







































Asian Themes in Social Sciences Research 
ISSN: 2578-5516 

Vol. 8, No. 1, pp. 37-53 
2024 

DOI: 10.33094/atssr.v8i1.1893 
© 2024 by the authors; licensee Online Academic Press, USA 

 
Accepted: 19 September 2024 | Published: 2 October 2024 

37 
© 2024 by the authors; licensee Online Academic Press, USA 

  

 
 
 
 

Possibilities to escape the rental trap 
 

 

Mar Wolfgang Mixa1* --- Kristin Erla Tryggvadottir2 

1University of Iceland, Saemundargata 2, 101, Reykjavik, Iceland. 
Email: mwm@hi.is 
2Reykjavík University, Iceland.  
Email: ktryggvadottir@gmail.com 
 

 
Abstract 

Despite a resurgence of economic activity since the 2008 financial crisis and longstanding 
government policies promoting homeownership, the percentage of renters has remained 
stable over the past decade despite most preferring homeownership. This study examines 
the time required for various rental market groups to save for a down payment on an 
apartment in the capital area from 2011 to 2022. We also assess the potential impact of a 
government program allowing certain low-income groups to set aside just 5% of a 
property’s price as a down payment. The focus is on people in the lowest 20th percentile 
group. Using data on wages, taxes, compulsory pension contributions, and spending 
patterns, we analyze how much each group can realistically save, considering both minimal 
(bare) and typical consumption benchmarks. This analysis reveals how much each group 
can save for a down payment. Our findings show that despite economic prosperity and 
wage increases outpacing the consumer price index (excluding housing costs), the time 
needed to save for a down payment in 2022 remains nearly the same as in 2011 due to 
rising housing prices. Single parents face the most difficulty saving for a down payment, 
but the 5% down payment program offers a more realistic path to homeownership. The 
implications are that government policies should focus on controlling house prices and 
continuing the 5% down payment program to enhance homeownership opportunities. 

 

Keywords: Down payment, Homeownership, Housing prices, Rental market, Savings. 
Licensed:  This work is licensed under a Creative Commons Attribution 4.0 License.  
Transparency: The authors confirm that the manuscript is an honest, accurate, and transparent account of the study; that no 
vital features of the study have been omitted; and that any discrepancies from the study as planned have been explained. This study 
followed all ethical practices during writing. 
Competing Interests: The authors declare that they have no competing interests. 
Authors’ Contributions: Conceptualization, supervision, writing – original draft, M.W.M..; methodology, software and 
formal analysis, MWM & KET; validation, visualization, writing –review & editing, M.W.M. & K.E.T.; investigation, data 
curation, K.E.T. & M.W.M. All authors have read and agreed to the published version of the manuscript. 
 

1. Introduction 
The 2008-2012 housing crisis – a part of the Global Financial Crisis (GFC) - was characterized by 

plummeting house prices worldwide and rising foreclosures (Mian, Sufi, & Trebbi, 2015). Many lost the safety 
of homeownership, and a significant portion of their entire savings tied to their home equity. This outcome hit 
low-income groups the hardest (Zwiers, Bolt, Van Ham, & Van Kempen, 2016). Housing issues have again taken 
center stage in the global north, but now, due to a lack of access to housing. House prices have risen 
phenomenally in the past decade, much more rapidly than income (Tekin, 2022). In Iceland, many people 
struggle to save for a down payment, some of whom lost their homes during the GFC, with wage increases not 
keeping up with rising housing prices. According to Iceland’s Housing and Construction Authority (HMS), the 
homeownership percentage has not reached the same levels as in the pre-crisis period (HMS, 2020) and only 
increased slightly during the onslaught of the COVID-19 pandemic (HMS, 2021). Research has demonstrated 
that renters in Iceland are often characterized by intense precarity (Mixa, Loftsdóttir, & Rúnarsdóttir, 2021) 
and that most would rather be homeowners  (HMS, 2021). In other countries, renters often have a more secure 

https://www.doi.org/10.33094/atssr.v8i1.1893
mailto:mwm@hi.is
mailto:ktryggvadottir@gmail.com


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legal status, but obtaining affordable rental accommodation might be difficult, as Bergsten and Hansson (2023) 
point out (2023). In Sweden, official waiting lists for a rental apartment are very long, thus paradoxically often 
forcing people to settle for inflated rental contracts in the black market (Hananel, Krefetz, & Vatury, 2021). 
Research has drawn attention to the down payment requirement as an essential factor in renting, even though 
results regarding the possibility of home ownership and interest rate change are unclear. Hedlund’s findings 
regarding down payment requirements show that the relationship with the homeownership rate is not 
significantly affected in the long run. However, short-term effects may occur while homeownership rates 
respond to interest rate changes (Hedlund, 2019a). This contradicts findings by Andrews and Sánchez (2011) 
that show that the relaxation of down payment restrictions results in a rise in the homeownership rate in OECD 
countries, meaning that more people become homeowners when down payment restrictions are eased. 

This paper maps out variables that shape the capacity of individuals living in Iceland to accumulate savings 
for a down payment during the 2011-2022 period. The possibility of a home purchase instead of renting depends 
on the ability to set money aside, i.e., the positive difference between people’s income after taxes and spending. 
The research questions for this paper are: Can renters in the lowest income groups save for a down payment? 
How long does it take individuals in the rental market to save for a down payment? The paper draws attention 
to the need to acknowledge different positionality in affording home ownership. 

Scholars have long pointed out that housing issues impact social groups disproportionately (Arundel, 2017; 
Howard, 2024; Stefani, 2020; Timperley, 2020). The same is the case with monetary variables, including access 
to loans, which can significantly affect differently positioned social groups (Baxamusa, 2020). The standard way 
to measure the affordability index is to compare the percentage of median housing prices to the median gross 
household income (See, for example, (Cox, 2023; Lee, Kemp, & Reina, 2022)). Our methodology combines living 
expenses with other variables and constitutes a novel approach. We take this one step further by comparing 
various cost-of-living expenditures for different family structures while also considering the interest received 
on savings, thus gauging state policies’ possible impact on homeownership. We see this as a first step to broaden 
the scope to incorporate diverse social groups with varying expenses, focusing first on Iceland and then for 
academics to broaden such research in international comparison studies. In our analysis, we compare down 
payments of 5% and 15%, reflecting changes that were initiated by the Icelandic government in 2017, in which 
first-home-buyers in low-income groups have, with certain restrictions, the opportunity to pay only 5% of the 
purchase price as a down payment as opposed to the regular 15% requirement (HMS, 2024b). This is similar to 
a recent program in Sweden (Nordström, Svensén, Ribbing, & Lepola, 2022). 

The analysis commences from 2011 for three reasons: Firstly, during the post-2008 crisis, many Icelanders 
lost their homes (Matthíasson, 2021) and savings. Many of those then faced financial duress in the rental sector, 
which, according to a 2011 study, proved costlier than homeownership (Institute of Economic Studies, 2011). 
Real wages fell following the crisis, reaching a low around 2011. The second reason is that a massive increase 
in tourism characterizes this period (Loftsdóttir, 2019). High unemployment, as Icelanders witnessed following 
the 2008 crisis, not only quickly became a distant past but caused an increased speed of migration to Iceland, 
where jobs were abundant and relatively high wages compared to Europe became even higher. Thirdly, pivotal 
statistical data, including rental and cost-of-living indices for varied family types, became first available in 2011. 

We begin this paper with a short historical review of international trends relating to housing and especially 
renting. We then focus more on Iceland, mainly the rental market, and how tourism’s effects have often kept 
people stuck in rented properties. The data part of our research provides examples of low-income families’ ability 
to save for a down payment, thus ‘escaping’ the rental market during 2011-2022. We finally discuss the 
implications of our findings and what they mean for renters’ ability to become homeowners. 

 

2. Housing and Rental Trends Internationally and in Iceland 
Housing is generally the most significant single asset today but is unevenly distributed (Kuo, 2021). This 

wealth inequality underscores the marked economic distinctions between homeowners and individuals grappling 
with the challenges of achieving homeownership. The post-2008 financial crisis marked a crucial turning point, 
leading to widespread home evictions and housing-related setbacks (Fields & Hodkinson, 2017; Immergluck, 
2009) with low-net-worth households bearing the brunt (Mian & Sufi, 2015; Waldron, 2024). Following the 
European economic downturn, the younger demographic increasingly relied on assistance to secure housing 
(Mckee, Moore, Soaita, & Crawford, 2017; Montanari & Staniscia, 2017; Preece, Crawford, McKee, Flint, & 
Robinson, 2020).  

In the years preceding the GFC in 2008, homeownership percentages progressively rose across most 
countries (Grinstein-Weiss, Key, & Carrillo, 2015; Jordà, Schularick, & Taylor, 2014). After the GFC, many 
individuals were thrust back into the rental market as foreclosures became distressingly common (Hartley, 
2011). Although some regained a foothold in the rental market, homeownership percentages remained below 
the zenith achieved just before the GFC (Eurostat, 2024). Since the GFC, several prevailing factors have 
significantly influenced the capacity of individuals to save for a down payment. For individuals who previously 
owned homes but were forced to relinquish them after the GFC, a substantial portion of their savings was often 
tied up in their homes (Mian & Sufi, 2015). 

Consequently, this demographic had to commence their savings endeavors anew. Due to increased rental 
rates, it has also become more difficult for people in the rental market to set aside money for a down payment. 
Rental rates between 2011 and 2014 rose, for example, two times faster than wages for renters, and home sale 



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prices increased four times faster than homeowners’ wages in Salt Lake City in the U.S. (Salt Lake City Housing 
and Neighborhood Development, 2018). Gete and Reher (2017) show that rental rates in real terms rose during 
the same 2011-2014 period by more than 23% in the top 10% fastest growing metropolitan areas, yet tighter 
lending standards during that same period depressed homeowner rates (2017). These higher rates, combined 
with less accessibility to mortgage loans, may have caused institutional investors to enter the housing market 
with better access to finance and turn those properties into rentals (Lambie-Hanson, Li, & Slonkosky, 2019). 
U.S. data suggests that buyers are not buying more expensive houses because they earn more than before but 
because they have taken on more debt. Davis, Larson, Oliner, and Smith (2023) show that the average debt-
payment-to-income ratio has risen recently. It is considerably higher than most of the 1990s and was only higher 
than its current percentage during the early 2000s.  

The prolonged low-interest rate environment during the 2000s up until 2021 (Gamber, 2020) not only 
made real estate more affordable and propelled housing prices upwards, but it also curtailed the interest income 
generated from savings accounts, adversely affecting those accumulating funds for down payments. 
Consequently, the interest earned on these savings during 2011-2020 lagged the levels experienced in the 
preceding three decades. 

A similar development in the international housing market occurred in Iceland following the 2008 economic 
collapse. Following the 2008 crisis and subsequent jump in unemployment, many households could not maintain 
mortgage payments and were thus forced out of their houses and into the rental market (Ministry of Social 
Affairs, 2015). The percentage of households living in their premises dropped by 4% from 2005 to 2013 
(Jónsdóttir, 2015) while the percentage of people in the rental market increased from 17% in 2007 to 27% in 
2013, with the increase mainly concentrated to people aged 25-34, low-income people and single parents 
(Ministry of Social Affairs, 2015). The varying average household sizes in rented versus owned properties 
explain the difference in the growth rates of households and population 

Historically, Iceland has strongly emphasized private homeownership, with minimal state intervention in 
housing policy, primarily favoring self-building endeavors (Sveinsson, 2004). Iceland’s Minister of 
Infrastructure recently reiterated this emphasis during a presentation outlining governmental housing policies 
(Ministry of Infrastructure, 2023). Studies by Iceland’s Public Housing and Construction Authority (HMS) show 
that two-thirds of people are in the rental market because of necessity, and less than 10% want to be in it (H. 
HMS (2021). Since households in the rental market tend to have lower incomes than homeowners, the question 
is particularly relevant for the low-income segment.  

The rental market in Iceland is characterized by significant precarity, with the prevailing view that 
participation therein reflects a certain degree of failure (Mixa et al. (2021), which may explain the historically 
relatively low percentage of people in that market. While the ratio is higher in other countries, the need for 
home ownership may remain high. For example,  Bergsten and Hansson (2023) show that while around 58% of 
multi-family housing in Sweden is rental, the long queues to access the rental market, income demands, and 
other factors make it inaccessible for households with limited income and savings. 

Mass tourism has significantly impacted Iceland’s housing market since the 2008 crisis, becoming the 
centerpiece of Iceland’s economic resurrection (Benediktsson, Lund, & Huijbens, 2011). The number of tourists 
arriving annually in Iceland was 500,000 in 2007-2011 but then shot up to 2.3 million in 2018 (Icelandic Tourist 
Board, 2018). That 2018 figure corresponds to approximately sixfold of Iceland’s population during the same 
period. The percentage of Iceland’s travel and leisure industry exports rose from 19% in 2009 to 35% in 2019 
(Statistics Iceland, 2024c, 2024e). The massive inflow of foreign currency kept the Icelandic currency strong, 
making imports cheaper than otherwise, thus dampening inflation pressure. This development had extensive 
implications on the demand for housing due to the increased number of tourists and immigration, mainly due to 
labor demand in the tourist industry (Mixa & Loftsdóttir, 2021, 2024). Iceland’s Housing Fund estimated that 
the proportion of apartments rented out for long-term leasing in Iceland had decreased from 10.6% in 2015 to 
7.5% in 2019, with the percentage falling most substantially in Reykjavík and Hafnarfjörður (2019, pp. 7-8). 

Given that the number of registered properties in 2018 was close to 88,000 in that area (Registers Iceland, 
2024a). Mermet estimates that around 4.5% of these properties in the capital area were listed on Airbnb at some 
point in the year. The impact was especially significant in the downtown area, where about 20% of properties 
were short-term rentals; in certain parts, this figure exceeded 50% (Mermet, 2019). Elíasson and Ragnarsson 
(2018) estimated that 15% of the total rise in house prices in real terms during the 2014-2017 period was due to 
Airbnb short-term renting. Their findings are significantly more than those in the United States. Barron, Kung, 
and Proserpio (2020) estimated an effect of approximately only a fourth compared to Iceland, despite pointing 
out that heavily owner-occupied areas, like most of Iceland, were generally less affected.  

The increase of tourists also attracted foreign labor to Iceland to fulfill the demand within the industry. 
New employment opportunities related to the tourism industry became a significant reason foreign nationals 
moved to Iceland due to short-term and long-term employment opportunities (Karlsdóttir & Jóhannesson, 
2016). In 2008, immigrants comprised less than 10% of tourism workers (Vareikaité, Minelgaité, & Magnússon, 
2022). By 2023, that percentage had risen to 44% (Statistics Iceland, 2024b). Elíasson and Ragnarsson (2018) 
estimated that the net inflow of people to the country had a 30% impact on the rise in housing prices during 
2014-2017, or twice the effect of the increased housing demand created by Airbnb.  

The added job creation due to the surge within the travel and leisure industry meant that Iceland’s economy 
remained resilient after 2010 despite the massive losses related to the 2008 crisis. This economic expansion led 



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to higher wages, rising far above the consumer price index (CPI), meaning that real wages during the period 
rose substantially. The wage increase, however, lagged the rise in housing, with the housing index within the 
capital area rising almost threefold while the wage rise was just above doubling. As rental rates tend to correlate 
with housing prices, rental rates in Iceland also increased during the period, although not as much as housing 
prices and close to the wage index. As Figure 1. shows, this discrepancy increased considerably following the 
onslaught of the COVID-19 pandemic, when the lower interest rate environment caused housing prices to surge.  

 

 
Figure 1. Wages, CPI, housing prices, and rental rates in Iceland 2011-2022. 

Source:  Registers Iceland (2024b); Statistics Iceland (2024d) and Statistics Iceland (2024f). 

 
Public policies did not react to these forces, such as creating programs to add more housing for the general 

public or divert new property buildings toward housing for residents. The failure to put a lid on rising real 
estate prices affects renters most, who tend to be concentrated in low-income groups (Hedlund, 2019b). 
Baxamusa raises broader questions about the appropriate role and responsibilities of the public and private 
sectors when more low-wage jobs are being created, as in Iceland within the tourist industry in recent years 
than housing for them (Baxamusa, 2020). While regulatory measures have been introduced in Iceland to limit 
the effects of Airbnb rentals (Airbnb, 2023) those limitations have been ineffective. This situation rhymes with 
Ireland, where the lightly regulated model of renting has led to an affordability crisis (Waldron, 2024). 
Baxamusa (2020) further points out that high-growth industries produce more renter occupations, explicitly 
listing leisure and hospitality as “renter industries” where most workers in the subsectors are renters. With the 
increase of immigrants and short-term workers, many of whom work in the “renter industry,” it is possible that 
a ‘generation rent’ may develop as opposed to the traditional private homeownership model in Iceland, where 
private ownership has been a possibility for most people. 
 

3. The Research 
Several variables are necessary to intertwine when estimating people’s chances of saving for a down 

payment and, if so, how long it takes. We begin by listing those variables, their usefulness, and limitations. They 
are wages, household consumption, and rental and energy costs, which are used to estimate what is left to save 
for a down payment. We estimate the housing prices to determine the down payment needed and interest rates 
a saver receives on accumulated savings. We then list the calculations. We gathered data for each year and 
assumed that each year would mirror the future. Data for each year does hence not move forward to the following 
year, as if one is looking at a time series, but rather that the data each year is assumed to reflect future data with 
the variables being constant since that is the assumption each individual can reasonably infer about future 
expectations at any given point in time. 
 
3.1. Wages 

Wage data was collected from Statistics Iceland (2024a) and wages were defined as total wages. Such wages 
include work done during regular business hours and shift hours, bonus payments and extra hours, and other 
irregular wage payments.  

To estimate how much money a person has left to spend on consumption and savings, we look at after-tax 
wages manually using a calculator from Iceland Revenue and Custom (2024) for each group. The data assumed 
monthly payments, the renter being single, January being the starting point, and the employee paying 4% to set 
aside into a mandatory pension. We assumed no money was being set aside for individual retirement savings. 
Defining all renters as single persons simplifies the situation for couples due to tax considerations. Different tax 



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codes for single persons compared to couples defined as married may thus limit the reliability of the results for 
couples with one child. 

Instead of limiting the data to average wages, we compartmentalize wage groups. Such data is available 
from 2014 and onwards. We adjusted data during the 2011-2014 period for each group using the general wage 
index for each group.  

Statistics Iceland categorizes average wages into different percentile groups, including the 20th, 40th, 60th, 
80th, and 90th percentiles (Statistics Iceland, 2024a). For instance, the 20th percentile wage indicates that 20% 
of people in Iceland earn less than this amount, while 80% earn more. We focus on the 20th and 40th percentile 
groups, given that most people in the rental market are in low-income groups (Baxamusa, 2020). Also, the 40th 
percentile is approximately where the wage limit happens to be for individuals eligible to receive governmental 
assistance, having to pay only 5% as a down payment for a home (HMS, 2024a). 

We focus on the most common groups in the rental market in Iceland: Singles or single parents (Ministry 
of Social Affairs, 2015) while also focusing on couples with one child. Additionally, we compare average wages 
between women and men. It should be noted that migrants receive around 8% lower wages than Icelanders for 
comparable occupations (Statistics Iceland, 2019). Analyzing those effects is beyond the scope of this article, but 
waits for future analysis.   
 
3.2. Household Consumption  

One of the lessons of the 2008 crisis was that many in Iceland became heavily indebted due to high 
consumption during the Goldilocks years before the crash. After the 2008 crisis, the Icelandic government 
established a consumption benchmark program to determine household costs to maintain a sensible living 
(Ministry of Social Affairs, 2011). Depending on their structure, these costs are defined as a benchmark for family 
consumption. Financial institutions have since used this database to determine whether families can receive 
housing loans and to what extent. These costs do not include housing costs, such as electricity and heating, rent, 
or mortgage. 

The benchmark consists of two scenarios. The first one aims to determine typical or what can be defined as 
reasonable costs for each family structure. We simplify by naming that scenario “typical.” The second scenario 
assumes that consumption is limited to bare necessities. We define that scenario as “bare.” Our analysis shows 
that there is a considerable difference. Typical costs are often more than twice the bare costs. 

In the database, it is possible to manually see how these costs vary by selecting a few predetermined 
variables. The most significant variables are the number of adults and children in each family. One can choose 
whether the family lives in the capital area or more rural areas. Here, we limit the analysis to the capital area. 
Since houses are most expensive near central places, where one might not need a car, we assume that people in 
our examples own a vehicle. These assumptions are due to the need to delimit the analysis, while further 
extensions would be interesting.  

After considering these costs, they are deducted from the after-tax wages depending on whether one 
assumes typical or bare costs. This provides information on what money is left for rental costs and energy, which 
then provides an estimate of what money is left to set aside for savings. Direct data is available for 2011-2019. 
The numbers have not been updated since then, and an estimation is thus needed. The year 2019 has been used 
as a starting point and adjusted for 2020-2022 by the CPI.  

 
3.3. Rental Costs 

Registers Iceland began estimating rental prices monthly in Iceland in 2011, creating a rental index for the 
capital area. It also began assessing rental prices in 14 regions, of which seven are in the capital area. Those 
estimates differed between apartment size types (Registers Iceland, 2024c). From such data, one can estimate 
the average rental cost per square meter for a specific apartment type within each area. We compiled the average 
annual prices for each apartment type in an area within the capital. We did not focus on the area with the highest 
turnover since it is also the most expensive. Instead, we rely on an area with the second highest turnover but is 
among the cheapest within the capital area (between Kringlumýrabraut and Reykjanesbraut). We rely on an 
area with a large enough sample to be considered somewhat reliable (some areas have small samples).  

 
3.4. Energy Costs 

The Icelandic Regional Development Institute provides information about electricity and heating costs for 
general households (Icelandic Regional Development Institute, 2024). In our study, we use what the institute 
defines as the lowest electricity and most common cost for heating in Reykjavík. 

Once Typical or Bare costs, in addition to rental and energy costs, have been deducted from the net income, 
the remaining money, if any, can be set aside as savings for a down payment.   

 
3.5. Housing Purchase Prices 

Registers Iceland provides information about square meter sales prices in various sections of Iceland 
(Registers Iceland, 2024b). We assume that people in the rental market would buy a home in a relatively 
inexpensive neighborhood. Among the cheapest ones is Breiðholt, a neighborhood that is relatively far away 
from the downtown center. There are also sufficient sales transactions, so the data is reliable.  



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Square meter sales data is compiled for that area from 2011-2022. The price of each apartment is then 
multiplied by the number of square meters of the apartment bought. We assume that a single person buys a 60-
square-meter apartment. That number rises to 70 for a single person with one child and 80 for a couple with 
one child. We assume buyers must save for a 15% or 5% down payment, the target price to accumulate.  
 
3.6. Interest Rates 

We presume that people invest their savings in a bank account due to stability in returns instead of stocks 
and bonds. Savers in Iceland have two options to save in bank accounts: non-indexed accounts and bank accounts 
indexed to the CPI. There are pros and cons to either choice. 

The deciding factor in choosing the non-indexed account is that since 2010, people in Iceland have received 
a certain amount of interest on their tax-free savings (including net capital gains and dividends from listed 
companies and coupon payments from bonds). Hence, it is more apparent how much people save from a non-
indexed account, while nominal returns from index accounts would fluctuate with inflation. We thus calculate 
first total interest returns, then consider and apply the capital gains tax only in cases where the annual interest 
rate income exceeds the tax-free threshold. We assume people put their savings into a one-year time account, 
which provides slightly higher interest and is available with relatively short-term notice. To estimate the 
savings in real terms, we deduct the average inflation each year from the nominal savings rate. 

 
3.7. Summarization 

To summarize, we begin by finding the amount available for savings. This is done by finding total wages 
and subtracting taxes, typical or bare consumption, rent, and energy costs. This gives us the money available to 
save.  

𝑃 = 𝑇𝑊 − 𝑡 − 𝐶 − 𝑟𝑒     (1) 
 
We denote P as the annual savings, TW is the total wages, t is taxes, C is consumption (typical or bare), and 

re is rent and energy costs.  
 

3.8. Accumulation of Savings 
Savings and interest per year are added up. When savings are negative, or if it takes over 30 years to 

accumulate, we set the value to zero and assume that saving for a down payment is impossible. The money is 
assumed to provide a twelve-month interest rate. The sum of that amount is the total annual savings.  

That value is plugged into a rearranged logarithmic future annuity formula as the future value, which 
determines the number of years required to save for a down payment. The target amount is the square meter 
price times the size of the home bought for each type of family unit and the percentage, 15% or 5%, needed for 
a down payment. 

In calculating the years it takes to save for a down payment, we rearrange the future annuity formula to 
find the years it takes to accumulate the target price. This formula takes into account interest on interest, 
assuming the same annual savings are set aside every year. The rearranged future annuity formula is:  

 

𝑛 =  
log (

𝐹𝑉 ×𝑅

𝑃
+1)

log  (1+𝑅)
               (2) 

 
The number of years needed to save for a down payment is n, the target amount, which is a down payment, 

is F.V. (future value), P is the annual savings, and R is the interest rate per period in real terms. We thus estimate 
future interest on annual savings and interest. Since we estimate a future target price each year for a target that 
fluctuates, i.e., a percentage of housing prices, we apply real interest rates within the annuity formula. That is 
done by subtracting the average inflation for each given year from the nominal returns received in the bank 
account. This assumption about savings reflects what people might expect in real terms; however, the rising 
housing prices relative to other goods and services diminish the real value of these savings. 

 

4. Results 
We look at three types of groups. We begin by looking at the average Icelandic person income-wise. First, 

we look at what is categorized as “all” by Statistics Iceland (2024a) followed by women and men (the only gender 
categories available). We then focus on groups based on their income: the lowest 20% percentile income and 
lowest 40% percentile income groups. The third type is subgroups of single individuals, single parents, and 
couples with one child. 
 
4.1. Average Income 

We begin by looking at the years it takes to save for a 15% down payment for an average wage-wise person, 
man or woman, as seen in Figure 2. Each case assumes that the person is single and childless, owns a car, and 
lives in a studio rental apartment in the Kringlumýrabraut area. We do not observe the time for a 5% down 
payment since none of those groups are eligible for such government assistance. 

 



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Figure 2. The time it takes to save for a 15% down payment with typical spending from 2011-2022. 

 
Since these groups could very quickly save for a down payment during the whole 2011-2022 period by 

consuming only the bare minimum, or around one year, our focus is on typical spending. It takes an average-
income person and average male a slightly more protracted amount of time to save for a down payment in 2022 
as in 2011 when Iceland was still reeling from the economic crisis. Women need, however, a slightly shorter 
time to save for a down payment in 2022 compared to 2011, but still a considerably longer time compared to 
men. Even though wage discrepancies between the sexes have diminished, the difference is still visible, partly 
due to the amplification in the narrow distinction between after-tax wages and consumption. 

Looking at the savings possible by living a typical life for these two genders, as seen in Figure 3, one can 
see the effects of wages constantly rising more than the CPI during 2011-2022, as demonstrated in Figure 1. 
With higher real wages, the average-wage person has been able to set aside more money for savings constantly. 
During 2011-2014, it remained similar, between 20% and 23%, but it has risen continuously and hovered around 
30% during 2015-2022. This trend was reflected in the number of years reaching the target from 2011-2016. 
After that, however, it remained steady until the COVID-19 pandemic hit in March 2020, causing Central Banks 
to lower interest rates and a housing boom. Interest on savings fell by around 2% of the total annual savings set 
aside and interest returns, while the housing index rose from late 2019 to late 2022 almost 50%. Hence, the 
years needed to save for a down payment increased from 1.8 to 2.3 during 2020-2022. 

 

 
Figure 3. Average savings and years needed to save for a 15% down payment 2011-2022 for all genders. 

 
As expected, the average-wage man needed fewer years to save for a down payment than the average-wage 

person. Figure 4. illustrates that the time required rose from a low of 1.3 years during 2016-2017 to 1.9 years 



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in 2022, or around 50%, despite the potential to save each year continued to increase in the following years, 
although the change was incremental. 

 
Figure 4. Average savings and years needed to save for a 15% down payment 2011-2022 for men. 

 
Figure 5. illustrates that the average-wage woman must spend more years saving for a down payment, or 

roughly three years, as opposed to 2 years for an average-wage man. The reason is that the average wages for 
women have risen (very) slightly more than men’s. Men had 13.6% higher salaries in 2011 but 13.3% in 2022 
(Statistics Iceland, 2024a). This slight change still has had the effect that it takes the average-wage woman fewer 
years to save for a regular down payment in 2022 than in 2011. This trend is also exemplified by the percentage 
a woman can set aside for savings, which rose 9% versus 8% for men. 

 

 
Figure 5. Average savings and years needed to save for a 15% down payment 2011-2022 for women. 

 
4.2. 20th Percentile Income Group 

We first look at a single person in the 20th percentile income group. That person cannot save for a down 
payment by living a typical consumption standard, so we focus on a bare state of expenditures. Figure 6. shows 
that by living by such bare standards, that person can in 2-3 years save for a 15% down payment and less than 
a year by only needing to save for a 5% payment. The number of years it took was stable in 2011-2015 but has 
risen considerably since then, reaching a peak in 2022. 

 



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Figure 6. The time it takes to save for a 15% and 5% down payment with bare spending from 2011 to 2022 for a 20th percentile 
single person. 

  
Figure 7 shows that the percentage of money available to set aside as savings remained similar during 2011-

2022. The number of years needed to save for a down payment never-the-less increased and has never been as 
high as in 2022. 

 

 
Figure 7. Average savings and years needed to save for a 15% down payment 2011-2022 for a 20th percentile single person. 

 
Next, we focus on a single parent with one child in kindergarten. Like a single person in the same income 

group, there is no realistic chance of saving for an apartment or living a typical expenditure lifestyle. When 
saving for a 15% down payment, the task is virtually impossible for 2012-2013 and practically impossible for 
most other years, being ten years in 2022. The task is much more manageable when aiming for a 5% down 
payment, which, despite rising housing costs, has been at the lowest levels during the period, hovering between 
2-3 years.  



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Figure 8. The time it takes to save for a 15% and 5% down payment with bare spending 2011-2022 for a 20th percentile single parent. 

 
As Figure 9 illustrates, single parents have practically no chance of saving for an apartment, even when 

spending merely bare expenditures. The lowest figure during 2011-2022 was eight years, which rose to 10 years 
in 2022. This trend occurred despite wages increasing considerably and an ever-increasing amount available to 
set aside under bare conditions. Figure 8 illustrates that the 5% barrier is a more realistic goal. 

 

 
Figure 9. Average savings and years needed to save for a 15% down payment 2011-2022 for a 20th percentile single parent. 

 
Figure 10 shows that a couple with one child should be able to save for a down payment in a relatively short 

time. Even under typical expenditure circumstances, the number of years needed is under three, while it was 
over five years from 2011 to 2012. If the couple is unmarried, they might still be eligible to receive governmental 
assistance for the 5% down payment option. Here, the increased salary considerably outweighs the increase in 
housing prices, with the savings years gradually decreasing. 



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Figure 10. The time it takes to save for a 15% and 5% down payment with bare and typical spending from 2011 to 2022 for a 20 th 
percentile couple with one child. 

 
The effects are further shown in Figure 11., which shows that the couple in this example has been able to 

set aside much more money (almost a fourth of net wages) in the later part of the period compared to the first 
years. This trend is amplified with two wage earners in the household. Hence, despite typical living standards 
and being low-income, such a household has opportunities to save for a down payment, which explains why 
single individuals and single parents are most likely to be in the rental market. 

 

 
Figure 11. Average savings and years needed to save for a 15% down payment 2011-2022 for a 20th percentile couple with one child. 

 
4.3. 40th Percentile Income Group 

Finally, we look at the same three group samples in the 40th percentile income group. We start again with 
a single person living in a studio apartment and owns a car. Compared to the 20th percentile single person, the 
possibility of owning a home increases dramatically. While the 20th percentile person could only save by bare 
expenditures and then need almost three years under such conditions for a 15% down payment, a 40th percentile 
person could lead a typical lifestyle expenditure-wise and save for a down payment in approximately four years, 
as Figure 12 shows. 



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Figure 12. The time it takes to save for a 15% and 5% down payment with typical and bare spending 2011-2022 for a 40th 
percentile single person. 

 
Meanwhile, a single person in the 20th percentile could save around a third of net wages. Figure 13 shows 

that the percentage hovers in the mid-40% for the 40th percentile person for most years. It takes only a tad bit 
less than two years for such a person to save for a 15% down payment by living in bare expenditure conditions. 
This is almost a year less than a person in the 20th percentile group. 

 

 
Figure 13. Average savings and years needed to save for a 15% down payment 2011-2022 for a 40th percentile single person. 

 
While the situation is better for single individuals in the 40th percentile, it is still strenuous for single 

parents. They still cannot set money aside for a down payment, living typical lives expenditure-wise. While the 
20th percentile single parents needed around ten years of living in bare conditions to save for a down payment, 
Figure 14. shows that it takes a 40th percentile single parent a much more tolerable four years. 2022 is notably 
the second-highest year in the sample, hovering around or above three years for most of the period. It is, 
however, possible to reach the 5% threshold in only approximately one year, compared to 2-3 years for a single 
parent in the 20th percentile group. 



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Figure 14. The time it takes to save for a 15% and 5% down payment with bare spending 2011-2022 for a 40th percentile single parent. 

 
Figure 15 shows that even though more money is available to save, or 25% in 2022 compared to 17% in 

2011, the number of years it takes to save for a 15% down payment was practically the same due to higher rental 
costs and housing prices. 

 

 
Figure 15. Average savings and years needed to save for a 15% down payment 2011-2022 for a 40th percentile single parent. 

 
Figure 16. demonstrates that a couple in the 40th percentile with one child can easily save for a down 

payment. The time it takes has been stable throughout the 2011-2022 period. The amount of time leading a 
typical expenditure lifestyle saving for a 15% down payment is around a year and a half compared to almost 
three years for the comparable family in the 20th percentile income category. 



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Figure 16. The time it takes to save for a 15% and 5% down payment with bare and typical spending 2011-2022 for a 40th 
percentile couple with one child. 

 
Although housing prices have significantly risen, the time it takes to save for a down payment for a 40th 

percentile couple with one child remains low. Figure 17. shows that the percentage of wages available to set 
aside for savings has canceled out the higher cost associated with a 15% down payment. 

 

 
Figure 17. Average savings and years needed to save for a 15% down payment 2011-2022 for a 40th percentile couple with one child. 

 

5. Discussion 
We analyzed the time required for individuals and specific family types in the capital area’s rental market 

to save for a down payment, assessing whether saving is feasible under normal conditions. It appears that, on 
average, the duration required to save for a down payment in 2022 remains similar to that in 2011. This similar 
amount of time is particularly striking given the overall economic prosperity. Notably, women typically require 
more time to save for a down payment than men, a discrepancy that greater familial responsibilities, such as 
child-related sick leaves, may exacerbate. Among the three family categories analyzed (single, single with child, 
married), those in the 20th income percentile, especially single parents, face considerable challenges 
accumulating enough for a down payment. 

Part of the analysis focused on the difference between the 5% downpayment and 15%. Our study shows that 
lowering the down payment threshold to 5% is essential for the 20th percentile income group´s chances of 
becoming homeowners. It can be argued that single parents in that category would need additional aid to have 
a realistic hope of becoming homeowners. In the 40th percentile income-group category, the chances are 



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considerably better in all three categories. Single parents in that group have, however, still difficulties reaching 
that aim with a 15% down payment threshold. Having access to 5% down payments is essential for that group. 

The Icelandic government has stated that it intends to support people willing to become homeowners. Our 
data indicates that the 5% down payment program might be essential in opening doors for such possibilities. 
While people might eventually manage to save for a down payment, they could ask themselves whether they 
perceive it to be worth it. As Timperley says in her book Generation Rent, many young people have given up 
hope of ever being able to save for a down payment and ask themselves if it is worth trying. The YOLO (You 
Only Live Once) attitude has emerged, which can be viewed as a response to an increasingly insecure world 
despite higher wages due to higher rental rates and rising house prices (2020, pp. 8–23), meaning that becoming 
a homeowner being is seemingly ever more far-fetched.  

 

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