1. Is the automobile a threat to Icelandic coastal towns?
Ásgeir Jónsson
The Institute of Economic Studies
The Department of economics
University of Iceland
11/20/2018

2. Problems at the coast
The population of many coastal towns in Iceland has been shrinking very rapidly for the past few years.
This is particularly true for townships in the East, West (Vest fjords) and North, which lie at sea and are surrounded by mountains.
For townships in these parts of country a 10-20% total population decline since 1980 is not uncommon.
However, the loss of young people is far greater in these towns, where about 60% of the individuals born in have left their home since 1988.
As the result, real estate prices have spiraled downward for the past and are now about ¼ or 1/3 of what is the case in Reykjavík.
The same goes for occupational housing.

3. Areas of severe population decline

4. Price of occupational housing, depending on distance from Reykavík
Price per m2
Distance from Reykjavík
Distance from Reykjavík

5. Problems at the coast
This decline has often been traced to changes in fishing industry, especially to the transferable quota system which became a fact after 1990.
The fishing industry has been subjected to huge changes.
However, the down hill journey of the coastal towns did start much earlier than that.
The roots lie in the changed mode of transportation that occurred after 1940.
More specificly, the growing importance of the automobile for both personal and commercial use.
The roots lie in the belated urbanization of Iceland in the late 19th century….

6. The first transportation revolution 1880-1930
At the down of the modern era, Iceland was without transportation infrastructure such as roads or bridges.
Seaborne transport was limited to routes within fjords as the ships were too small for the high seas.
There were large commercial vessels going from specific harbors abroad to specific harbors in Iceland but there were no domestic connection by sea.
Iceland acquired fiscal autonomy from Denmark in 1874 and the first priority was to grant subsidies to steam ships circling the country with cargo and people.
Soon after, urbanization began in Iceland.
Seaborne transport took the same role for the industrialization of Iceland, as railroads did in other countries.
That was only logical since Iceland is only inhabited on a usually rather thin line, between the coast and the mountains.

7. The new hubs
The nation could not afford the infrastructure needed to establish a land based transport system.
Morover, the very limited infrastructure investment that were needed to establish seaborne transport, such lighthouses and harbors, were also highly beneficial for the development of the fishing industry.
What emerged was an urban system built on seaborn transport with Reykjavík as the center.
Locations situated close to main sea routes became hubs, both for the fishing sector as well as other types of industry.
These boomtowns were often sandwiched between the mountains and sea and had limited access, some even no access, to other parts of country by land routes.
However, in the era of sea traffic they where in the midst of the action and attracted people from the farming sector, which migrated from inland.

8. Two regions
The Westfjords have an easy acces to Reykjavík by sea.
Land routes are difficult because of the rugged landsscape.
Urban formation was rapid in the early 20th century but stopped after 1950.
Reykjavík
The southern coast has no natural harbors and no access to the sea.
Densely populated area with relatively easy land access to Reykjvík after some infrastructure investments.
Urban formation did only take off after 1950.

9. Cross roads

10. The hub effect
D is in a key position because transportation cost to other three places is minimized.
D will therefore be the location of choice for firms wanting to sell output or buy inputs from A, B and C.
This transportation advantage combined with economics of scale will create a circular causation spiral where more firms attract more people, which then in turn attract more firms.
This is called the hub effect see Krugman (1999).
However, if the transportation advantage disappears, the circular causation spiral could reverse itself.

11. The second transportation revolution 1940-1990
In the 1930´s the Icelandic government began to invest very heavily on infrastructure projects.
The road system grew fivefold between 1930 and 1960 and various other improvements were made.
A large increase in the real wage after 1940 made private cars affordable for the average person.
As the result, seaborn transport declined and automobiles became the favored form of transport.
Currently there is only one cargo ship circling Iceland on a domestic route.

12. New roads
Roads in kilometers in Iceland

13. Better roads
Asphalt roads in km. in Iceland

14. Asphalt roads in Iceland

15. The route of the last ship

16. The proportion of the Icelandic population living in coastal and inland townships.
Coastal towns
Coastal towns

17. The decline of the coastal towns
The old urban system centered on sea routes from Reykjavik fell apart after 1940.
The coastal towns found themselves as backwaters on the edges of the transportation system.
They lost their competative edge in every industry except fishing.
However, after 1980, with the further mechanization, larger ships, the introduction of transferable catch quota system and fish markets the marine sector has become like any other industry in Iceland.
Close access to the fishing grounds is not as important as before.
However being away from the main transport routes and export hubs has become an increasing problem.
The fishing industry has been in decline in Westfjords for the past years.

18. Conclusion
The decline of the coastal towns seems to be very deep rooted.
The housing stock is both decreasing in value and depreciating in quality.
There has been almost no new construction of residental housing in these township since 1980.
Many families have lost a large share of their life savings due to a lower property value of their home.
Some, especially those over years of age, are unable to move due to the large cost relocation, e.g. buying a new home in other part of the country.
The policy response to this trend is essence a political issue.
How much money is the electorate ready to spend on regional development, infrastructure investments (e.g. tunnels) or even compensation for lost property prices?

19. Appendix Coastal Towns: Inland towns:
Ísafjörður, Bolungarvík, Patreksfjörður, Bíldudalur, Þingeyri, Flateyri, Siglufjörður, Ólafsfjörður, Hrísey, Þórshöfn, Seyðisfjörður, Eskifjörður, Djúpivogur, Neskaupstaður, Fáskrúðsfjörður, Reyðarfjörður, Vestmannaeyjar.
Inland towns:
Akranes, Borgarnes, Búðardalur, Hvammstangi, Blönduós, Sauðárkrókur, Akureyri, Vopnafjörður, Egilsstaðir, Höfn, Vík, Hella, Hvolsvöllur, Selfoss og Hveragerði.