Why is Iceland so Expensive?
In this handy #Troll Guide we will try to answer the question what makes Iceland such an expensive destination. There are many reasons for this and it′s not possible to find count all the reasons for this article. However, we will look at a few factors here and try to answer in a simple way: Why Iceland is so expensive? We’ll explain it to you and help you get by on a budget when visiting our island. You can count on #TeamTroll to provide you with the best value for money adventures
First of all, there are natural reasons for Iceland being expensive. It′s an island in the middle of North Atlantic Ocean, so all transport needs to be done via flights or shipping. This means get to Iceland almost exclusively with flights, but the only ferry coming to Iceland, Norræna, brought only around 20 thousand visitors to Iceland in 2016. This also means a lot of goods and food products are imported a long way to Iceland. The geographical position of Iceland has also meant that a lot of vegetables and almost all fruits need to be imported or grown in greenhouses, which leads to higher prices in stores. However, there are other reasons why Iceland is so expensive which are caused by other factors.
Then we get to the economic reasons, because although a big part of our food industry is based here in Iceland, especially regarding diary and meat products, this does not contribute to lower prices. This is due to our working environment and our microcurrency krona/ISK. Let′s start with the krona, which is one of the smallest currencies in the world serving only the roughly 360 thousand habitants of Iceland and our visitors in Iceland, which were a bit over two million in 2017. Due to its tiny size, the krona tends to fluctuate a lot and can suddenly get more expensive or cheaper in relation to international currencies. When the economic crisis hit Iceland in 2008, the krona lost roughly 50% of its value in a few weeks and therefore made Iceland cheaper for a while. However, this devaluation also lead to increased to inflation since all imported goods became more expensive while locally made products benefitted from a “weak” krona.
What this means to Icelanders and the tourists visiting Iceland is that goods and services in Iceland have steadily been getting more expensive. First because of the inflation, then due to wages in Iceland getting higher because everything was getting more expensive, and the wages had not kept up with the price increase. This vicious cycle means that wages in Iceland need to be continually raised to keep up with living costs. One thing that has increased even more is housing cost and that is also connected to the crisis since then the building market crashed and housing construction was almost none for several years. This housing shortage has also been increased by the sudden increase of tourists that need to stay somewhere.
Then we can look at some cultural reasons why Iceland is so expensive but due to its limited population of 360 thousand habitants and even fewer people in the decades before, the market in Iceland has tended to be small and very linked with each other. This has resulted in a lack of competition in many industries in Iceland, including the retail market which was split between two big companies in Iceland, before the arrival of Costco. Now the market is split between three big parties instead, which own and operate most of the supermarkets and other stores.
This lack of competition makes it possible for many companies and stores to regulate prices in Iceland according to their location or other factors. That′s why small retail stores like 10-11 that are open 24/7 are way more expensive then Bónus, since the marketing is different for these stores. One is convenient and has a long opening time and is generally found in well-to-do neighborhoods while the other is cheaper and meant for working people with families with limited opening time. Then small stores in the country side are even more expensive since the services are scarcer and the transport costs are higher. It′s also noticeable that the prices in places with a lot tourism are higher than elsewhere in Iceland.
So, How to Survive on a Budget when in Iceland?
Many visitors feel that Iceland is expensive and if you feel that way, don′t worry! Icelanders themselves feel the same way, at least the people that work for wages that can′t be considered very high wages, over one million ISK, for example. Currently many workers earning minimum wages in Iceland are considering striking for higher wages, but currently, they earn 300 thousand ISK per month. To put this into context, an apartment for rent in Reykjavík costs you at least 200-250 thousand ISK on the normal rent market. The demands of the unions are for sustainable wages, that is wages a person could live on in Iceland and therefore the demand has been for 420 thousand ISK in minimum wages.
So, the demands are not extraordinarily high and other projects could greatly improve the lives of the Icelandic population. Projects such as housing for rent for low-income people and students, increased benefits for families with children or high rent cost or lower income tax for low-income people would make these negotiations easier for the employers and the unions. The current proposal of the Icelandic is to lower income tax for everyone for around 2000 ISK per month. That would only buy one hamburger meal extra each month per person, so understandably the unions are not happy with the proposal. Lowering retail prices in Iceland would also benefit everyone in Iceland, with lowering the sales tax of 11% or protective tolls on imported goods. All these solutions depend on Icelandic politicians acting in the greater good of making it cheaper and therefore easier for people to live in Iceland, so it depends on their actions if any real changes are to be brought about. Until then, we remind you that the Icelandic hot-dog tends to be moderately priced, at least for Icelandic conditions!
We at #Troll hope this article explains a bit why Iceland is so expensive, if you are still curious about this issue you can always contact at #Troll to know more, our Service and Guide Trolls are always happy to help you! You can count on #TeamTroll to provide you with the best value for money adventures