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A weak housing system undermines welfare

A weak housing system undermines welfare

In most societies, public housing policy is situated between the public welfare systems and the market. It’s the last part added to a public welfare policy when societies are developing. Public housing is also the first part of the welfare state that is marketized when societies turn away from social solutions and take different routes. 
This is obvious from the history of the Icelandic housing system. The public sector had taken on extensive responsibilities regarding health care, education and subsistence support for the needy before a robust housing policy was formulated in this country. And when neoliberalism began to affect Icelandic society, the social housing system was demolished before the undermining of the education and health systems, income equalization and support through the tax system was initiated. 
A comparison with neighboring countries shows that the public housing system in Iceland did not reach the same level of development and as a result the effects of the neoliberal years became more harmful in Iceland. A weaker system was bound to show early signs of strain.   A weak social housing system is probably what separates Icelandic welfare from most  neighboring countries. 
Housing systems differ from country to country. In some countries, the public sector has built housing or intervened so as to ensure construction of social housing, providing affordable and safe homes. Elsewhere, the government has not been directly involved in the construction, choosing instead to set rules to ensure the rights of tenants in the market. In Iceland, neither has been the case. The main characteristic of the Icelandic housing system is therefore anarchy.

Late urbanization

Urbanization took place here later than in neighboring countries. However, the characteristics were the same. At first, most people lived in privately owned rental housing. About 60% of the inhabitants of larger towns in Iceland lived in rented housing around 1920. The people who moved to the towns were squeezed between low wages and high rents. This was the situation in the early years of capitalism before  workers managed to organize themselves. 
Thus, secure housing was from the beginning a key point in the struggle of the trade union movement, second only to wage increases. In part, demands were made on the state and municipalities, for the authorities to build housing. On the other hand, the unions themselves, or companies on their behalf, constructed apartment blocks. The trade union movement built the “Workes Homes” (Verkamannabústaðir) as well as establishing building cooperatives for its members. This social enterprise reduced the number of tenants and increased the number of homeowners in the post-war years. 
By the time neoliberalism started to gain strength the housing system was multifaceted and decentralized. It was made up of municipal rental apartments, workers' housing and a number of building cooperatives, in addition to private houses. The government supported this structure by offering loans with subsidized interest rates for social housing projects. 
In the second half of the neoliberal years, the workers' housing system was privatized by allowing people to sell apartments out of the system. At the same time, the construction of social rental housing was halted, construction cooperatives ceased to exist, and it became rare for individuals to build houses by themselves. This change might be called the de-socialization of the housing system. Finally, the state withdrew almost entirely from providing loans for housing, giving free rein to banks and pension funds in terms of loans for the construction and purchase of homes.

Public housing

This produced a severe housing crisis that undermined the living standard of low income workers who did not have the financial means to buy a home. The proportion of home ownership decreased and the rental market expanded. Large privately owned rental companies were established which continually drove up the rent causing a decline in living standards.  

In response to this situation, the trade union movement signed an agreement with the government on public housing in 2015. The Bjarg Housing Foundation (Bjarg íbúðafélag) is the result of those agreements. The movement has also demanded increased tenants' rights and concluded agreements to that effect which the government of Iceland has elected not to honor.

The Icelandic housing system is at a crossroads. The shortcomings of the system have become clear to most. Real estate prices have risen far in excess of production costs and rents have eaten up the entire increase in the purchasing power of lower paid workers. There is a shortage of housing and it’s too expensive. People who can’t afford to buy a home suffer because of excessive rental costs and insecurity. 

Icelanders did not succeed in building a robust housing system in the last century. And they ventured further into the dark alleys of neoliberalism than most nations. They therefore face a more precarious housing situation than most of their neighbors.

It has been argued that housing systems are the foundation on which all welfare is based. When housing systems are weak, there is a risk that other welfare systems will stop working. A robust housing system that serves the public is therefore a prerequisite for building welfare in Iceland.

Public housing in other countries


In Norway, privately owned housing was established by the Housing Bank issuing loans, most of which went to housing cooperatives. The loans were subsidized and covered up to 100% of construction costs. A large part of this housing was detached houses, apartment buildings primarily in larger cities. 
Before neoliberalism was established as government policy, strict resale rules were in force i.e. people sold the apartments back to the system at a price that took into account what they had paid for the apartment, not the market price. This was abolished in 1982 when the system was privatized. 
In the mid-1990s,the Housing Bank stopped subsidizing interest rates and housing benefits issued through the tax system took over. Thus, the mortgage market opened up for the banks and the Housing Bank's share of housing loans, which had been 100% in the post-war years, swiftly fell from 80% to 10%. 
The housing system in Norway was based on public assistance and subsidized interest rates with the aim of bringing as many people as possible into their own homes. During most of this time, public assistance was limited to quite modest requirements for example with regard to  the size of the home. Still, this was the bulk of the housing system. Only the well-to-do built housing outside the system. 
With neoliberalism, this successful system was abolished. As a result, housing issues have once again become a political bone of contention in Norway, with rising house prices and excessive rents adversely affecting the quality of life for a huge number of people. 

The rental market in Norway is relatively small due to the home ownership policy established after the Second World War. The market is quite regulated. In Norway, for example,  individuals can’t rent out apartments except in the house in which they live. If they own an apartment in another building, they must turn to a rental agency that takes care of all communication with tenants and ensures everything is in accordance with rules and established procedures.


The characteristics of the Swedish housing market are prominent municipal rental companies, powerful tenants' associations and robust housing cooperatives that sprang from them. But as in other countries, the development of these social systems was halted during the neoliberal years. Still, social housing continues to be the most important pillar of the Swedish system. 
During the interwar years, the Swedish tenants 'association was founded. It quickly became sturdy and is still today probably the most powerful tenants' association in the world. The association was responsible for the establishment of housing cooperatives that built right-of-occupancy apartments. After the Second World War, municipal rental companies were established, among them the so-called Million Project when more than a million apartments were built in a decade, between 1965 and 1975. 
The structure was based on 70% loans issued by banks and the remaining 30% from the state for municipal rental apartments, 25% state loans for right-of-occupancy apartments of the housing cooperatives and 15% loans for privately owned apartments. At that time, Sweden was the world champion in housing support. The Swedish housing system was the cornerstone of the Swedish welfare state. 
The Nordic banking crisis was used as a justification for overthrowing this system. The state stopped making loans available for housing projects and the system was handed over to financial institutions. The State Housing Financing Fund was later transformed into a bank. As a result, housing construction declined sharply. However, the great housing projects of the post-war years still characterize the Swedish housing system. 

Municipal rental companies and housing cooperatives are still dominant in the rental market, tenants' associations are strong and tenants are protected by strict regulations. However, this system faces continued attacks, not so long ago a government collapsed in Sweden due to plans to raise the rent ceiling.


The roots of social housing in Denmark date back to the nineteenth century. The Danish housing associations are non-profit institutions unconnected to the state and municipalities. The associations issued loans provided by so-called Real Credit Institutions, which were non-profit and jointly owned by borrowers. Thus a large part of housing development in Denmark was carried out on a social basis. 
During the post-war years, a housing policy was pursued that encouraged development within this social system. During the neoliberal years, the Danish government tried to privatize the housing associations by allowing the sale of apartments out of the system. The model was based on the Thatcher government policy in the UK, that had enacted legislation giving tenants the right to buy rental apartments from municipal rental companies. The Danish government plan did not materialize, as the housing associations were independent rather than public institutions.

The United Kingdom

Municipal social housing was a major feature of the British housing market in the last century. Construction began after the First World War and intensified even further after the Second. During the post-war years, up to half of new dwellings were within this system and up to 30% of all homes at its peak. Most of these apartments were in terraced houses with gardens, not in apartment blocks. 
When neoliberalism became government policy, these apartments were offered to tenants at a discount rate meaning that the system was partially privatized to the residents. As a result, the municipalities moved most of the remaining apartments to housing associations. The public system was quickly dissolved. 

The home ownership policy peaked shortly before the 2008 financial collapse. Over-indebtedness led to many low-income families losing their homes and returning to the rental market.


Nowhere in Europe, bar Switzerland, is rental housing as common as in Germany. By the end of the Second World War, about a quarter of all residential housing had been destroyed. Consequently, excessive demand had to be met. Later, large-scale migration from East to West Germany made further housing projects essential. 
A large part of these rental dwellings are so-called General Apartments, which are either owned by rental companies with connections to the trade union movement or private enterprises. General Apartments enjoy very reasonable loan rates and are rented out as social housing until the loans have been repaid. 
Early in the neoliberal period, plans were made to weaken this system. However, German reunification created the need for new housing in the western part, which was met by strengthening the existing system. Thus, social housing continues to be more important in Germany than in most other countries.

This article is based on the writings of Jón Rúnar Sveinsson in the “Investigative Report on the Housing Financing Fund” commissioned by the Icelandic parliament.

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