Why Is Iceland So Expensive? (Top 20 Reasons)

 

You want to take a trip to Iceland.

Perhaps it’s for work, or maybe you just want to be a tourist.

However, you can’t help but notice how incredibly expensive Iceland is, from the original journey to the food and lodging.

Why is Iceland so expensive?

In fact, Iceland is one of the most expensive countries in the world to live in—period.

Of course, the people who were born there have very little choice but to pay the price.

Let’s take a look at why Iceland is so expensive for people to visit, live in, and work in.

 

Why Is Iceland So Expensive? (Top 20 Reasons)

 

1. Labor In Iceland Is Very Expensive

 

Something that increases the costs of virtually everything in Iceland is that labor costs are high.

When labor costs are high, there’s a lot more overhead at every level.

Consider a gallon of milk.

A gallon of milk is created by well-paid farmers, shipped by a well-paid trucker, stocked by a well-paid grocery associate, and finally, sold by a well-paid cashier.

At every level in Iceland, there’s additional overhead for their expensive labor.

In somewhere like the United States, we would be more used to farmers, grocery associates, and cashiers being paid less.

In fact, unionized truckers are the only ones in this supply chain who would be guaranteed a large wage.

Because of this, all our goods are much cheaper, while all their goods are much more expensive.

This extends beyond just purchasing groceries or other consumer products.

Labor in Iceland is expensive which also makes houses in Iceland expensive (all the contractors and builders will be expensive), maintenance and repairs expensive, and services such as daycare more expensive.

In Iceland itself, this can be somewhat mitigated by the fact that people in Iceland make more, but when people from another country go to Iceland, there can be significant sticker shock.

We aren’t used to the cost of expensive labor being rolled into the prices of goods and services.

Whether this makes the products and services more valuable depends on the type of thing being delivered.

We may not be able to, for instance, see a fundamental difference in quality between a gallon of milk with cheap labor and a gallon of milk with expensive labor, but we could potentially see a large difference when it comes to something like building a house.

 

2. Farming Is Tightly Regulated

 

In Iceland, farming is very highly regulated.

Iceland wants the majority of its produce and food products to come from within Iceland.

To some degree, they have succeeded.

About 62 percent of Iceland’s food is produced in Iceland and the rest has to be imported, but tight farming regulations have made it so that it’s also more expensive to farm in Iceland.

In part, Iceland is very devoted to sustainability and environmentally friendly procedures.

When it comes to farming, these things are important because they sustain the agricultural practices for a long time and because they make the environment more hospitable to all forms of life.

Again, this is long term, but in the short term, it also makes it more expensive for them to produce goods.

Iceland is very committed to sustainable energy and sustainable growth, but in turn, that also makes things more expensive.

Consider, for instance, pesticides.

More harmful pesticides can be used to produce larger yields of crops very fast, but that does come with a caveat.

Though eating pesticide-grown fruit may not necessarily be damaging to your own system, it’s damaging to the environment as a whole.

In Iceland, they are far less likely to allow the use of harmful pesticides to begin with but because of this, their crops may not yield enough.

In general, farming and agriculture find themselves in a sort of catch-22 because they need to be somewhat damaging to the environment to yield enough crops, but food waste is also considerable throughout the world.

It can be difficult to ship foods, especially to such a distant locale as Iceland.

Because of this, it’s probably better for Iceland to have stricter farming regulations long term than it would be to produce cheaper foods short term.

 

3. Importation Is Strictly Controlled

 

Because Iceland wants to be able to be as independent as possible, imports are very strictly controlled.

They are also extremely taxed.

Both of these things mean that goods inside of Iceland, including both food and retail consumer goods, are going to be more expensive.

About 60 percent of agriculture, as mentioned, is done in Iceland, but the 40 percent that isn’t will need to be brought in from elsewhere.

That engenders taxation.

While the taxes in Iceland for imports aren’t necessarily much higher than other, similar areas, they don’t have the advantages of pacts that other countries do.

For instance, the EU has deals regarding taxes that make it easier to import and export because they are giving as much as they are receiving.

Iceland doesn’t export a significant amount of product for obvious reasons.

Because Iceland doesn’t export a lot, it isn’t able to make the deals that would make goods less expensive.

This is just a natural consequence of having a smaller country with fewer resources to expend.

Many small countries get by dealing in things such as oil, but even if Iceland could do that, it wouldn’t.

In essence, Iceland chooses to be expensive because it knows that it has to import things and because it really doesn’t have a lot to export.

Iceland knows that it’s going to be more expensive than the rest of the world, but it also chooses to do this so that it can remain sustainable and green.

 

4. Equipment Has To Be Imported

 

Some goods, of course, Iceland can’t realistically create.

Consider cars.

There isn’t a big car manufacturing industry in Iceland for obvious reasons.

It would never be able to survive.

Farming equipment also needs to be imported.

The import of equipment and some goods is also tremendously expensive for Iceland.

Consider this.

Iceland is very far away.

Even a plane ticket to Iceland is many thousands of dollars.

When things are imported, they need to undertake a lengthy and expensive journey.

This increases the prices for virtually everything.

Iceland experiences a lot of the problems that any island nation does.

Because Iceland is just so expensive and so far away, everything is going to be more expensive because everything has the overhead of just getting there.

Because Iceland can’t realistically create a lot of its goods, especially consumer goods, those goods are just going to be more costly.

At the same time, this also means that people in Iceland are less likely to buy consumer goods.

They may not always be purchasing the newest phone or the newest television set.

This isn’t as common in Icelandic culture as it is in American culture, so there can be ways that this evens out.

 

5. Tourism Is Growing In Big Cities

 

Since 2010, tourism in Iceland has increased 500 percent.

A lot of people are visiting Iceland, which has two consequences.

First, people are noticing more and more that Iceland is expensive.

Consider that “expensive” is always going to be a relative statement, and people in Iceland may not have previously noticed that things even were expensive.

When people start coming in and comparing their $10 meals to $20 meals and their $60 shoes to $120 shoes, then people start to notice the price differential.

Otherwise, the cost of things would just be the cost of things.

They wouldn’t be expensive in comparison to anything because they would be what people are used to.

Second, the tourists are definitely driving up prices.

Most tourists have a budget and will blow it while they are there, so goods can be more expensive because people are willing to pay more for them.

This is especially true for high-quality food, such as multi-course restaurants.

Tourists also make it more expensive to live in the big cities because tourists are taking up housing.

In some areas, that’s not that critical, but Iceland has a very small population, and therefore, it needs very little housing.

The fact that housing is getting snatched up by tourists (or Airbnb) is actually very detrimental to local costs.

 

6. There Are Few Native Crops

 

Iceland is beautiful, but it’s also inhospitable to some degree.

When people came to Iceland initially, they found an area that was fertile wilderness, but Iceland has very few native crops.

It also has a very short growing season.

This is one of the major issues that makes it so hard for Iceland to create its own food.

While farmers can farm livestock all year long, fresh produce has to be canned to keep it viable through the winter.

A lot of fresh produce has to be brought in for the majority of the year.

This increases the general cost of living by quite a lot.

The average person today isn’t going to be okay with not getting peaches throughout the winter, even though, realistically, peaches can’t grow everywhere during the winter.

Just having to import fruits and vegetables from more hospitable, tropical locations can be very expensive.

Having few native crops also means that it’s harder for Iceland to sustain large fields of grain, such as the corn crops that grow throughout the United States.

Overall, this reduces the potential for the agriculture industry and makes everything in Iceland just a little more expensive.

Not only does this impact grocery prices, but it also impacts restaurant prices because they can’t always get the ingredients they need.

 

7. Import Costs Are Passed To Consumers

 

In some places, import costs are just rolled into goods.

Americans actually frequently see this because Americans are very used to goods being cheap and are reluctant to pay more.

In Iceland, however, the import costs are passed directly on to consumers.

There’s something to be said about just being used to expensive prices.

Because people in Iceland are used to these prices, they don’t strike them as particularly expensive, and the import costs are just something that need to be dealt with.

For an American visiting Iceland, these import costs can seem very extreme.

Realistically, those who are in Iceland are always going to need to pay these import costs because it is just expensive to live in the area.

People know that everything beyond some agriculture has to be imported or shipped in, so they are prepared to pay for it.

They are also prepared to go without certain things, such as luxury goods because these import tariffs are so high.

In some ways, this is a good thing because it grossly reduces the amount of casual spending and purchasing that happens.

Someone born and raised in Iceland is far less likely to purchase goods that they don’t really need or that are disposable because they have a certain budget for it, and because the import costs make it all very expensive.

 

8. Icelandic Dollar Is Particularly Strong

 

In 2009, the Icelandic krona experienced a massive crash.

Since then, the government of Iceland has worked hard to ensure that it remains stable.

One action they have taken is strictly controlling their dollar.

As of 2017, the Icelandic krona is one of the most stable currencies in the entire world.

This is fantastic for those who live in Iceland, but it also has a natural consequence.

The American dollar is particularly weak compared to the Icelandic krona.

In addition to things just being more expensive in Iceland, an American will find that their dollar isn’t going as far.

This is because it literally isn’t going as far.

The dollar just isn’t worth as much.

That makes Iceland more expensive for those from the United States.

It also makes things more expensive for Icelandic residents who work for American companies to get paid by them.

There’s a benefit, however.

The prices are also very stable.

There are very few “boom and bust” issues in the Icelandic economy, which can serve more to wipe people out unexpectedly than regular, expensive prices.

Those who want stability in their economy can likely find it in Iceland.

 

9. Iceland’s Utility Prices Are Cheap

 

Iceland has switched over primarily to geothermal energy and has been quite successful in producing cheap, sustainable energy.

In America, energy is very cheap, but all over Europe, it can be far more expensive.

Compared to many other places, Iceland has cheap utilities.

Being cheap in this one area also means that it can be expensive in other areas.

Since Icelandic households aren’t spending a lot of money on utilities, they may also be able to spend more on other things.

Again, when tourists go to Iceland, they don’t see these benefits.

They just see the prices that are going to give them sticker shock!

Iceland is an expensive place to live in, as a whole, but there are certain areas in which people in Iceland do save money, and these areas aren’t likely to be seen by tourists.

At the same time, utility prices do mean that housing prices don’t need to have high costs of utilities rolled in.

This can somewhat mitigate costs for those who are going to be living and working in Iceland for some time or students who are coming for the entirety of a semester.

It also means that Airbnb’s and other types of casual resting places can be cheaper.

 

10. Iceland Has Very High Tax Rates

 

Iceland’s value-added tax is 24 percent, compared to state sales taxes in the US which hover around four or five percent.

Food in Iceland is taxed at 11 percent, whereas some states don’t even tax food.

Value-added tax is something that has been discussed in countries such as the United States, but they’re usually dismissed.

In many places, VAT replaces income tax.

It’s simple.

Income tax can be manipulated or may just not be helpful.

Millionaires, for instance, might not have any “income” at any given time because they’ve written it all off.

However, VAT means that, any time you buy anything, including luxury goods like yachts, you get taxed.

Plus, things that are essential to life such as medicine don’t need a VAT, which helps people who are in less fortunate circumstances.

VAT is argued to be a better model than income tax simply because it taxes people at the point of cost.

Millionaires can stop making money for an entire year in a way that working people can’t, but millionaires aren’t going to stop buying things.

At the same time, it does produce sticker shock when people go to buy things because VAT leads to very expensive purchases.

Tourists should be aware that VAT exists before they go to make purchases because VAT is so substantial.

Most people aren’t going to be accustomed to a tax that is 25 percent.

That’s a very high tax rate by any standard.

 

11. Iceland Has A High Standard Of Living

 

Many Icelanders don’t actually bat an eye at the prices there.

As mentioned, labor is expensive in Iceland.

The average income in Iceland is $60,000, compared to the US at $48,000.

There are some consequences of this.

First, goods are more expensive because people can pay for goods.

Goods are always going to be as expensive as people are willing to pay.

When everyone has more money and a comfortable standard of living, they are able to do pretty much what they want with their disposable income.

When tourists come from America, they have less disposable income.

They can see the prices as being much higher than they actually are relative to the local incomes.

This has an advantage, too.

The advantage is that those who are actually working in Iceland will find that they are making enough money to afford essentials and goods within the country.

Those who are coming from outside with lower wages will find that Iceland is an expensive trip, but those who are actually moving to Iceland or on a visa will eventually find that they are able to make enough money that they can survive.

This does, of course, require that people first get hired in Iceland, which can be an issue itself.

There’s not a lot of industry, and there aren’t a lot of jobs, but the jobs that are there are quite good.

 

12. Most Of The Country’s Labor Is In A Union

 

One reason it’s great to get a job in Iceland is that most of the country’s labor is unionized.

Of course, that also means that everything is expensive.

Historically and in general, all unionized labor is going to be more expensive because they can negotiate costs.

Plumbers, electricians, and more are examples of unionized labor.

In Iceland, even grocery store clerks are likely to be unionized, and therefore, they are likely to make a lot of money.

The natural consequence of this is that things are going to be even more expensive.

It also means that, again, Iceland can be a great place to get a job, but you are going to need to get one legally because there are a lot of hoops to jump through.

 

13. Iceland Is Geographically Very Far Away

 

This may seem simple, but one of the major reasons that Iceland is so expensive is just because it is so far away.

If Iceland were a land mass just off the coast of a continent, it would be easier to ship goods and people there.

However, because Iceland is so distant from anything else, it’s harder for even people to get on and off the land mass.

Because of this, naturally, everything is going to be more expensive.

It’s not just that everything has to be shipped in.

It’s that everything has to be shipped so far.

When things are shipped very far, they usually have to be shipped by boat because shipping things by plane is just too expensive.

That means that there are going to be extra fuel costs and extra labor costs because it is a long journey.

 

14. There Isn’t A Lot Of Buildable Land On Iceland

 

What about housing prices?

As with any expensive locale, housing prices and rental prices are some of the most substantial costs in Iceland.

In Iceland, there isn’t a lot of housing built, and there’s not a lot of buildable land.

Both of these issues drive up the cost of housing.

For the most part, this hasn’t been an issue because there are not a lot of people in Iceland to begin with.

However, as tourists come in and take up a lot of this housing, it becomes more extreme and more expensive.

Iceland can build upward, but like many places with a small-town feel, it prefers to keep buildings shorter.

This lets people enjoy the natural beauty of the land, but it also makes housing more expensive.

 

15. Retail Industries Don’t Have A Lot Of Competition

 

Iceland suffers a lot from the small-town experience.

Because retail stores don’t have a lot of competition, they can charge what they want.

Iceland only has a few large retailers because they are so far away and because they’re such a small population.

It’s not really profitable for a lot of chains to move into Iceland because of the shipping costs and because everything in Iceland is so expensive.

It contributes to overhead and cuts profit margins.

That also means Icelandic people only have a couple of options when they’re trying to buy food.

That means that the prices can get driven up by these companies.

 

16. There Are A Lot of Social Services Available

 

Taxes are high and goods are expensive, so how do people in Iceland survive?

The flip side to the expensive taxes is that there are many social services available.

Those who can’t afford food can get it.

Those who can’t afford housing can get it.

Because of this, it’s actually not as critical a situation as it may seem.

Things can be very expensive throughout Iceland specifically because the social services serve as a safety net.

 

17. People Visiting Don’t Always Know Where To Go

 

Tourists who are visiting Iceland are also likely to pay more because they don’t know where to go.

When you go to tourist-filled places, you’re going to pay more.

You’ll go to the tourist grocery stores, tourist restaurants, and tourist attractions.

This is a well-known phenomenon that can greatly increase your perception of the cost of a place.

For instance, though Las Vegas is an expensive place to live, it’s really only the strip that’s expensive.

Just a few blocks away, people are living relatively normal lives.

 

18. Travel Costs Are Also Quite Low

 

Because of public transportation systems (though Iceland has no trains), many people in Iceland don’t need private vehicles.

This cuts down significantly on their monthly expenses and allows them to pay more in other areas.

Now, the cost of busses and other public transportation might still seem high to people from other countries, but it has to be considered that these expenses essentially replace the need for other transportation, especially for tourists.

 

19. Iceland Has A Small Population

 

Iceland’s population is just 400,000 people.

There are many large cities in America with far larger populations.

That means Iceland doesn’t get the benefit of economies of scale.

It’s cheaper per unit to import 200,000 chickens than to import 100,000 chickens, but that doesn’t help if you can’t possibly sell 200,000 chickens.

Other countries with greater populations are able to import bulk, whereas Iceland cannot.

 

20. Iceland’s Population Is A Largely Captive Audience

 

This all brings us to the major problem.

Iceland’s population is a captive audience in more ways than one.

It isn’t just that they have to go with people who are there, retailers who are established.

It’s also that Icelandic people can’t really move.

It’s expensive to uproot your life.

This adds to the incentive to just pay what goods are sold for there.

People in Iceland don’t have a lot of options.

That being said, many people in Iceland would never want to move despite the cost.

The natural beauty of their land is simply too great.