Want to raise fees on luxury apartments and increase contributions to social housing

Sanna Magdalena Mörtudóttir, a socialist city councilor, will submit a proposal at the first meeting of the newly elected city council that Reykjavíkurborg eliminate the price increase effects of the building rights fee on social housing and apartments built by non-profit rental companies. Until now, a 45 thousand krónur building rights fee has been levied per square meter of these apartments, and this largely offsets the 12 percent initial contribution that the city makes to housing cooperatives. “It can therefore be said that the city contributes little to no funding for the construction of apartments intended for people who cannot buy or rent on the unrestricted market,” says Sanna. “What the city contributes mostly goes towards paying fees to the city, for example, plot and building rights fees.”

Sanna points out that a flat 45 thousand krónur building rights fee is an unfair tax. Of the price of a 70 square meter apartment, which costs 25 million krónur, the building rights fee is just over 3.1 million krónur or 12.6 percent of the price. The fee weighs significantly less in the price of luxury apartments. For example, expensive luxury apartments on Tryggvagata have recently come up for sale. A 166 square meter apartment costs 143 million krónur. Of that, the building rights fee is just under 7.5 million krónur or just over 5 percent of the price.

Other parties in the city council minority have announced proposals to abolish the building rights fee on all apartments. Socialists do not want to do that. “It is a matter of course to levy a fee on building rights on expensive plots where luxury apartments are built,” says Daníel Örn Arnarsson, deputy city councilor for the socialists. “By doing so, the city is taxing the profits of land speculators and contractors who want to profit from the construction of hotel apartments for tourists or from the sale of luxury apartments to the wealthy. That group of buyers is much less sensitive to price increases than the worst-off who will buy or rent social housing and housing built by housing cooperatives.”

In the explanatory memorandum accompanying the proposal, they give examples of people renting housing that has increased by 45 thousand krónur per square meter due to the building rights fee. It states that, based on the lowest interest rates today, this fee can be expected to increase the rent of a 70 square meter apartment by 17-20 thousand krónur per month. This is based on the lowest interest rates of pension funds to their members. This fee is a taxation on the city's worst-off residents, those whose living conditions the development of non-profit rental companies and the social housing system is intended to improve. With this fee, the city is therefore diminishing the living conditions of the worst-off within a system that, at first glance, seems intended to improve their conditions, states the memorandum.

“17 thousand krónur in excessive rent is a serious matter for people trying to get by on just over 200 thousand krónur a month,” says Sanna. “17 thousand krónur a month is over 200 thousand krónur a year and over 8 million krónur over the time it takes to pay off a 40-year loan.”

As previously stated, socialists do not propose that the building rights fee be abolished, but rather that the city eliminate its price effects on social housing and buildings by non-profit rental companies. “This can be done, for example, by generally increasing this fee but then, in turn, increasing the city's initial contribution to apartments intended for the less well-off,” says Daníel. “This would mean fees would be increased for the better-off but lowered for the worse-off. It is not acceptable that only the worse-off pay Reykjavík's contribution to the development of the social housing system; rather, it should be a task for all city residents, especially the wealthier, not to mention land speculators and contractors.”

To give an example of how this change might look, an imaginary example can be taken. If 25 percent of new apartments are within the social system and they are generally smaller than apartments built on the unrestricted market, for example 50% smaller on average, then the price effects of the building rights fee on social apartments could be eliminated by raising the fee on other apartments from 45 thousand krónur to 53 thousand krónur per square meter.

“The apartment on Tryggvagata that was used as an example earlier would then not cost 143 million krónur but 144.3 million,” says Daníel. “Of course, this is just an imaginary example, and the outcome may be different once this has been thoroughly worked out, but this example should give a good idea of how this is envisioned.”

Daníel and Sanna point out that a flat building rights fee, which applies equally to all apartments regardless of whether they are built by non-profit organizations or to generate maximum profit for land speculators and contractors, is in line with the tax changes of the neoliberal years. It was not so long ago that property taxes were levied here, which were imposed on net assets and consequently fell heaviest on those who owned the most and were most able to pay. Property taxes were abolished, and since then, property taxes have increased significantly, along with various fees on buildings such as building rights fees, plot fees, infrastructure fees, and more. These are all flat fees that apply equally to everyone, without income equalization or other measures to distribute the burdens more evenly among residents. Property taxes apply equally to assets and debts, so someone living in a debt-free apartment pays the same amount of property taxes as someone living in a comparable apartment but owes for it entirely, owning nothing in it.

“There is not much the city council can do to correct the destruction of the tax system by neoliberalism,” says Sanna. “It is Alþingi that sets laws on municipal income tax and the taxes that municipalities may levy. But Reykjavíkurborg should demand fair changes to the tax system from Alþingi; otherwise, it is not possible to build a just society in the city. But Reykjavík should also manage its fee collection in a way that least harms the worst-off. As matters stand today, this does not apply to the collection of building rights fees from buildings by non-profit rental companies. This must change.”