A Recent Development of the Spatial Disparity of Housing Prices in Iceland and Its Underlying Economic Causes

Abstract

In this paper, the author examines the development of the spatial distribution of housing
prices. Due to consumer preferences for access over amenity value, there is a spatial disparity
of housing prices. According to Alonso’s extension of von Tünen’s theory, the relationship
between housing prices in urban and rural areas tends to follow certain principles. This
relationship is more often negative than positive, i.e. the price of a standardized unit of
housing declines with increasing distance from a central business district (CBD). It has been
documented that this relationship is negative for Iceland, as well as in many regions of other
countries. It is argued here that this relationship has become increasingly marked in Iceland,
most likely due to the altered household preferences and structural changes. A macro panel
data set from Iceland will be used, representing several essential variables of the residential
housing market for 79 municipalities in Iceland from 1981 to 2006.