market. There has been a lot of growth in hotel buildings, but there is another market. There is now a need for housing and the housing market can do nothing but take over, “says Árni.
926 apartments under construction
Completed apartments in Reykjavík were nevertheless four times more in 2015 than in 2010, or 388 in number. The number of completed apartments in Reykjavík is far from the highest before the collapse, however, but in 2003, 872 apartments were completed. However, there are indications of growth in the coming years, as construction began on 926 apartments in 2015. Construction has not begun on as many apartments in one year for a decade.
Þorvaldur Gissurarson, managing director and owner of Þ.G. Verks, one of the largest construction companies in the country, says it is experiencing increased demand for residential buildings. “We have been in housing construction and tendering projects, but we have been putting the main emphasis on apartments in recent years because we believe that there is a demand and a shortage of them,” says Þorvaldur.
“I believe that the demand is there as it was before the collapse, but the measures regarding mortgages and loan options for the traditional family are not as they should be,” says Þorvaldur.
Demand for smaller apartments
He says the emphasis has changed in the housing market. “There is a much greater emphasis on smaller apartments today than before the collapse. Builders have tried to focus on this issue and there is a lot of construction in the city center and in the downtown area where the price is higher. The suburbs may have given in a bit to these apartments, “says Þorvaldur.
Þorvaldur says that the construction market was very damaged after the collapse and took over very slowly. “It was not until 2012 and 2013 that something started to change in the construction industry and then new projects were coming in. Many companies in the construction industry had given up and stopped or reduced their operations significantly, “says Þorvaldur.
Stakeholders consider changes to building regulations an important step in reducing construction costs.
New regulation is an important step
The current building regulations from 2012 have been criticized for having increased construction costs. The industry association estimates that it has increased the cost of smaller apartments by ten to twenty percent.
Last week, a regulation was signed amending the building regulations, which aims to reduce construction costs. The main stakeholders in the construction industry have welcomed the changes, such as the Iceland Chamber of Commerce (Viðskiptaráð Íslands) and the Confederation of Icelandic Industries (Samtök iðnaðarins). The chairman of the Disability Alliance (Öryrkjabandalagsins ) also said he was not dissatisfied with the result.
In the regulation, however, relaxations in space requirements are only allowed to apply to apartments that are up to 55 square meters in size, but SI would have liked them to cover up to ninety square meters of apartments.
Land prices need to be reduced
“This is a step forward and an important step. This last change lowers the construction cost a bit and it certainly has an effect. The biggest barrier, however, is the supply of plots and the price of plots. That is what hinders the fact that people become more involved in the production of residential housing, “says Árni Jóhannsson.
He believes that SI’s comment that relaxations in space requirements will apply to larger apartments will not be addressed in the coming months. “This regulation is not changed that often,” says Árni.
Þorvaldur agrees that it would have been necessary to go a step further. “It was a very bad change that followed the building regulations from 2012. In the meantime came three new versions and they were patching it up again and reducing these changes little by little. It might have been wiser to do so immediately. The fourth change has now been made and this is all for the better. It is quite clear that these changes will reduce construction costs again. I would say that building prices had not risen by ten percent, but maybe even up to that, after the regulation came into force on January 1, 2013, it varies according to housing categories, “says Þorvaldur.
Þorvaldur expects that demand in the construction industry will continue to increase for the next two years, as long as nothing happens in the country’s economy to change it. “I can see it coming, at least for the next two years. All this flow of tourists encourages construction that is in favor of it, hotel buildings and quite a lot of residential buildings in the downtown area go under tourists and then of course there are various large-scale construction projects on the drawing board as well, “says Þorvaldur.
Increased construction expected
Despite a large increase in the construction of residential housing in recent months, Þorvaldur believes that the construction of residential housing is not complete. “The demand that accumulated in the years after the collapse has hardly been built up. At the same time, companies in the country have failed and commercial housing is starting to be lacking, “says Þorvaldur.
Árni agrees with Þorvaldur that increased demand can be expected for the construction of residential housing in the coming years. “Housing production has not picked up. There is a great accumulated need for new housing, “says Árni.
Demand for foreign labor not as high as before the collapse
Along with the increase in the approved construction volume, the number of unemployed in construction has decreased. In the period 2005 to 2016, most people in construction were unemployed in 2009, or 2,761. Since then, the number of unemployed has decreased, especially from 2011 to 2013 when they decreased by two thirds. In the first three months of the year, an average of 290 people in construction have been out of work.
“It is quite clear that there are no Icelanders to handle this addition and have only been to a small extent. Admittedly, the question is whether and to what extent we get back Icelanders who went abroad after the collapse. But even if they pay off more and more, there will be a large number of foreigners who will come here to help us in this development, “says Halldór Grönvold.
Experts now agree that the demand for foreign labor in the construction sector is growing again, however, the demand is not approaching what it was before the collapse. Harpa Ólafsdóttir, division manager for wages at Efling, says that she does not see the same numbers as in 2008. “In the construction sector, we had 3,300 members before the collapse, but they are only just over a thousand today. The number of members was lowest in 2012 when there were 600 in the construction sector. We are seeing an increase in both domestic and foreign staff. The proportion of foreign members in the construction sector was sixty percent in 2008 but dropped to forty percent after the collapse, now it has risen to almost fifty percent, “says Harpa.
Þorvaldur Gissurarson, managing director of Þ.G. Verk, also says he feels a lot for the increased demand for foreign labor. “The domestic workforce in the construction industry has been exhausted for some time, so there is no other option but to get foreign labor. Today, the proportion of foreign employees is not high at all and has not become like before the collapse, but it is increasing and will increase, “says Þorvaldur.
Halldór says it is difficult to state whether the rights of foreign workers who come here to work are respected. “I claim that these builders who are being violated with some kind of deliberate or deliberate intent amount to a few hundred, beyond that I do not want to say much. We become less aware of this in Icelandic companies, but then it is also easier to deal with it. When it comes to foreign companies, things get complicated. There are quite a few examples of these foreign companies trying to make ends meet by paying their employees salaries and other terms of employment that are much more similar to those in their home countries than here, it is completely illegal. There are also cases where we have criticized domestic companies for not recognizing the work experience and qualifications of foreign workers. It has a significant effect on their salaries, “says Halldór.
Halldór says that in recent months, ASÍ and its member associations have been scanning the market and trying to understand the extent of foreign workers that are being violated. “All I can say is that this is just too much. We are trying to figure out how we can eradicate this criminal activity because we do not want it to take root here, “says Halldór Grönvold.