COVID-19 and housing market effects from an Icelandic context

Abstract: The global emergency declared by the World Health Organization in early 2020 due to the outbreak of SARS-CoV-2 would later develop into a pandemic that has since affected global markets at large. Though its affects have been varied in nature and magnitude, housing markets in many countries have seen a boom since the initial outbreak. This paper seeks to assess how COVID-19, and the domestic measures implemented as a result of it, have impacted the housing market in the capital region of Iceland. It focuses particularly on how two central variables have been affected: sale price and transacted volume. In pursuit of a deeper understanding, two hypotheses have been formulated: 1. Sale prices increased due to restrictions because of COVID-19. 2. Transaction volumes increased due to restrictions because of COVID-19. Using data from the Housing and Construction Authority of Iceland, Húsnæðis- og mannvirkjastofnun, regression analysis was conducted through two different models. The data set contained 30 991 apartment and single-family house transactions that occurred between January 2017 and April 2021. The models also considers the Central Bank of Iceland’s interest rate. Although both sales prices and transaction volumes have increased in Iceland over the course of the pandemic, no documented support for either of the hypotheses was established through the analysis. Thus, no distinct correlation was proven by the study in regard to the relationship between the increases and the government implemented restrictions and measures. It is unknown and cannot be assumed nor concluded whether this outcome occurred due to insufficient data or the absence of a clear positive or negative relation between the two factors. The overarching issue is likely the difficulty that exists in isolating and examining one sole factor, such as restrictions, from other influential and interdependent factors, and the underlying disregard this harbours for synergetic relationships that elicit complex market changes.