“So you want to talk about the fleece district?” asks Geoffrey Þór Huntington Williams, manager of the cafe-by-day, hip-hop-club-by-night Prikið located on Reykjavík’s main strip.
The title is a dig at the changing face of retail on the Icelandic capital’s only shopping street Laugavegur. Before the country exploded as a tourist destination in recent years, city-centre shops were an eclectic mix. But as the local economy rushes to accommodate and profit from an escalating tourist boom, stores selling outdoor equipment and cheap souvenirs have started to dominate the landscape.
“Can you guys just keep on talking while I take your picture?” asks a tourist wearing a puffy jacket and carrying a large camera. “No, no way”, Williams replies, rather annoyed.
The Tourist Boom
The tourism industry has seen an unparalleled boom in recent years. Just under a million tourists visited Iceland last year, which is more than three times the native population of 330,000. By October this year the number had already passed the million mark, making 2015 the fifth consecutive year that a new record in the number of tourists had been set.
The boon to the economy has provided an invaluable lifeline to a country that was one of the worst hit by the Great Recession of 2008. By the end of that year the stock market had been wiped out and most of Iceland’s financial services had gone bankrupt. This was particularly severe due to the fact that Iceland’s three largest banks at the time – Kaupþing, Landsbankinn and Glitnir – had assets worth 11 times the size of the national GDP when they went under.
“The recession had a serious impact on the standard of living. GDP contracted by 9 percent, the currency fell by 50 percent and wages dropped, while goods became more expensive,” explains Iceland Chamber of Commerce’s chief economist Björn Brynjúlfur Björnsson.
“Many of the country’s biggest companies went under, thousands of families couldn’t afford their mortgage payments and unemployment shot up. The impact was such that most people felt the effects of the crash in a very real way.”
The economy has since made a remarkable recovery, however. In 2014 per capita GDP growth was the tenth highest in Europe and unemployment was down to 4.3 percent from a 2011 high of 7.9 percent.
Much of the credit can be given to the tourism industry which has eclipsed the nation’s traditional main industries, including its historical lifeline fishing.
“Before the crisis we had three main export industries: the fisheries, aluminium and international businesses. Today, however, the tourism industry has become bigger than those three and currently accounts for about 30 percent of exports,” Björnson says. “There is no doubt that tourism has played a vital part in the economic recovery and we can see proof of that in the thousands of jobs the industry has generated.”
It is hard to say precisely what has caused the recent surge in tourism to the small North Atlantic island nation, but according to Björnsson a likely contributing factor was the devaluation of the currency that made the country a cheaper destination for tourists.
“Economics tells us that when a currency devalues, export industries grow, so when the krona dropped that should have helped the tourism industry. But we can’t be sure of how big a part that played, and how much was due to global growth in tourism, or even the 2010 volcanic eruption in Eyjafjallajökull, we just can’t really know what the main cause has been.”
Changing the face of society
The impact of the tourism industry is abundantly clear in Reykjavik’s old city centre. Construction on empty plots of land advertise new hotels, contributing to the 800 new hotel rooms that will be built in the city this year alone. But it is probably in retail where the effects are most visible. On almost every corner is a shop catering specifically for tourists. Most prominent are the “lundasjoppur” or ‘puffin shops’, a derogatory term the locals use for cheap souvenir shops that have adopted puffin dolls as their signature icon – Iceland’s version of the Little Mermaid. According to state broadcaster RUV, there is a tourism shop every 43 metres along the 1300 metre shopping strip Laugavegur.
“It’s starting to feel like I’m living in a shopping centre or a theme park for tourists, I hardly have any neighbours anymore,” says local musician and homeowner at Laugavegur Grímur ‘Gimmi’ Sigurðsson.
“Last summer I was cleaning my kitchen window when I noticed a group of tourists had gathered below snapping pictures of me. Probably because they were so interested in seeing somebody actually living here.”
Many of the apartments around his own no longer house local residents, but instead are being rented out through sites such as Airbnb. Between early 2014 and January 2015 the number of Airbnb listings in Reykjavik increased 137 percent, with an estimated total of around 2,500 listings.
“You wonder if the only thing left will be tourists looking at each other,” he says, exasperated.
Tourism vs culture
Starri Hauksson is busy setting up for a Friday night drag show at the 32-year-old venue Gaukurinn. The bar is located on one of Reykjavik’s busiest nightlife corners, where it shares a building with six other bars.
“This place has a pretty remarkable history, and it was the first place to sell beer after it was legalised in 1989,” Hauksson explains. “You will be hard pressed to find an Icelandic musician who hasn’t played here at some point.”
Throughout its years 30-odd years Gaukurinn’s main call to fame has been as a venue for up-and coming-bands – internationally-recognised bands Sigur Rós and Of Monsters and Men played here during their early years. But despite its status and role in the local culture, Gaukurinn could soon make way for more tourist-related activities.
“The company that owns all the buildings and the neighbouring bars on the block except for us has made it clear that it wants to close down all the bars to make way for souvenir shops and a hotel. But thankfully we have a very good relationship to the owners of our space, so as long as we have a lease and pay rent, we won’t go anywhere.”
This is not the first time that conflict has emerged between the local music scene and the tourism industry. A few years ago another renowned music venue NASA was only saved from being turned into a hotel after protests from residents and musicians.
Hauksson is also doubtful that this development will be beneficial to the tourism industry in the long run. Both Gaukurinn and NASA are important venues during the Iceland Airwaves music festival, which each year brings in thousands of music-hungry tourists – tourists visiting the festival spent 800 million Danish kroner last year, according to Iceland Music Export. Ultimately, Hauksson is worried that Reykjavik’s image as a hip, cultured city might be at stake.
“I have lived abroad and travelled extensively and I’ve never chosen a city for its hotels and souvenir shops. This is a very short-sighted approach. I think about cities like Benidorm that were excellent places in the eighties, but are now ghost towns for tourists who go there just to get piss drunk. Tourists come to cities to see life, not hotels, so this development is both harmful to the locals and the tourists.”
The economic downside
The tourism boom has undoubtedly proved hugely beneficial to the economy, but the development has a downside. Around four percent of all apartments in the capital are currently rented out for tourists, which is undoubtedly a factor in the 7.5 percent rise in rental costs last year. Bank Landsbankinn has also estimated that housing prices will rise 24 percent over the next three years. According to figures from Statistics Iceland, 40 percent of people aged 20 to 29 live with their parents, compared to just 10 percent in Denmark.
“Tourism has put much more upwards pressure on house prices downtown than in the suburbs, and I would assume that is due to tourists preferring to stay downtown. Housing prices have increased rapidly in recent years and tourism most likely plays a large part in that.”
Many cities have old central areas that have retained a special status and charm. But in Reykjavik, where buses stop running at midnight and almost all restaurants and bars are in the city centre, rising housing prices that push residents toward the suburbs can be seen as a serious risk for its cultural wellbeing.
But according to Björnsson, the main problem with the increasing reliance on tourism in the Icelandic economy is that jobs in the industry don’t generate enough wealth. He points out that Western nations that are economically reliant on tourism have relatively unstable and uncompetitive economies.
“The challenge facing the industry now is that it has grown and kept unemployment low, but the value added per worker is lower than in other sectors. If all employed Icelanders switched to tourism we would actually be worse off than we are today,” Björnsson explains.
“The tourism industry is not primarily based on technology and specialisation, but instead on services like transport, accommodations and restaurants. The sector is full of small companies in fierce competition which are therefore unable to pay high wages or generate high profits. For living standards to rise, we also need to grow globally competitive businesses that utilise knowledge and technology to generate greater value.”
Another part of the issue is that tourists aren’t spending enough money, spending on average only around 6,000 Danish kroner each, according to figures from the Icelandic Central Bank.
“This is a large part of the challenge. Each tourist isn’t spending enough, therefore each tourism job isn’t creating enough value. Therefore it is important that both the industry and the authorities figure out ways to meet this challenge.”
One of many bulldozed lots being prepared for redevelopment. Photo: Grimur Jon Sigurdsson
Only time will tell
Back at Prikið, Williams is drinking coffee while watching people pass by in the November rain. Most are noticeably dressed-for-winter tourists, which are also the only customers inside.
“I’ve thought a lot about how it has changed. The increase has happened so fast and been so visible that it raises a lot of questions about how things will go in the future. The changes have been immense and we have had to adapt with them. People have also become very aware of the increase in tourism. Before Dunkin Donuts opened up somebody sprayed ‘Ibiza du Nord’ on the façade.”
The newly opened Dunkin Donuts in the heart of downtown was seen by some locals as being a symbol of Reykjavik losing it soul and a sign that the city has become sterile. While Williams says that only catering to tourists “sucks”, he claims it’s better than the alternative.
“It’s always better to have some shops rather than none, you follow? And the money that goes into those puffin shops might help create something else. I think a lot of the complaints people have are just based around nostalgia and good old fashioned Icelandic alcoholism,” he says.
“The terrible thing, however, is like what is happening to Gaukurinn and the places around there. They will end up leaving, but that is just because you have rich idiots who don’t give a shit about the local culture and want to make money the wrong way. That’s not because of the tourists, there are just a couple of guys out there making silly money. But all in all I think that this development is positive. It’s of course ridiculous that three times our population arrives as tourists each year, but that just means we need to step up our game. The ball is in our court.” M
*The article has been updated as the original version had the average spending of tourists at 60,000 Danish kroner.