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Earlier this week we published Iceland and the Trials of 21st Century Tourism, a close examination of the rapid influx of tourism into the country following the global financial crisis.
In over 10,000 words we dive deep into what’s happening on the ground now in the Arctic destination based on interviews conducted this summer with travel and tourism leaders in Reykjavik and other parts of Iceland. In the excerpt, below, we look at how Airbnb has solved some housing challenges while causing different ones at the same time.
If it weren’t such a contentious subject for locals, the rise of Airbnb in Reykjavik could represent a major success story for the sharing economy giant.
The number of hotel rooms in Iceland has increased by 42 percent since 2010, according to data from Statistics Iceland, with 394 hotels and hostels active across the country by the end of 2015.
Downtown Reykjavik is now dotted with cranes looming above the skyline, as dozens of hotels are being built and converted from underutilized buildings across the city. But hotel growth simply hasn’t kept pace with tourism. To put things in perspective, the total number of visitors to Iceland increased by 264 percent over the same period of time.
Airbnb has helped fill the gap between available hotel rooms and hotel room demand.
Dialing down on Reykjavik itself, the effect is staggering. Iceland Tourist Board data suggests that 4,688 hotel rooms were available in or around Reykjavik by the end of 2015.
The most recent breakdown of Airbnb listings in Reykjavik by technologist Tom Slee found 2,551 distinct listings in Reykjavik when he scraped the site in April 2016.
Adding up the available bedrooms put onto the market through Airbnb amounts to a minimum of 4,092 additional bedrooms available to tourists in the Reykjavik accommodations market. Combined with data on how many people each listing can accommodate, this means 9,923 additional travelers can stay in Reykjavik at any time using Airbnb.
Airbnb has effectively doubled the number of rooms available to travelers, just at a time when both Reykjavik as a city and Iceland as a tourist destination needed it most.
“The Airbnb development has two sides like everything,” said Grímur Sæmundsson, CEO of Iceland’s Blue Lagoon spa. “It has the positive side. We would never have been able to receive all these tourists if it was not for Airbnb… the negative impact is that people who had been investing in hotels feel the competitive situation is very screwed up, because Airbnb has been kind of under the radar regarding paying its dues and [the hotel tax].”
For the people making a living off of the sharing economy, the proof of Airbnb’s power is in its widespread adoption.
“It’s a justified bubble,” said Georg Sankovic, a young entrepreneur and Airbnb host who owns five properties he regularly rents on the service while servicing seven other listings for clients. “The small number of people in Iceland, and the quality of life, means that it is justified.”
This growth has brought a backlash with it. Fearing rising property values, and the effects of tourists on Iceland’s singular culture, concerned citizens asked the government to regulate Airbnb.
“Iceland has a population of 350,000, which is a small community in any other country,” said Sankovic, who emigrated to Iceland in his teens from Croatia. “Tourists are opening the country up, and some people are afraid because they know how small the country really is.”
New legislation will take effect on Jan. 1, 2017, with the goal of limiting speculation on real estate and tax evasion as a result of home sharing.
Icelanders will be able to rent out their legal residence or one other owned property intended for personal use for up to 90 days or until two million Icelandic krona (about $17,000) in gross rental income is reached. Those who want to rent their spaces must also register with the police, pay a small fee, and provide an overview of their expected rental days and income.
Hosts who violate the law will receive warnings, then fines of an undisclosed amount.
Stopping the Momentum
Icelanders inside Reykjavik’s sharing economy scene say that the legislation won’t do much to stop dedicated entrepreneurs from listing their properties on Airbnb through holding companies and friends. They also think the real reason for the regulation is to protect Iceland’s hotel industry during off-season periods when hotels have the weakest occupancy.
Sölvi Melax, founder of Icelandic car share startup Cario, participated in the discussions with Icelandic parliament surrounding the implementation of the law.
“They expect a 5.7 percent increase of hotel rooms in Reykjavik this year, and a more than 30 percent increase in number of tourists coming here,” said Melax. “It’s a mess. There’s a massive shortage of housing. There’s a massive shortage of hotels. There is a housing problem, and people are going [with] short-term rentals rather than long-term rentals because you make so much money.”
In his mind, stronger regulation of the sharing economy is needed to provide real limits on property speculation without hurting the average family who wants to rent out a room on Airbnb.
“Housing tourists is a real problem in the summer, so let’s allow individuals to rent out their house in the summer,” said Melax of the authorities’ logic. “In the winter, now we don’t want them to, because we want hotels to be fully booked. You just want to give them the 90 days, because it takes off the peak of the hotels, so they can be fully booked all year round and not allow them to have excess inventory.”
Still, hotel developers are ramping up efforts to open new properties in Reykjavik.
“When it comes to the site in the center of Reykjavik, we face an unusual situation due to all the building sites as a result of the crash,” said Svanhildur Konradsdottir, director of culture and tourism for the City of Reykjavik. “For almost five years after the 2008 crash nothing was built, so there is a built-up need and tension for hotels. We’ve set a quota in the center city that we will not allow any more hotel buildings, or any more conversions into hotels. By doing that we are trying to extend this axis that goes through the center of Reykjavik to the west.”
Walking around downtown Reykjavik in June, the city is in the midst of a clear shift toward becoming a bonafide international city with established hospitality brands and attractions geared toward vacationers instead of locals.
After years of wrangling to bring a prestige brand to downtown, a 205-room Marriott EDITION hotel is under construction next to the Harpa theater and convention center, which represents the centerpiece of downtown Reykjavik’s gentrification/reinvention.
Icelandair Hotels has picked up some of the slack in the hotel market by developing new properties in downtown Reykjavik.
“We have a very clear focus on quality rather than quantity,” said Hildur Ómarsdóttir, director of marketing and business development for Icelandair Hotels. “We may be building three hotels in the city, but our focus is entirely on increasing the quality of accommodations in Reykjavik. That’s why we’re aligning ourselves with international brands: to enhance our know-how and sales channels, and reach a different target market.”
Icelandair Hotels is currently developing three hotels in downtown Reykjavik, repurposing existing buildings into small hotels with diverse common area concepts.
“I think we should just face the fact that they are here to stay, and they are here to stay because people like them,” said Ómarsdóttir of Airbnb. “It wouldn’t be growing so drastically in every city if there wasn’t a demand for this type of service. We need to work with it and around it. [Airbnb] makes it even more important for us to differentiate and be pretty clear on what our service is and what we have to offer.”
Hoteliers themselves, however, are wary of the influx of established hospitality brands into Reykjavik.
“If I’m just pondering something from the [previous economic] collapse, you’re growing so much you can’t really sit down and see if what you’re doing is making sense,” said Snorri Valsson, general manager of the 24-room boutique Kvosin Downtown Hotel in downtown Reykjavik. “So you’re just focusing on growth, growth, growth. If you took a Polaroid of where you actually stand, you’d see that three of your eight properties already are losing money and are going to drag the rest down. Then, why even grow so much? That’s not very Icelandic thinking of me.”